Worker misclassification and payroll fraud have become increasingly severe in Indiana, a South Bend broadcaster reports following an investigation.
Some contractors are believed to be misclassifying workers, which robs them of many of the regular benefits employees receive and denies the state and federal governments hundreds of millions in tax dollars, ABC-57 reports.
The broadcaster quoted Tim Larson of La Porte-based Larson-Danielson Construction as saying he was seeing some things not right in some competitive bids
“When we bid for a job we know how much is labor, how much is material and we found other contractors bidding at prices we couldn’t quite perceive how they were getting there, because we knew how much they were spending on material and we figured they had to be spending a lot less on labor than we were,” said Larson.
The reason: worker misclassfiication — labeling workers as independent contractors, when they really are employees.
Mike Stavitzke, the director of the Indiana, Kentucky and Ohio Regional Council of Carpenters, says the lack of a need to pay payroll taxes allows contractors who misclassify their workers to bid on projects at a much lower rate.
“Any easy 30 percent right off the top,” said Stavitzke. “It’s a race to the bottom. It sends the industry on a downward spiral.”
Larson said he decided to research how much money he could save on labor costs by misclassifying his own workers. “The figures I came up with just for our business were startling,” he said.
Without social security premiums, medicare, federal and Indiana unemployment taxes, and workers compensation premiums, the overall reduction in costs would reach more than $3 million annually for his business, he said.
“That’s just our company and there’s hundreds of contractors in the state so you know if everybody starts doing this it’s a huge problem,” said Larson.
The Indiana Building and Trades and Construction Council estimated in an earlier study that Indiana could be losing up to $400 million annually in tax revenue due to misclassification.
On the federal level, in February, the The U.S. Department of Labor ordered Indianapolis based TWG Construction to pay $82,477 in owed wages to 20 misclassified employees. Investigators found TWG had subcontracted with a temporary staffing company that misclassified workers and failed to pay them required wages under federal law.
The challenge is enforcing the rules. “The level of enforcement is directly correlated with how much people comply with the law,” said Larson. “If it’s not enforced they’re not going to comply.”
Indiana legislators have tried to introduce bills to improve monitoring and enforcement to resolve the misclassification problem, but so far, none have gotten very far.
However, individuals can file anonymous complaints with the Indiana Department of Labor (IDOL) by emailing firstname.lastname@example.org.