A proposal aimed at cracking down on labor fraud in Missouri’s construction industry was heard in the Senate Committee on Rules and Ethics, as organized labor groups urged lawmakers to increase oversight and penalties for what they describe as widespread abuse.

House Bill 2366, carried in the House by Rep. Jeff Vernetti, seeks to address worker misclassification and off-the-books employment practices that union leaders say harm workers, undercut legitimate businesses, and reduce state tax revenue.

The Mid-America Carpenters Regional Council has launched a campaign targeting contractors who allegedly pay workers in cash and operate outside standard payroll systems. Union leaders say these arrangements allow some employers to avoid payroll taxes and required contributions for workers’ compensation and benefits.

Kevin McLaughlin, executive secretary-treasurer of the council, said the issue goes beyond cutting corners.

“These aren’t just shortcuts, it’s a predatory business model,” McLaughlin said. “Workers are left without protections if they’re injured, and the broader community loses out as well.”

Union officials argue that contractors who avoid taxes and insurance requirements are able to submit lower bids on projects, putting law-abiding companies at a competitive disadvantage. They also say the loss of revenue affects funding for public services, including infrastructure and education.

According to a study from the University of Missouri-Kansas City, construction-related tax fraud in Missouri results in an estimated $150 million loss in income tax revenue and another $100 million in unpaid workers’ compensation and unemployment insurance contributions each year.

Mark Dalton, the union’s Missouri political director, testified in support of the bill during the Senate hearing, saying the legislation is intended to improve accountability across the industry.

“This is about making sure every worker on a job site is properly accounted for, insured, and paid fairly,” Dalton said.

The proposal would require more detailed reporting from contractors and expand the state’s authority to investigate job sites suspected of operating outside legal payroll systems. It also includes provisions that could hold general contractors responsible for violations committed by subcontractors working under them.

Labor leaders also contend that undocumented workers are particularly vulnerable to exploitation in these arrangements, as fear of deportation or legal consequences may discourage them from reporting unsafe conditions or wage violations.

Supporters of the bill say the changes are necessary to protect workers and ensure a level playing field for contractors who follow the law.

“This is about fairness,” Dalton said. “When contractors break the rules, it impacts workers, businesses, and taxpayers across Missouri.”

Supporters say the measure ultimately aims to ensure Missouri’s construction industry operates on a level playing field, where workers are protected and employers compete under the same rules.