Slump Hammers Independent Contractors on Two Fronts

By Beacon Staff

At a subdivision northwest of Kalispell, local Habitat for Humanity staff and volunteers are busy building a duplex. Nearly every day they’re working, someone walks onto the site to ask for a job.

“They see building activity so they’re literally stopping to ask if we have a bid out,” Patti Gregerson, executive director of Kalispell’s Habitat for Humanity branch, said.

With construction jobs scarce, many workers see an active build site as an opportunity in a difficult time. The construction industry is struggling. Housing starts are down drastically, and competition for jobs is stiff. When contractor Terry Kramer recently bid on a remodel on Whitefish’s Town Pump station, eight other contractors, including two of the state’s largest, jumped in the mix, too. “Nobody used to bid for junky little jobs like that,” Kramer said.

As a result, hundreds of independent contractors – carpenters, plumbers, roofers, and the like – have been left without work. And, because they don’t pay into the program, they are also without any unemployment benefits.

“For a lot of people, I think, the situation is getting desperate,” Gregerson said.

When Habitat for Humanity advertised for a manager to sell building materials in late January, they had more than 65 applicants in a week-and-a-half, most of them independent contractors. People regularly walk into the nonprofit’s office, resumes in hand. When they’re told there aren’t paying jobs, some ask to volunteer.

“They’re calling and saying can I come and work anyway because I don’t want to sit at home and do nothing,” Gregerson said, noting that some have gone as far as saying they need the distraction to stay out of the bars.

Montana workers are required by law to be insured under a workers’ compensation policy. But independent contractors are exempt. To be eligible, they have to essentially prove they are free from control or direction over their performance, and have an independently established trade, occupation, profession or business.

By freeing themselves from workers’ compensation, the independent contractors are spared a considerable expense. But they leave themselves few options when the economy struggles and jobs are harder to find.

“Since they are independent contractors and don’t pay into unemployment or workers’ compensation, then they aren’t eligible for the benefits either,” Dallas Cox, supervisor for the Independent Contractor Central Unit (ICCU) of the Montana Department of Labor and Industry, said.

In the greater Flathead area, from outlying towns like Eureka, Kila and Martin City to larger cities like Kalispell and Whitefish, there are at least 2,522 independent contractors, Cox said. That group represents a variety of professions, including musicians, consultants and carpenters.

But the vast majority are in the construction industry. Statewide, they account for about 62 percent of all independent contractors, Cox said. In comparison, the next closest subgroup was independent administrative contractors at just 10 percent.

In the Flathead, Cox said there are 1,688 registered construction contractors, which includes mainly contractors with employees, but also some independent workers who register to lend credibility to their business.

During the building boom over the last decade, a great deal of construction workers, lured by the overabundance of work, left jobs with larger companies and set out on their own. Many of the resumes Gregerson sees read the same. “Five to eight years ago these guys were working for somebody and then went on their own because they could,” she said.

In 2003, there were approximately 35,000 independent contractors throughout Montana – 8 percent of the state’s workforce, an unusually high number, Cox said. “Contractors would come into the office with 10 or 15 employees and sign them all up as independent contractors as a way to skirt the work comp issue, and then still treat them as employees,” he said, adding that stricter controls have brought the number down to about 17,000.

It’s difficult to gauge the number of unemployed independent contractors, beyond anecdotal evidence.

State unemployment statistics are gathered from three different sources and then combined in order to improve statistical accuracy, Barbara Wagner, senior economist with the research and analysis bureau of the Montana Department of Labor and Industry, said.

The first source is a survey of Montana businesses of various sizes, asking them to report how many employees they have that month and if they’re doing any hiring or firing. Another set of numbers is drawn from the number of unemployment insurance claims the state is receiving.

“The obvious problem with both of those sources is that they don’t do a very good job of including the self-employed or independent contractors,” Wagner said.

To try and gauge the number of unemployed in that population, the state relies on a survey conducted by the U.S. Bureau of Labor Statistics. BLS calls a sample of households, stratified to include different demographics, and asks if the person has worked in the last month for pay and if they’re looking for a job. There’s an obvious margin for error here: If the people sampled report their situation inaccurately or don’t fairly represent their demographic, it can skew the results.

“Are there some job losses that may not be accounted for? Sure,” Wagner said. “But it’s the best methodology we have and, overall, a pretty accurate way to follow what’s happening.” She added that the overall goal in the statistics is to discern if unemployment is trending up or down, not it’s exact number.

For Kramer, the number of unemployed independent contractors is easier to observe: “I think it’s huge.” He estimates that he knows at least 50 such people. There are friends, he says, who used to be booked out for years; now, they’ve had two weeks of work since July.

“I’ve already seen some of them leave the valley – they have to find work to feed their family,” Kramer said. “It worries me that we’ll lose some of our best tradesmen.”

Katie Chamberlain, executive director of the Flathead Building Association, said she thinks there’s room for “reserved optimism.” The under $200,000 housing market and banking industry are still strong here, she said, and builders she knows are “managing to keep busy.”

“They’re getting some new contracts signed which will put some of those subcontractors back to work,” she said.

Meanwhile, at Gregerson’s office, she’s watched workers’ attitudes shift as Habitat for Humanity has become one of the few organizations still working on projects.

“Last year, they were looking at us as a way of being good citizen, to support a good cause and affordable housing,” she said. “This year, they’re looking at us as a main builder in a valley that’s going to provide their livelihood or income.”

Stay Connected with the Daily Roundup.

Sign up for our newsletter and get the best of the Beacon delivered every day to your inbox.