Payroll fraud (also called worker misclassification and workplace fraud) is the illegal practice of designating an employee as a "1099 worker" or an independent contractor. Unscrupulous employers do this to avoid paying payroll taxes, unemployment tax, or workers’ compensation insurance and are therefore able to submit lower bids for projects, undercutting responsible contractors. Several states have already passed laws to penalize those who cheat workers and taxing agencies in this way, and two bills are currently being considered which would provide federal legislation to end this practice and that of wage theft. They are The Fair Playing Field Act, introduced by Senator Kerry and a number of co-sponsors and The Employee Misclassification Prevention Act.

Sheral Keller, the director of the Office of Workers’ Compensation Administration at the Louisiana Workforce Commission (OWCA), has written an article in which she explains how worker misclassification and payroll fraud have directly harmed Louisiana employees and taxpaying citizens in past years, and how in 2017 the OWCA Fraud Unit and the Office of Unemployment Insurance (UI) plan to work together to combat these unscrupulous and illegal practices.  The article was published in the Greater Baton Rouge Business Report and in the first quarter 2017 edition of 10/12 Industry Report.  The article includes numbers from the past two years:

“In 2016, the Fraud Unit investigated 790 allegations of fraud, with 20 having been referred to the Attorney General’s Office.  Successful criminal prosecutions resulted in restitution of $1,233,875 from nine employers and $391,018 from 11 employees.  While these numbers are impressive, they represent only the tip of the iceberg of the fraud committed in our state, mostly by employer misclassification.

“In 2015, audits of 1,068 companies by UI identified approximately 19,956 people misclassified as independent contractors rather than as employees (2016 numbers were not available at press time).  Consequently, the agency billed $1,496,778 in unemployment insurance taxes that employers owed based on the underreporting of $100,818,591 in taxable wages.”   Read more » about Louisiana Director of Workers’ Comp Admin Outlines Plan to Fight Payroll Fraud

A recent post by Joe Paduda, principal of Health Strategies Associates, in his blog, Managed Care Matters, titled “Construction Labor Fraud is Screwing Everyone” was the second in his series on labor fraud and the damage it is doing to the insurance industry. In this issue, he interviewed Matt Capece, representative of the General President at the United Brotherhood of Carpenters and Joiners of America, about how bad the worker’s comp problem has become in some key states like Florida, Georgia, Colorado, Oklahoma and Tennessee.

Capece said, “When we go onto jobsites in Florida, on 8-9 out of 10 sites we hear from carpenters that they are getting paid in cash.” He indicated that subs and labor brokers in Florida are paying in cash with no overtime or any other benefits like vacation, worker’s comp or training. Usually they are also misclassified as independent contractors as well.    Read more » about Games GCs and Subs (Labor Brokers and Insurance Agents) Play: Worker’s Comp

As the debate about illegal immigration rages at the national level thanks to the vitriolic rhetoric of Republican presidential nominee Donald Trump, it's high time for all of us to take a look at how the broken system is negatively affecting people right here in our own community.

My entire career has been spent in construction, so I've been perfectly positioned to see how this mess has evolved over the past few decades. Rather than rehash arguments I've made previously - arguments I will continue to make in the future - I'd like to share with you the story of a young woman whose experience is all too common here in Southeast Texas.    Read more » about What Immigration Reality Looks Like for Workers

With each passing day, state and federal governments are getting more serious about rooting out and eliminating worker misclassification, sometimes known as payroll fraud. But much more must be done to end what has been called a "cancer...eating at the heart of our industry."

Regular readers of Construction Citizen know that worker misclassification happens when a company pretends its employees are “independent subcontractors” with the intent of skirting payroll taxes and benefits like workers’ compensation insurance and – because of their reduced labor costs – are able to submit lower bids for projects, undercutting ethical contractors.

In Professional Roofing Magazine earlier this year, attorney William E. Burnett gave contractors an in-depth look at the problem from all angles.    Read more » about Professional Roofing Magazine Shines Spotlight on Worker Misclassification

A construction executive in New York is charged with underreporting his payroll so that he could reap $2 million in insurance premium breaks.

Prosecutors in Manhattan said Michael Cholowsky and his company allegedly concealed more than $3 million in payroll resulting in a fraudulent premium reduction over the course of a year starting in April of 2014.

The Manhattan District Attorney’s office released a statement saying that the “indictment stems from an investigation into a construction site fatality that occurred last year at the former location of Pastis restaurant in the Meatpacking District. In April 2015, a 22-year-old worker was killed when an improperly secured trench collapsed and fatally crushed the victim.    Read more » about Multimillion Dollar Payroll Scheme Busted in New York

Six men have been arrested and charged with racketeering and fraud charges after allegedly paying employees of a Florida construction company through shell companies in an attempt to avoid paying more than $12 million in workers’ compensation premiums and more than $3 million in federal payroll taxes.  Meanwhile, the men appear to have made over $17 million in profits over the period of the investigation, which lasted from October 2013 to August 2015.

The Sun Sentinel, a publication based in Fort Lauderdale, reports that a Broward County Sheriff’s Office affidavit said that the owners of Richard and Rice Construction LLC and four other men used over 20 shell companies to hide the number of employees they hired.  The article says that police detective Benjamin Dusenbery wrote in the affidavit that:

“Although laborers were under Richard and Rice Construction control, they were said to be employed by the shell companies.  This allowed Richard and Rice Construction to hide the number of employees it had, lowering its insurance premiums and payroll taxes, while appearing to comply with necessary coverage requirements.  It allowed the company to submit lower bids for work.”

The article talks about the pay that trickled down to the actual workers – many of whom were paid off the books:   Read more » about Florida Contractors Accused of Racketeering and Fraud in Scheme Using “Shell Companies”

The owner of a commercial subcontracting company which specializes in metal studs, drywall, and acoustical ceilings was arraigned last month on workplace misclassification violations and perjury charges for lying to a grand jury about them.  He faces a maximum sentence of 21 years in prison with a $45,000 fine, if convicted.

According to an article by Anthony Salamone in The Morning Call, a daily newspaper serving eastern Pennsylvania and western New Jersey, Mark J. White, owner of Salukas & White Contracting Inc. located in Bethlehem, PA was found by a Northampton County grand jury to have violated PA’s Construction Workplace Misclassification Act by “misclassifying workers as independent subcontractors – instead of employees – to avoid paying fair wages as well as taxes and workers' benefits such as unemployment insurance.”

The article goes on to report:

“In addition, the grand jury found that from 2011 through 2013, White and the company funneled nearly $900,000 to individuals, one of whom was described as a middleman, who ‘acted as ATM machines’ in paying those workers off the books.  The actions defrauded the state and other entities of thousands of dollars in taxes, authorities allege. ...   Read more » about Commercial Subcontractor Charged for Worker Misclassification and Perjury

Last May, the US Department of Labor signed a three-year agreement with the Rhode Island Department of Labor and Training (DLT) to battle worker misclassification by establishing a working relationship in which both agencies will share information and coordinate law enforcement.  According to a press release from the office of US DOL Secretary of Labor Thomas E. Perez:

“The [agreement] represents a new effort on the part of the agencies to work together to protect the rights of employees and level the playing field for responsible employers by reducing the practice of misclassification. The Rhode Island Department of Labor and Training is the latest state agency to partner with the U.S. Labor Department. Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Utah, Washington, Wisconsin and Wyoming agencies have signed similar agreements.”   Read more » about Rhode Island Drywall Contractor Agrees to Pay $730K in Settlement with Workplace Fraud Unit

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