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.

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

The U.S. Department of Labor (U.S. DOL) and the Vermont Department of Labor signed an agreement this summer to protect employees and law-abiding businesses by reducing the practice of worker misclassification in Vermont.  The three-year Memorandum of Understanding (MOU) allows the two agencies to share information and work together to conduct investigations and enforce the laws against employers identifying their employees as independent contractors or designating them with other non-employee statuses.

Agencies from several other states have signed similar agreements with the U.S. DOL including agencies from Alabama, Alaska, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Idaho, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Washington, Wisconsin, and Wyoming.   Read more » about Vermont Joins the U.S. Department of Labor to Battle Worker Misclassification

The National Football League faces a growing backlash over the way cheerleaders are compensated and the reason for it will sound very familiar to regular readers of Construction Citizen. Over the years, we’ve highlighted the practice of worker misclassification in our industry. Now other sectors of the economy are dealing with the issue in a variety of ways. Our industry insider Jim Kollaer noted just this week that the popular ride-sharing company Uber is under the legal microscope for whether its drivers should be classified as employees or independent contractors.

In the case of NFL cheerleaders, at least five lawsuits have been filed including one against the Oakland Raiders. The Oakland Raiderettes settled that lawsuit with the team’s owners for a reported $1.5 million.   Read more » about NFL Faces Lawsuits and Legislative Crackdowns Over the Way Cheerleaders are Paid

The construction industry has fought the issue of independent contractors with no benefits or employees with full benefits for the last decade. Now the startup Uber is in the middle of two suits, and the ultimate outcomes on those decisions will impact their viability in the future.

And it is not just Uber. The decisions on these cases in California could have an impact on the viability and growth of “on demand” startups and the personal service businesses like Uber. The startups and their business models are a perceived threat to the “old way of life” where you got a job and benefits and you stayed with that company or industry model until you retired.   Read more » about Independent Contractor or Employee? Uber Under Fire

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

Today is a day of rest for those who toil in the hot sun or blistering cold every day to build Texas and the rest of America.  Millions regularly wake up before 5 am, drink their coffee, drive to a jobsite, and – just as they can start to see in the distance the structure on which they’ll work – they’re still about half an hour from parking the truck and getting down to business.  Many do that kind of work daily from sun up until sun down and never complain or even ask for a “thank you.”

The Texas Workforce Commission tells us there are more than 13 million workers “who are the backbone” of the Lone Star State.  “As we continue to experience positive growth, in job creation and labor force size, the people of the great state of Texas are able to benefit from the thriving economy and opportunities that come with expanding employment,” commissioners said in a statement on Friday.   Read more » about On Labor Day and Every Day, Construction Citizen Honors the Working Men and Women of America

More than two dozen states have now agreed to cooperate closely with the federal government to crack down on what’s known as “worker misclassification.”

Sometimes known as payroll fraud, worker misclassification has been called a “cancer” in the construction industry and other sectors of the economy as well. “Because of weak enforcement mechanisms, there are virtually no tangible consequences for violating the law,” said Professional Janitorial Services executive Don Dyer during a Texas House committee hearing on the subject last year. So far, Texas has taken a targeted approach to the problem but many advocates say it is simply not enough.    Read more » about Another state signals it will get serious about worker misclassification

Two men in Georgia have been arrested on federal charges that they intentionally misrepresented the employment classification of construction workers on a project for the Centers for Disease Control, which is headquartered in Atlanta. Cesar Arbelaez Tabares and Juan Carlos Bazantes were arraigned after prosecutors said both men "committed fraud in connection with a construction project" for the CDC.

Prosecutors said the men engaged in a somewhat elaborate scheme to defraud both the CDC and the Internal Revenue Service. Their actions caused IWES to fail to report over $800,000 in wages to the IRS, investigators said.    Read more » about Federal Charges Filed in Connection with Alleged Payroll Fraud Scheme in Georgia