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

Heading into the new year, the federal government is ramping up efforts to educate employees and employers about the harms caused by worker misclassification. It’s a problem we’ve documented extensively over the years on Construction Citizen.

Our readers know very well that worker misclassification happens when a business pretends its employees are “independent subcontractors” with the intent of avoiding payroll taxes and benefits like workers’ compensation insurance and – thanks to reduced labor costs – are able to submit lower bids for projects, undercutting law-abiding companies. Of course, there are many legitimate and legal uses of contract labor. The problem arises when businesses abuse the designation with the intent of skipping out on taxes and providing benefits for people being utilized as employees.

The Department of Labor this month launched a new webpage devoted to the topic. The site makes the case that worker misclassification negatively impacts everyone: Workers, employers, and all taxpayers who have to pick up the slack when unscrupulous employers shirk their responsibilities.   Read more » about Labor Department Launches New Web Page on Worker Misclassification

The following article is a guest piece by Jose Garza, Executive Director of Workers Defense Project:

Today, the middle class is out of reach for too many men and women working in the Texas construction industry.

That hasn’t always been the case.

After serving in the Pacific during World War II, my grandfather, Saul, returned to Texas in 1945 hopeful and optimistic about the future. He got his start working for a general contractor in San Antonio where he picked up the skills that would  lay the foundation for the life that he and his family hoped to build.

Eventually, through his hard work and good fortune, he was hired by the Texas Highway Department. There, he earned good wages and had access to benefits that allowed him to raise eight children and put several of them through college.    Read more » about Garza: Building a Better Texas, Together

During a nationally televised report on Fox News Channel, a prominent Texas construction executive said President-elect Donald Trump has a chance to be both tough and smart on border security and immigration.

Stan Marek, President and CEO of the Marek Family of Companies, said the President-elect needs to enact immigration reform that identifies and taxes those who are illegally in the country. But that does not meant Trump would be somehow softening his position on border security, Marek said.

Instead, Marek insists that the best border security happens at the job site.

That increased security would be accomplished by issuing tamper-proof ID’s only to workers who are authorized to be in the United States.   Read more » about Texas Construction CEO on Fox News Channel: Trump Can be Both Smart and Tough on Immigration

A 98-page report produced by Stockton University’s William J. Hughes Center for Public Policy last June presents a detailed look into the “underground construction industry” in New Jersey.  Titled The Underground Construction Economy in New Jersey, the report lists specific ways that “off-the-books labor,” also called worker misclassification, damages the construction industry, cheats the misclassified workers, and costs the state government and ultimately local taxpayers millions of dollars each year.  Best practices for dealing with the illegal practice are identified in the report, and the report concludes with 15 policy recommendations for the State.  From page 12 of the report:

“Based on the review of best practices in other states, we outline 15 policy recommendations for the State of New Jersey (page 90). Recommendations #1 through #4 are related to the structure and functions of state government entities that have duties related to employee misclassification.   Read more » about Research Report: The Underground Construction Economy in New Jersey

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

An agreement between the United States Department of Labor (DOL) and North Carolina’s Industrial Commission was signed last week in an effort to coordinate resources to crack down on worker misclassification in the state.  An article in the News and Observer, a regional publication serving the North Carolina Triangle, offered the following details:

“The agreement allows federal officials to share their data and knowledge with North Carolina officials, much as they have with 32 other states working to combat misclassification.  Federal officials have agreed to join some of the state’s efforts to investigate certain employers who have been flagged as likely offenders.   Read more » about North Carolina Agrees to Work with the US Department of Labor to Curtail Misclassification

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

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