What can be done to stop NJ’s illegal ‘underground’ construction industry?

New Jersey regulators need to do more to ensure construction employers are obeying the law when it comes to hiring workers and paying proper wages and taxes, a report says.

The Stockton University report on New Jersey’s gigantic, billion dollar  underground construction economy finds that the state is losing out on collecting at least $20 million a year when companies disguise their workers as contractors, or don’t list them at all on the books.

The practice is also contributing to declining construction wages compared to neighboring states, which the report says do a better job at funding inspection agencies and cracking down on employers who break the law.

Union leaders say they’re unable to get their members sufficient employment because underground contractors and developers are able to underbid them for projects by not playing by the rules.

According to John Froonjian, one of the authors of the Stockton report and a senior research associate and manager of the Stockton Polling Institute, the report finds that the state of New Jersey is not dedicating adequate resources to addressing the problem.

“There are 25 staff field workers in the state Department of Labor and Workforce Development to try to police 10,000 companies. They do a fair number of inspections but they could be doing more,” he said.

He explained the inspection unit is not funded by state money. They’re funded by the penalties and fines that are assessed against violators. If more inspectors were brought in and more inspections were done and fines were levied, that would help defray the costs of added oversight, he said.

Froonjian says other states have better definitions of misclassification in order to stop companies from claiming their workers are independent contractors in order to dodge unemployment taxes. Other states have also work together to report violators to each other so that they can’t simply pack up and do the same across the state line.

“It’s kind of an epidemic out there and it definitely needs to be dealt with in a stricter manner,” said Bill Sproule, president and regional manager of the Northeast Regional Council of Carpenters.

“It’s just not enough. There’s just not enough enforcement, so it’s a practice that is very problematic.”

Rich Tolson, director of the International Union of Bricklayers and Allied Craftworkers, agreed.

“The penalties and fines and any other findings that are handed down need to be severe. You violate prevailing wage or you violate misclassification, right now it’s a slap on the wrist. We need to have stiffer penalties,” he said.

“We need penalties that fit the crime, that are more than the cost of doing business. We need greater enforcement of the existing laws we have. We don’t necessarily need new laws.”

Froonjian added in order to stop companies from operating in the underground construction economy, lying about what workers they employ and not paying their fair share of taxes, “there could be a joint task force to attack this problem, tougher laws and penalties, and just more enforcement."

"Other states have more aggressive policies to battle this, and we need to revisit the issue.

You can contact reporter David Matthau at David.Matthau@townsquaremedia.com.