July 26, 2010

Ontario Construction Secretariat report flags underground activity

VINCE VERSACE

staff writer

Construction’s underground economy continues to undermine industry competitiveness while siphoning away up to $2.4 billion in government revenues, reports the Ontario Construction Secretariat.

“The largest component of the underground economy is workers styled as independent operators. That is where revenue, remittances and WSIB premiums are lost. The best and biggest thing that could happen is a tighter regulatory regime,” said Sean Strickland, chief executive officer at OCS.

“The government and all taxpayers in Ontario and in construction need to have an interest in seeing the underground economy curtailed. Federal and provincial governments losing between $1.4 and $2.4 billion in revenues should be a motivating factor.”

OCS’s report, Underground Economy in Construction — It Costs Us All, noted that despite increases in enforcement by the Canadian Revenue Agency, Queen’s Park and the WSIB (Workplace Safety Insurance Board), underground practices still persist.

OCS reported that from 2007 to 2009, total revenue losses to WSIB, the tax system, the Canada Pension Plan (CPP), and the Employment Insurance (EI) system, ranged from $1.4 to $2.4 billion.

Specifically, CPP losses ranged from $285 to $555 million and EI losses were between $79 and $153 million.

WSIB losses were estimated to be from $268 million to $383 million. The loss of income tax collected ranged from $515 million to just over one billion.

Construction employers who characterize their workforce as independent operators “evade their obligations” to provide WSIB coverage and CPP and EI contributions and are not required to issue earnings statements (T-4 slips) to independent operators.

OCS found that the share of independent operators in the employed construction labour force climbed in 2009 to 22.2 per cent from 19.7 per cent in 2008. Contractors, who use “independent contractors” gain an “unfair and illegitimate competitive advantage” that can range from 20 per cent of labour costs to as much as 50 per cent, noted the report. This competitive shift undermines construction’s competitive environment.

“For instance, a smaller to medium contractor, who has 10 independent operators not making their remittances, can put in a lower bid compared to the contractors who have 10 tradesmen on their payroll and are making all the necessary remittance and payments,” said Strickland.

“All contractors in the industry need to take exception to this and see that legislation gets changed.”

Implementation of Ontario’s Bill 119, which extends mandatory WSIB coverage to independent operators and executive officers, stricter enforcement and adjusting WSIB regulations so workers cannot style themselves as independent operators, would make the deepest impacts on the underground economy, said Strickland.

“A worker is a worker, and a contractor is a contractor. If you are employing people on your construction sites you should have all the rights and responsibilities of an employer,” he said. “Similarly, if you are an employee, the responsibilities of necessary government deductions and remittances should apply. By styling these workers as independent operators and putting the onus on the worker to make all the necessary deductions, is not the right way to go.”

The ICI sector has an estimated 14 per cent rate of independent operator usage with approximately 8,240 such operators among the estimated 61,000 people employed in that sector. Residential has an estimated 44 per cent rate of independent operator usage with 61,150 such operators among the 138,000 workers employed there.

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