President Obama signed an executive order earlier this year to raise the pay of employees of federal contract workers from $7.25 to $10.10. But that won’t help employees being cheated out of wages by deceitful contractors who are also defrauding the public.
A year-long, multi-state investigation by McClatchy Newspapers uncovered massive fraud within the construction industry in 28 states. By reviewing public records, the investigation found that dishonest employers listed their workers as independent contractors, rather than employees.
That simple, but illegal act cheated the government out of billions of dollars and made its unsuspecting workers liable for tax payments and deprived them of on-the-job medical coverage.
The Olympian recently published the five-part series, “Contract to Cheat,” and it remains available on our website.
When employers claim a worker is an independent contractor, the worker assumes full responsibility for payroll taxes and workers compensation insurance. It frees the employer from paying the required minimum wage or overtime, and allows them to hold back payment for a variety of bogus reasons.
No government should be doing business with such unscrupulous employers.
But the McClatchy report discovered that the U.S. Department of Labor doesn’t consistently enforce these laws, even among its own contractors. And other federal agencies continue to award contracts to companies that have previously offended.
But the real losers are the unsuspecting employees.
The series focused on a number of individuals who thought they were employed by construction companies working on a federal government contract. They later discovered the company had listed them as independent contractors, and had not paid any state or federal taxes on their behalf.
Those taxes took an unexpected, big bite out of their paychecks – as much as 50 percent. One North Carolina construction worker thought he was making $10 per hour, but cleared only $200 a week to feed and house his family.
It was worse for workers who had been injured on the job and found themselves solely responsible for their medical expenses.
Fortunately, Washington is one of the states aggressively chasing the cheaters. Olympian reporter Melissa Santos found that in 2013 state Labor & Industries caught 14 percent of the nearly 4,000 employers it audited misclassifying workers.
Although the state recovered the $12.7 million in unpaid workers’ compensation premiums, it sent only three to criminal prosecutors. And L&I is convinced it isn’t catching everyone.
To do better, state enforcement officers now cross-check government databases. If a worker who is classified as an independent contractor isn’t filing business tax forms, something illegal may be occurring.
The federal government and other states could take a lesson from Washington state. And we could prosecute more offenders. It’s good to recover owed revenue, but blatant and repeated criminal activity should be punished.