Contractor fraud related to the unfair and illegal treatment of employees is a growing problem nationwide. In Delaware, the state legislature attempts to combat this type of fraud with the Contractor Registration Act. After a significant delay due to COVID, the Act has become law, requiring all contractors to register with the state and follow specific guidelines. Delaware Contractor Registry Aims to Reduce Workplace Fraud-
What Problems Does the Act Address?
In July 2021, the Delaware Department of Labor released a memo detailing established fraud practices within the contracting industry. Contractors would hire employees but classify them as independent contractors. Doing so allows the contractor to avoid paying various benefits, including unemployment and worker’s compensation, denying employees much-needed assistance in the event of injury or job loss.
The Contractor Registry Act attempts a two-pronged solution. First, state officials can track every contracting project in the state from start to finish. Awareness helps officials respond to complaints and notice potential patterns to identify repeat offenders. Also, the Act establishes financial penalties for contractors who misclassify employees, with fines ranging from $1,000 to a hefty $85,000.
How Contractors Stay in Compliance
The Act applies to both contractors and maintenance workers. In Delaware, contracting includes many services related to building and repairs on structures, roads, sewer lines, railways, outdoor areas, and more. Maintenance refers to any repairs or enhancements to those types of locations.
Contractors can submit their registry application either by mail or through Delaware’s One-Stop System, available at onestop.delaware.gov. They need to provide their name, address, contact information, and a variety of business information. Additionally, they must give the Department of Labor all information about any criminal convictions or labor law violations.
Fees vary. Contractors with state contracts have a non-refundable registration fee of $300 charged annually for the first two years. After two years, the fee decreases to $500 for every two years, as long as the contractor doesn’t violate any labor laws.
Contractors without state contracts pay less. Registration fees are $200 for the first two years each, and then $300 for every two years. As with the other fee structure, the two-year price is contingent on the contractor remaining compliant with all labor laws and other applicable regulations.
The Future of Contracting Fraud Prevention in Delaware
“The inclusion of such large fines is an important element of the Act,” said workers’ compensation attorney Eric Doroshow. “Contractors who misclassify employees do so because it drastically reduces labor costs, giving them an unfair advantage over contractors who follow the law. The potential financial hit is hopefully a significant discouragement.”
If the Board of Labor finds that a contractor is in violation, they’re allowed to appeal the decision directly to the state Supreme Court, providing an important safeguard.
While no legislature will prevent contracting fraud entirely, both proponents and opponents of the Delaware Contractor Registration Act eagerly await more data as the program unfolds. With mandatory registration and somewhat sizable fees, expectations are high that the Act will produce positive results.
