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.

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

“Jill Wells, an official of Engineers Against Poverty, an advocacy group in Britain, described the guidelines issued by CH2M as commendable. But, she said, the company’s actions were unlikely to have much practical impact because construction companies passed responsibility for worker welfare down to subcontractors.

“What the main contractors do is pass the risk down the subcontracting chain, and it is the workers on the bottom of the chain” who bear it, Ms. Wells said.” (New York Times)

The New York Times reported this week that the 2014 DLA Piper report on the mistreatment of workers on the construction sites for the 2022 World Cup has resulted in few changes even though the FIFA scandal and the concerns of Qatar were thought to bring about major changes.    Read more » about More Hearings on the FIFA Scandal

The administrator of the Department of Labor’s wage and hour division, Dr. David Weil, this week issued an administrative guidance document aimed to curb the misclassification of workers as 1099ers or independent contractors rather than employees. We would urge that you review it carefully, especially those of you in the construction industry.

This document comes out in the middle of an on-going argument over the misclassification and mistreatment of workers as reported on here in previous posts. The document entitled, “The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors” is sure to create a number of new questions especially in the new economy workforce.

The document begins by defining Misclassification.   Read more » about Department of Labor Administrator on Misclassification of Workers

The following article was originally published in the July edition of AWCI's Construction Dimensions magazine. Don Procter writes about Marek's Dallas Division President and AWCI President John Hinson.

Anyone who knows John Hinson can tell you that he has a lot to say in any conversation about the state of immigration reform and the abuse of misclassifying workers in the United States. The new president of the Association of the Wall and Ceiling industry has strong views on the subject, and while he doesn’t profess to have a solution to the problems the country faces with between 11 million and 12 million undocumented workers (a conservative estimate, in his opinion), he has strong views about reform. Hinson is president of the Dallas division of Marek, one of the oldest wall and ceiling contractors in the United States. He says federal legislation that includes enforcement is required to pull undocumented workers out of the shadows and give them an opportunity to gain employment with legitimate contractors.    Read more » about AWCI’s 2015–2016 President Shares His Thoughts on Immigration Reform and Undocumented Workers

Federal agencies with oversight over various industries are taking the problem of worker misclassification more seriously and are taking steps to rein in as many bad actors as possible, according to various reports.

Worker misclassification, as you may know, happens when a company pays employees as independent subcontractors with the intent of skirting payroll taxes and denying benefits like health coverage. There are many legitimate uses of contract labor, of course, but the problem arises when companies use the classification to gain an unlawful competitive advantage and to deny basic protections for craft professionals and others. Companies that cheat on their payroll taxes can easily underbid law-abiding contractors by as much as 30 percent or more because of their illegitimate savings on labor costs.    Read more » about Report: Federal government is getting more serious about cracking down on worker misclassification

Last week, the News & Observer, a regional newspaper serving the Triangle region of North Carolina, published an op-ed by Doug Burton, owner of Whitman Masonry in Raleigh.

Burton has over 35 years’ experience in the construction business – 25 of which have been in an ownership position.  Whitman Masonry has completed projects for businesses, churches, and universities, and is well-respected in the region.  Like many other conscientious contractors who play by the rules, Whitman is frustrated by the unscrupulous contractors who get away with cheating the system by claiming that their employees are independent contractors – that they work for themselves.  In his article, Burton calls worker misclassification an epidemic:   Read more » about North Carolina Business Owner Speaks Out Against Worker Misclassification / Payroll Fraud

The news team at WFAA Television in Dallas/Fort Worth has done an oustanding job of highlighting the problem of worker misclassification. In their latest installment, reporter Byron Harris focuses on the story of Belen Valasquez:

"He has a vague memory of the construction fall that paralyzed him.

"I think I fell with my head doubled over," he said in Spanish. "I felt like I couldn't breathe. I got the wind knocked out of me."

Velasquez faces a lifetime of medical care that could total more than $11 million. He is now a tetrapelgic: He can't move his legs, and can barely move his arms.   Read more » about WFAA Report: Independent contracting costs workers and taxpayers [VIDEO]

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