Residential construction industry built on ‘payroll fraud’ model

MINNEAPOLIS, Minn. – Jose Ramirez had never heard the term “wage theft,” but he knew he was being cheated when a roofing subcontractor refused to pay him.

“We finished a couple houses, roofing houses, and we tried to collect the money and the guy said, ‘I haven’t gotten paid by our boss,'” he recalls. “That was a big project. I mean, we were shingling one house, putting back shingles, moving to the next one, and eventually there was two of them where I did not get paid. I told the guy, ‘That’s it. I can’t keep working until you pay me those two houses.'”

“So they stop answering the phone, you start chasing them for the money, and then suddenly, they disappear . . . and there you go – you got two weeks without pay . . . So you have to figure out how you’re going to support your family.”

Today, Ramirez is one of the lucky ones. After seeing a billboard advertising the carpenters union, he called and signed up. He spent several years with a reputable contractor and just recently became an instructor in the training center operated by the North Central States Regional Council of Carpenters.

Looking back, Ramirez realizes that not getting paid to roof two houses was just the tip of the iceberg. He was being cheated every day on the job, forced to work long hours without overtime pay. Often, he never got a paystub to track whether or not he was being paid for all the hours he worked.

Fortunately, he did not get injured on the job. Even though construction employers are required to carry workers’ compensation insurance, untold numbers of injured workers have been fired, left to try to get medical help on their own.

“Back in the day, I didn’t know that you had those rights,” said Ramirez. “I have friends who still work the same way. Depending on the situation that they have, some people don’t think they have a choice but to work that way. People have to make a living.”

Tens of thousands of construction workers are victims of wage theft in Minnesota ever year, but no one knows the exact number. Some of the workers are undocumented and afraid to come forward. Many, regardless of their background or citizenship status, simply don’t know that they are being cheated.

Minnesota Department of Labor & Industry: An Evaluation of the Contractor Registration Pilot Project and the Misclassification of Workers in the Construction Industry

Read More

Source: Workday Minnesota

Tennessee contractors avoid workers’ comp to win bids

NASHVILLE, Tenn. – The amount of growth in downtown Nashville requires a lot of labor, but not every worker is equally protected in case of injury.

The practice of winning low bids by avoiding workers’ compensation payments is called worker misclassification.

The Channel 4 I-Team has found the same thing uncovered nearly five years ago at the Music City Center is now happening right across the street.

WSMV Channel 4

In 2011, a drywall subcontractor with a large workforce was failing to deduct taxes of any kind or pay workers’ compensation or overtime.

Some contractors use worker misclassification to win competitive bids. They can undercut a rival by 20 percent or more by not paying into insurance pools.

“Everybody is hurt by employee misclassification, all of us,” said Scott Yarbrough with Workers Compensation Compliance. “If an employee is hurt, they don’t have a workers’ compensation policy to fall back on. The hospitals have to treat them as a charity case most of the time.”

When the I-Team investigated the Music City Center, the state had never audited a job site for compliance. They do now.

At an apartment complex in Bellevue, a subcontractor named Pablo Delgado was fined more than $87,000 for understating his payroll.

At another Bellevue complex, Aguilar Carpentry was caught misclassifying its workforce and was hit with almost $73,000 in fines.

Investigators also levied a $39,000 fine on a Vanderbilt dormitory project.

Government jobs aren’t immune. A Metro-funded project in north Nashville led to a $69,000 fine for a roofing subcontractor.

A worker at the new Westin Hotel across from the Music City Center spoke to the I-Team. He asked not to be identified.

“Yes, it’s very common. They’re still doing it,” the worker’s translator said.

The man showed us his paychecks with no tax deductions whatsoever. There was also no overtime pay, even though he works 50 hours a week.

The man said it’s done everywhere.

“He said that 95 percent of the jobs he has done, they don’t take taxes off the cash and they don’t pay time and a half overtime,” the translator said.

“It’s a huge risk for families,” Yarbrough said. “When an uninsured employee gets hurt, it starts an economic death spiral for them. They can’t pay their hospital bills. They lose their car, can’t get to work. They lose their job, lose your house.”

Many fines go unpaid. The offender has yet to pay a dime of the $87,000 fine mentioned early. Only $5,000 of the nearly $73,000 fine against Aguilar Carpentry has been collected. The subcontractor on the Vanderbilt dorm has paid less than half of what he owes. The roofer from the Metro-funded project has managed just $3,000 of the $69,000 he owes the state.

Offenders are given 24 months to pay.

“The main thing we want to see is people coming back into compliance,” Yarbrough said. “We don’t necessarily want to run them out of business. We want to give them an opportunity to pay over time.” The state just started cracking down on this in 2013.

Collections have increased from $85,000 statewide to $132,000 last year. As of Wednesday, there is still $325,000 owed by violators.

Experts said in the construction field alone, misclassification is shorting the state Medicare pool somewhere between $7 million and $42 million.

Source: WSMV News 4, Nashville, Tenn.

Manchester drywaller jailed for under-the-table payroll scheme

MANCHESTER, N.H. – A city dry-wall contractor was sentenced to 18 months in federal prison and ordered to pay the Internal Revenue Service more than $780,000 for his role in an under-the-table payroll scheme.

Cruz E. Galvan, 39, who operated Four Star Drywall, was ordered to pay the IRS restitution totalling $786,553. Authorities said he had paid $100,000 of that amount several weeks before being sentenced Tuesday in U.S. District Court.

According to U.S. Attorney Emily Gray Rice, Galvan pleaded guilty to one count of federal employment tax evasion, admitting to a scheme to dodge payment of federal employment taxes on wages he paid to his employees.

During his plea hearing, Galvan admitted that from April 2010 until December 2012 he paid employees with vouchers instead of with checks. The employees were then instructed to present the vouchers to a local check-cashing business to which Galvan had previously provided funds with instructions to pay the vouchers in cash.

He acknowledged he did not report the wages he paid to the IRS, evading federal income tax withholding and Social Security, Medicare and federal unemployment taxes.

Immigration proceedings are underway to deport Galvan, who authorities say is in the country illegally, after he serves his sentence.

City police, the IRS, the U.S. Department of Homeland Security and the U.S. Department of Labor, Office of Inspector General, investigated the case, which was prosecuted by Assistant U.S. Attorney Bill Morse.

Source: Union Leader

Carpenters assemble Valentine’s Day care packages for US Military

In preparation for the upcoming holiday, Local 200 of the Indiana/Kentucky/Ohio Regional Council of Carpenters (IKORCC) volunteered to assist in the assembly of Valentine’s Day care packages for military members.

Earlier this year, Brenda Bishop Young of Buckeye Military Families reached out to Local 200 regarding its third annual Operation Sharing Hearts project. The project focuses on assembling and sending 50 Valentine’s-themed care packages to service members who are deployed and stationed overseas.

In addition to presenting Buckeye Military Families with a $500 donation, five Local 200 members and their families were more than happy to assist with Operation Sharing Hearts and dedicated a Saturday and a total of 20 volunteer hours to the project. Assembled at the Local 200 office, eachcare package contained Valentine’s Day cards, candy, batteries, sports and auto magazines, toiletries and small Valentine’s Day cakes.

“I have to thank Local 200 for the use of their office – the facility was perfect for our event,” commented Bishop Young. “The help we received from their members was so awesome! They jumped in and made us feel right at home. I know this is a long-standing relationship we can look forward to in years to come.”

Michael Freeman, IKORCC Representative and Local 200 Recording Secretary and Political Advisor, commented, “We have four veterans in our Columbus office. Having served in the military, it makes me so proud to be involved with an organization that truly cares about our nation’s heroes – veterans and active duty alike. Being stationed away from family and friends can be very tough, and we know how much a small gesture like these care packages will be appreciated. They’re also a small token of our appreciation for everything our military does for our country.”

Buckeye Military Families is the Ohio chapter of Semper-Fi Sisters, which consists of individuals with a loved one who served or is currently serving in the military. Their mission is to support the families of those currently serving, the service member themselves and Ohio veterans.

Avoid the perp, walk: workers’ comp. premium fraud

“[A]s more workers’ comp fraud cases start creeping into the headlines, authorities are cracking down on the illegal practice, and construction companies need to be aware of their legal duties to avoid the potential consequences of fraud.”

“There are a few basic types of employer workers’ comp fraud, with diverse variations stemming from those few types.

“One instance of fraud involves paying employees cash off the books so that the amount of payroll on which premiums are calculated is reduced, thereby reducing premiums.”

“Along those same lines are cases when employers intentionally misclassify employees as independent contractors.”

“Yet another common scheme is using shell companies, or companies set up for the sole purpose of paying employees without paying workers’ comp insurance and other benefits or taxes. This can be a company that the employer sets up himself or a third party who poses as a single-man operation with minimal insurance and minimal paperwork — just enough to avoid raising questions during an insurance premium audit.”

“Perhaps the strongest enforcement assets are contractors themselves.

‘”When you get burned on a job, and you didn’t get the award because somebody’s doing it for a price you know they can’t, (other employers) just turn them in,” [Mark] Sierra [construction insurance expert and consultant] said. “Then the state has people that go out on job sites and inspect them. So, yes, the competition definitely helps police it.”

[William] Canak [professor, Middle Tennessee State University]  added, “At a national level over the last decade, there’s been much greater recognition that there are a lot of people breaking the rules and that it negatively affects the proper functioning of the marketplace for employers and employees. It harms the community, it harms the workers and it harms law-abiding employers. So we’re seeing these initiatives roll out, and that’s good. It can’t all happen at once, but we’re making a lot of progress.”’

Construction Dive, January 26, 2016

Engels on Transition Team

Jon Bel Edwards was elected Governor of Louisiana. He appointed Executive Secretary-Treasurer Jason Engels to his economic development transition team. The team will make recommendations on job training and workforce development. Recently, Jason appeared on New Orleans News 8 in a three-part series exposing payroll fraud in the Louisiana construction industry.

Cash Pay Schemes Spreading

Florida is not the only state seeing check cashers and contractors conspiring to pay workers off-the-books. A bar owner in the Bronx and a pawn shop owner in New Jersey were arrested after a Port Authority and Manhattan DA investigation into contractors underreporting payroll. Contractors’ workers were paid in cash to evade paying taxes and workers’ compensation premiums. The defendants are accused of cashing almost $17 million in checks for 19 businesses from 2012 to 2014.

According to court papers, a contractor brought a $149,250 check to the bar and received $141,787. The check was then brought to the pawn shop where it was deposited for $147,011 in cash which was brought back to the bar.

USDOL Issues Guidance on Joint Employment

One of the primary schemes of corrupt contractors is using subcontractors and labor brokers that pay employees off-the-books or as 1099 subcontractors to evade paying employment taxes, workers’ compensation premiums, overtime and wages. When faced with law enforcement, corrupt contractors use that subcontract relationship as a shield against accountability. But when looked at closely, the contractor often times acts like an employer of the workers just as much as the subcontractors or labor brokers. It is a growing trend and construction is not the only industry facing the problem.

In response, the US Department of Labor issued an Administrative Interpretation (AI) of joint employment under the Fair Labor Standards Act (FLSA). Joint employment under the FLSA makes the contractor and subcontractor or labor broker separately and jointly liable for unpaid wages and overtime if the contractor is also acting as an employer of the workforce. The AI does not change the law, it provided guidance on existing law and gives notice to employers that the USDOL will use joint-employment findings more often.

Dr. David Weil, Administrator of the USDOL Wage & Hour Divisions wrote, “As the workplace continues to fissure, and as the employment relationships continue to become more tenuous and murky, we will continue to identify where joint employment applies and hold all employers responsible.”

In a press release supporting the USDOL’s action, General President Doug McCarron said, “This action by the Labor Department lets cheating contractors know that they can’t continue to hide behind their labor broker subcontracts.”

Construction Co. Owners Face Racketeering Charges in Florida

Gaetan Richard and Murray Rice were arrested this month on numerous charges, including racketeering, related to workers’ compensation fraud. According to state records, they have two active construction businesses: Richard and Rice Construction LLC and Richard & Rice Construction Co., Inc. Four other co-defendants were also arrested.

The alleged criminal scheme involved paying workers through over twenty shell companies. Over the course of about two years, Richard and Rice paid the shell companies nearly $40 million. According to an affidavit from the investigating detective, more that $12 million in workers’ compensation premiums and over $3 million in federal payroll taxes went unpaid.

If convicted, they could face 30 years in prison.

Today: UBC Meets the Challenge

Initially, many of unions were taken by surprise by the non-union sector’s developing economic clout. In the absence of a comprehensive counter-strategy, a number of locals and district councils adopted wage concessions in order to stay competitive with the non-union sector. Non-union employers effectively undercut that tactic by simply driving their own pay rates down further. At the same time, the ABC grew in political sophistication and became one of the linchpins of the “New Right” that propelled Ronald Reagan to the presidency in 1980.

“Our organization was set up to deal with the industry as it was in post-World War II North America,” said UBC General President Doug McCarron when he was elected in 1995. “But the industry has changed drastically since then, and we must change with it.”
Since his election, McCarron has reorganized the Brotherhood’s priorities and its structure. He set organizing as the union’s number one priority and has redirected its resources to get that job done. The union’s localized and often politically-motivated structure has also been restructured and streamlined to reflect today’s regional and national construction industry, as well as to ensure that union leaders are more accountable to members for the job they do.

The ultimate goal of these structural changes is to organize and reorganize every carpenter and contractor in North America and set the standard for wages, benefits, and working conditions on every jobsite. It is an ambitious goal, and one that will take a long-term effort to complete. But it can be done through organizing.

The UBC faces a complex and challenging future. New tools and materials and new methods of construction are entering the industry at an accelerated rate. In many ways, the carpenter of the 1990s is no different from the carpenter of the 1880s. But all indications are that the dawn of the 21st century will bring much more rapid technological innovation. Increasingly, the on-site carpenter is more an “installer” than a “fabricator” with the development of prefabricated materials, modular components, and panellized building sections. The multi-faceted general contractor is giving way to the construction manager whose subcontractors expect their carpenters to restrict their skills to more highly specialized tasks, such as concrete forms, framing, drywall, ceilings, finish work, etc. Union apprenticeship and journeyman-enhancement training programs have addressed these new developments while at the same time maintained a high level of all-around craft competence that union journeymen will always need.

Ultimately, maintaining and extending a strong union for carpenters will depend on combining an awareness of the dynamics of the future with the finest traditions of the past. The days of “country club” unionism that provided job security to members by keeping membership numbers down and the unorganized out are over. The UBC’s growth in the future rests on its ability to reach out and open its doors to all working carpenters.

Just as Peter J. McGuire built the Carpenters Union in the 19th century by organizing all carpenters, today’s leaders must rebuild this union in the 21st century in much the same way. They must embody that same spirit of inclusion in order to organize the unorganized and mobilize current union members to talk to their non-union brothers.

In 1882, W.F. Eberhardt of Philadelphia’s UBC Local 8 (which remains strong to this day), wrote a letter to the Carpenter. He outlined the efforts of his local’s members to contact every single carpenter in the city on a ward-by-ward basis. He described how those pioneering volunteer carpenter-organizers held regular meetings across the city to bring the unorganized carpenters into the new union. Today, more than 116 years later, the Brotherhood is using a “new” model much like the outlined by Eberhardt. Every district, council, and local in the union currently boasts an active volunteer organizing committee that uses today’s modern techniques and technologies, as well as old-fashioned one-on-one contact, to spread the still-relevant message of unionism to every non-union carpenter in their area. The American workforce may look different today–more multi-cultural, multi-racial, and multi-lingual. But the underlying principle of organizing all the men and women who make their living at the carpentry trade is exactly the same as it was in 1881, when 36 carpenters met in Chicago to improve their lives, their futures, and their trade.

Photo source: FreeImages.comGeorgeBosela