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 recent announcement by the IRS Commissioner that the agency is moving forward with hiring hundreds of additional agents has sparked a debate about exactly how those new resources should be utilized. Some leaders in the construction industry have told Construction Citizen that if the government has more people on hand to enforce the law, proper classification of workers should be a priority.

Misclassification is the practice of designating an employee as a "1099 worker" or an independent contractor when that person, by law, should be compensated as an employee.

Unscrupulous employers do it as a way of sidestepping payroll taxes, unemployment taxes, and workers’ compensation insurance.    Read more » about IRS Hiring Additional Agents, Providing Additional Resources for Misclassification Enforcement

The following article was written by Don Cerlanek, General Manager of MEMCO (Marek Employment Management Company) Atlanta:

Representatives of the City of Atlanta Workforce Development Agency, the American Subcontractors Association - Georgia Chapter, the State Office of Economic Development/Go Build Georgia and the U.S. Department of Labor Wage and Hour Division recently met with the leadership of Marek, a leading Atlanta subcontractor, to discuss rapidly developing issues linked to a shortage of qualified construction workers in the Atlanta region.

The discussions identified the current state of the construction industry in the Atlanta region and across the nation that are creating the skilled labor shortages. These shortages are contributing to the inability to attract new talent into the industry and to companies like Marek. According to the construction industry representatives in the meeting, there were four parts identified as the “problem.”   Read more » about Marek Team Briefs Atlanta Officials on Regional Skilled Workforce Shortages

Last week, the Construction Citizen team updated you on the fact that lawsuits about worker misclassification have been ramping up all across the country. The battle is playing out on multiple fronts – particularly in court houses and in the halls of state legislatures. The problem is at crisis levels across many industries, especially construction, and federal regulators have signaled they are getting more serious about reining it in.

Put simply, worker misclassification is cheating. It happens when a business pretends its workers are independent contractors when, by law, those people should be paid as employees. There are many legitimate uses of contract labor, however, which is why the IRS has this test to determine who can and cannot be classified that way.    Read more » about Vermont Looks to Sharpen Stance on Worker Misclassification

Across the country, there are more and more examples of businesses facing legal consequences because they were misclassifying workers as independent subcontractors when, by law, those people should have been treated as employees and compensated as such.

As Construction Citizen has documented over the years, there are many legitimate uses of contract labor. There is also, however a scourge of certain employers abusing the designation to dodge taxes, health benefits and other costs associated with having employees on payroll. Misclassification happens when a business intentionally uses contract labor to gain an unfair competitive advantage.    Read more » about Lawsuits Ramping Up Over Worker Misclassification

The battle to rein in the scourge of worker misclassification in the construction industry continues to play out at the national level and in state legislatures. As Construction Citizen readers are well aware, worker misclassification happens when employers intentionally pretend they have people working for them as subcontractors when, by law, those very people should be classified as employees and compensated as such.

It’s important to note that there are many legitimate uses of contract labor. The IRS has guidelines in place for who can and cannot be a subcontractor.

Unscrupulous business owners who misclassify workers do it as an easy way to avoid hourly wages and benefits like health insurance and retirement plans. Business owners who follow the rules – and that means the letter of the law – are at a disadvantage because those who cheat the system can underbid ethical companies by as much as roughly 30 percent when competing for work.    Read more » about Georgia Lawmakers Could Crack Down on Misclassification

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”

Regulators are getting serious in North Carolina about dealing with companies that shirk their responsibility to carry workers’ compensation coverage on those who toil on their jobsites. So far, the state has issued $1 million in fines with more to come. The News and Observer in Raleigh took an in-depth look at two problems: Lack of workers' comp as well as worker misclassification.

From the report:

“The goal is to head it off and get to compliance before there’s an injury,” said Andrew Heath, who has overseen the commission’s work since Gov. Pat McCrory appointed him chairman in early 2013. Heath will soon leave the commission to be McCrory’s budget director; a replacement at the commission has not yet been named.

The News & Observer reported in April 2012 that as many as 30,000 employers in North Carolina required to purchase workers’ compensation had not.    Read more » about Workers' Comp Crackdown in North Carolina

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

Pages