Taxpayers were cheated.
Workers were swindled out of a fair shake.
Law-abiding businesses were forced to cut corners or go belly up.
A year-long investigation by Miami Herald and McClatchy Newspapers published in September found all this and more in Florida’s construction industry during the recession.
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Publicly available documents and interviews with workers around Florida showed that contractors broke state law and cheated on their taxes in order to get work on the federally financed projects that were the lifeblood of the building industry between 2009 and 2013.
Now the U.S. Department of Labor has announced an agreement with the state Department of Revenue to crack down on the accounting trick that bad actors use to evade taxes and cheat their employees.
The problem, known as “worker misclassification,” happens when companies treat their workers as independent contractors instead of permanent employees. The companies don’t withhold income tax or file payroll taxes on those workers. They don’t pay unemployment taxes.
Rule-breakers can save 20 percent or more in labor costs, allowing them to underbid companies that play by the rules.
In Florida alone, a McClatchy analysis found that misclassification cost the government nearly $400 million per year in lost tax revenue.
The new agreement, announced in a news release Tuesday, calls for the state to share information and coordinate law enforcement activities with the Department of Labor, which has already signed similar agreements with regulatory agencies in 16 other states.
“By partnering with the U.S. Department of Labor we are actively working to level the playing field for Florida’s businesses to stop the misclassification of workers,” said Marshall Stranburg, executive director of the Florida Department of Revenue. “Businesses that misreport workers obtain an unfair advantage over other law-abiding businesses.”
Many construction company owners told the Herald that they stopped bidding on federally funded jobs, mainly to build low-income housing, because the playing field wasn’t level.
“We were getting underbid by companies that were cheating,” said Sandie Domando, executive vice-president of Concrete Plus in Palm Beach Gardens, in September.
“There was no point even submitting a bid,” she said.
After hearing news of the agreement, Domando said she hopes state and federal officials will visit job sites regularly to make sure that workers know their rights and are being treated fairly by employers.
“Unless they have the staff to really go through with this, it’s not going to do any good,” Domando said.
Some workers truly are independent contractors and deserve to be treated as such for tax purposes. But after analyzing thousands of pages of payroll documents for 29 major government-backed construction projects during the recession, the Herald concluded that one in five companies were misclassifying their workers.
And the misclassifcation scam doesn’t just hurt taxpayers and honest companies: Workers wrongly treated as independent contractors — something they have no control over and may not even know about — can be cheated out of fair compensation if they are injured on the job.
Joe Barrs, a construction worker from Naples, became the victim of a massive fraud scheme after a live wire on a job site nearly killed him.
Barrs went without medical care after a hospital stay and waited months for his workers’ compensation to come through.
His worries are far from over.
Last month, Barrs said, doctors told him he’ll need a heart transplant because of the injuries he sustained on the job.
“I can’t believe it,” he said, choking back tears. “Maybe if I’d been able to see a doctor back then I wouldn’t be in this whole mess now.”
Read the full Contract to Cheat series