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.
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.
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.”
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.
Gov. Pat McCrory of North Carolina signed an executive order directing state officials to find and penalize employers committing payroll fraud. The EO comes after a News & Observer series detailed the rampant problem and the failure of the legislature to pass anti-payroll fraud bills. Payroll fraud costs North Carolina and the federal government $467 million a year in lost revenue.
“When unethical employers improperly classify their employees as independent contractors, they not only put our state’s workforce at risk, but also put ethical businesses at a competitive disadvantage and rob taxpayers of significant revenues,” McCrory said.
Photo credit: The News & Observer
Source: The News & Observer
Wiljo Interiors was sub-contracted by prime contractor Cherokee CRC LLC to work on a $2.9 million federally-funded construction project at the Riverside Indian School in Anadarko, Oklahoma. Wiljo Interiors then brought in an additional sub-contractor, Strong Rock Drywall LLC, of Tulsa, Oklahoma, misclassified its owner and workers as independent contractors, yet dictated what they would pay them. Strong Rock also failed to pay its employees as required by law, but their work was directed and controlled by Wiljo. Therefore, the division found there was a joint employment relationship between the two employers, holding both employers responsible, both individually and jointly, for compliance with the Fair Labor Standards Act (FLSA).
Strong Rock Drywall employees worked 50 to 70 hours per week, but since they were misclassified as independent contractors, were paid only straight time for all the hours they worked, being denied legally-required overtime for hours beyond 40 per week. Employees were also denied fringe benefit payments required on this federally-financed contract under the Davis Bacon Act.
Wiljo Interiors, Inc. paid $208,756 in overtime back wages, prevailing wages and fringe benefits to 178 Strong Rock construction workers to remedy the violations. Additionally, the company acknowledged they were the controlling employer and committed to properly classifying workers as employees, using the correct job classification when determining workers’ prevailing wage rates and paying fringe benefits required by law in the future.
“When a joint-employment relationship exists, we will hold those companies accountable when wage violations occur and workers are cheated,” said Betty Campbell, acting regional administrator for the Wage and Hour Division in the Southwest. “Simply labeling a worker as an independent contractor does not mean they are not truly an employee. Misclassified employees are not only denied fair wages, they are also denied access to critical benefits and protections. The Wage and Hour Division is vigorously pursuing corrective action in those situations when workers are, in fact, employees to ensure that they are paid their legally-required wages and to level the playing field for employers who play by the rules.”
In response to the News 8 series, the Louisiana Workforce Commission (LWC) issued a press release on its anti-payroll fraud efforts related to unemployment contributions. The LWC is expecting a record year. So far in 2015, auditors have found 12,782 misclassified employees and $83 million in underreported wages, resulting in collecting an additional $923,000 in unemployment taxes. The numbers don’t show how much of that was in the construction industry. In 2010 they found fewer than 300 misclassified employees. The LWC efforts are aided by anti-fraud software.
Jason Engels, EST of the Central South Regional Council, was interviewed by News 8 investigative reporter Lee Zurick for a three part series on payroll fraud. The first broadcast introduced the problem and exposed that it costs Louisiana taxpayers $250 million annually. Part 2 delved into the law-breaking scheme used on numerous prevailing-rate projects by shady contractors and the lack of meaningful enforcement. The final broadcast showed how legislation with stiff penalties was blocked by a state senator who owns a construction company that subcontracted to a company that allegedly wrongly classified its workers. Rep. Smith (D) pledged on camera to re-introduce legislation with tougher penalties, and Rep. Broadwater (R) said he’d support a task force of state agencies and district attorneys.
When asked if a business saving hundreds of thousands of dollars would stop breaking the law if they only risked a $250 or $500 fine, Jason responded, “You wouldn’t. The penalties have to be increased through legislation on these contractors to get over this slap on the wrist…..Start putting some people in jail.”
Link to the series from PayrollFraud.net “Billion dollar blue print for a taxpayer rip-off.”
The Ala Moana Center was raided by state investigators over charges of contractors committing payroll fraud. Investigators from state tax, labor and business departments went to the luxury mall in response to complaints from the Hawaii Construction Alliance. The Alliance is a group of trade unions that includes the Hawaii Regional Council of Carpenters.
Information on alleged improper practices was gathered by undercover informants, including a video of workers being paid in cash. Watch a news report on this raid through the Top of the News section of PayrollFraud.net.
“Workers are being paid in cash by these contractors and subcontractors which begs the question: are they filing the proper paperwork with the state?” said Tyler Dos Santos, Alliance Executive Director.
US Senator Brown (OH) appeared with Labor Secretary Tom Perez at a forum in Cleveland to meet with workers who have been victims of payroll fraud. They met with construction, package delivery and other workers who have been denied basic employment protections because they were misclassified as independent contractors or paid off the books.
“We should call this what it is: fraud,” said Sen. Brown. “This is unfair to workers, unfair to businesses that play by the rules, and it must stop.”
At the forum, Sen. Brown announced that he is reintroducing the Fair Playing Field Act. The bill seeks to amend the federal tax code. Previously, the Fair Playing Field Act was blocked in House and Senate committees.