Texas Contractors Say Playing By The Rules Doesn't Pay

Apr 11, 2013
Originally published on April 11, 2013 5:35 pm

This story is part of a two-part series about the construction industry in Texas. Find the first part here.

Homes in Texas are cheap — at least compared with much of the country. You can buy a brand new, five-bedroom, 3,000-square-foot house near Fort Worth for just $160,000.

But that affordability comes at a price — to workers, many of whom are in the country illegally and make $12 an hour or less, but also to business owners.

Let's say you own a big Texas construction firm, and you want to run your business the right way. You try your darndest to hire only legal workers and pay them a decent salary plus benefits.

Most importantly you pay all your taxes, Social Security, unemployment — everything you're supposed to — just like a normal company in other industries.

So, how's that working out?

"There's no way you can compete," says Stan Marek, CEO of the Marek Family of Companies, one of the largest commercial interior contractors in Texas. They've been in business 75 years, but Marek says the past four have been extremely difficult.

"When someone is paying less per hour, no workman's comp, no payroll taxes, [no] unemployment — we can't overcome that," he says.

Contractors, Subcontractors And Independent Contractors

At Baylor College of Medicine in Houston, Marek's workers are building the interior for the hospital's newest wing. Workers ride around on what are called "motorized man lifts," which allow them to work high in the air, power tools in hand.

Baylor Hospital is the kind of client that hires Marek's companies — an owner that must have its building done to exacting specifications. But these days, Marek says, that's unusual. The main thing most clients care about, he says, is how cheaply the job can be done.

That's where the subcontractors — and "independent contractors" — come in.

"It's very common in our industry for hourly guys to do the framing, which is putting up the middle studs, and then hiring a sub-crew to come in and do the Sheetrock, and then hiring a different sub-crew to come in and do the taping and floating," Marek explains. "And a different sub-crew to come in and do the grid for the ceiling. And a different crew to put in the tile. That's very common."

And that's how an estimated half-million undocumented, mostly Hispanic construction workers go to work each day in Texas. Marek says in the 1940s, '50s, '60s and '70s, his uncle, John Marek, who started the company, paid union wages, and his workers lived stable, middle-class lives.

But according to a new study from the University of Texas and the Austin-based Workers Defense Project, today's construction workers in Texas make near-poverty wages — an average $12 an hour.

Marek says Texas high school kids no longer dream of a good life working in construction. "You're not gonna get kids to go to work in construction without a career path and a better wage," he says.

Marek is a Texas Aggie conservative Republican, but he says his industry and the country need immigration reform that will turn all the undocumented workers into documented workers. That would level the playing field for companies like his that want to abide by the law, he says, and will lead to better wages and a career path for American kids who aren't cut out for college.

Undocumented Laborers, Working For Cash

There are certainly no Texas high school graduates building a retaining wall in Dallas' upscale Highland Park neighborhood on a recent day. Well, unless you count Trent, the owner of a landscape construction company. Trent, who asked that NPR not use his last name because the IRS might take an interest in his business, designs and builds landscapes in the Dallas-Fort Worth area.

"I don't pay anyone by the hour. In fact, I treat the guys that work on my crew as subcontractors — they are self-employed," he says.

This is a key distinction. If Trent were to classify his workers as employees, he'd have to pay taxes, Social Security, unemployment and overtime. But by saying his workers are actually independent contractors — in essence, business owners — he's off the hook.

Trent says his workers have been working with him for years. He has between four and seven laborers per day on most projects. And he knows most of them don't have papers. "I would say 10 percent are documented," he says.

Trent pays his workers a fixed amount per project, in cash. If the job takes a little longer than expected, nobody asks for more money. On average, each worker makes $70 a day, more if they're skilled.

Trent says he doesn't know if any of his guys are paying taxes. "That's their business," he says. "If I were to speculate, I would probably say they are not paying their Social Security [taxes]. I would also say that they're probably not filing their income tax returns on a regular basis."

An Underground Economy

The University of Texas and Workers Defense Project study estimates that $7 billion in wages go unreported from nearly 400,000 illegally classified Texas construction workers each year. It's evolved into a massive underground economy, the report says, that cheats the state and federal government of billions of dollars in taxes and revenue each year.

Trent says he'd be happy to classify his workers as employees and pay the government all it's owed as long as his competition does the same. But the reality is that Trent often finds he's underbid on landscape projects, even though he's paying his undocumented workers $70 a day.

"The fact of the matter is that the people that I'm competing against have the same large pool of undocumented workers to use on their crews," he says.

Trent says blaming him for the nation's immigration problem is like blaming an Army corporal because a war was lost. He says he didn't make this competitive playing field or the Texas or Mexican economies. He's one 40-year-old man in landscape construction, he says, doing the best he can.

"If there wasn't such a readily available supply of laborers that are looking for work in my exact line of business, then I would say I am doing wrong and that I should play by the rules," Trent says. "I don't feel as though I'm doing anything wrong."

Trent says this is now the way the construction business is done in Texas, and that nobody seriously worries about enforcement. There aren't enough IRS agents in the world to make a dent.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

In the state of Texas, homes are cheap - at least, compared to much of the country. You can buy a brand-new, five-bedroom house near Fort Worth for just about $160,000. But affordability comes at a price. Yesterday, NPR's Wade Goodwyn told us about the cost to construction workers who are building those homes. Many are in the country illegally and earn poverty-level wages. In today's "Bottom Line In Business," Wade tells us about the price construction companies pay, to stay in the game.

WADE GOODWYN, BYLINE: Let's say you want to run your business the right way. You own a big, Texas construction firm, but you try your darndest to hire only legal workers and pay them a decent salary plus benefits. Most importantly, you pay all your taxes, Social Security, unemployment - everything you're supposed to; just like a normal company in other industries. How's that working out for you?

STAN MAREK: There's no way you can compete.

GOODWYN: Stan Marek is the CEO of the Marek Family of Companies, one of the largest commercial interior contractors in Texas. They've been in business 75 years, but the last four have been extremely difficult.

MAREK: When someone is paying less per hour, no workman's comp, no payroll taxes, unemployment - we can't overcome that.

(SOUNDBITE OF BUILDING CONSTRUCTION)

GOODWYN: At Baylor College of Medicine in Houston, Marek's men build the interior of the hospital's newest wing. Watching them is highly entertaining. Workers ride around on what are called motorized man lifts that allow them to work high in the air. They drive by 9 feet above me, grins on their faces and power tools in their hands.

(SOUNDBITE OF CONSTRUCTION)

GOODWYN: Baylor Hospital is the kind of client that hires Marek's companies - an owner that must have its building done to exacting specifications. But Stan Marek says these days, that's unusual. The main thing most clients care about is how cheaply can the job be done. And that's where the subcontractors come in.

MAREK: And it's very common, in our industry, for hourly guys to do the framing, which is putting up the middle studs; and then hiring a sub crew to come in and do the Sheetrock; and then hiring a different sub crew to come in and do the taping and floating; and a different sub crew to come in and do the grid for the ceiling; and a different crew to put in the tile. That's very common.

GOODWYN: And that's how an estimated half a million undocumented, mostly Hispanic construction workers go to work each day in Texas. Stan Marek says in the 1940s, '50s, '60s and '70s, his Uncle John, who started the company, paid union wages; and his workers lived stable, middle-class lives. But according to the University of Texas Workers Defense Project study, in 2013, many Texas construction workers make near-poverty wages. They average $12 an hour. Marek says Texas high school kids no longer dream of a good life working in construction.

MAREK: You're not going to get kids to go to work in construction without a career path - and a better wage.

GOODWYN: Marek's a Texas Aggie, conservative Republican, but he says his industry and the country need immigration reform. Turn all the undocumented workers into documented workers. He says that would level the playing field for companies, like his, that want to abide by the law; and will lead to better wages and a career path for American kids who aren't cut out for college.

(SOUNDBITE OF WORKERS USING TOOLS, CHATTING)

GOODWYN: There are certainly no Texas high school graduates building this retaining wall, at this home in upscale Highland Park, in Dallas - well, not unless you count the owner of the landscape construction company, Trent. Trent designs landscapes in the Dallas-Fort Worth area.

TRENT: No, I don't pay anyone by the hour. In fact, I treat the guys that work on my crew as subcontractors. They are self-employed.

GOODWYN: This is a key distinction. If Trent were to classify his workers as employees, he'd have to pay taxes and Social Security and unemployment and overtime. But by saying his workers are actually independent contractors - in essence, business owners - he's off the hook. He asked that NPR not use his last name because the IRS might take an interest. On most projects, he works between four and seven men a day; and they've been working with him for years.]

(SOUNDBITE OF WORKERS USING TOOLS, CHATTING)

GOODWYN: He knows most of his men don't have papers.

TRENT: I would that say 10 percent of them are documented.

GOODWYN: Trent pays his workers a fixed amount per project; and if the job takes a little longer than expected, nobody asks for more money. Trent pays in cash. On average, his workers make $70 a day - more, if they're skilled. He says he doesn't know if any of his men are paying taxes.

TRENT: Well, I don't know. That's their business. If I were to speculate, I would probably say that they are not paying their Social Security. I would also say that they're probably not filing income tax returns, on a regular basis.

GOODWYN: The University of Texas Workers Defense Project study estimates $7 billion in wages go unreported from nearly 400,000 illegally classified Texas construction workers. It's evolved into a massive underground economy that cheats the state and federal government of billions of dollars in taxes and revenue, each year. Trent says he'd be happy to classify his workers as employees, and pay the government all it's owed, as long as his competition does the same. But the reality is that Trent is underbid on landscape projects, even though he's paying his undocumented workers 70 bucks a day.

TRENT: The fact of the matter is that the people that I'm competing against have the same, large pool of undocumented workers to use on their crews.

GOODWYN: Trent says blaming him for the nation's immigration problem is like blaming an Army corporal because the war was lost. He says he didn't make this competitive playing field or the Texas or Mexican economies. He's one, 40-year-old man in landscape construction doing the best he can.

TRENT: If there wasn't such a readily available supply of laborers that are looking for work in my exact line of business, then I would say I am doing wrong, and that I should play by the rules. I don't feel as though I'm doing anything wrong.

GOODWYN: Trent says this is now the way the construction business is done in Texas, and that nobody seriously worries about enforcement; there aren't enough IRS agents in the world to make a dent.

Wade Goodwyn, NPR News, Dallas. Transcript provided by NPR, Copyright NPR.