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Dive brief:
- The United Brotherhood of Carpenters and Joiners of America is calling attention to wage theft and workers’ compensation fraud in the construction industry at a series of events across the United States and Canada.
- The programs include news conferences and rallies at state and federal buildings and workplace visits by elected officials from 22 states in April and May to raise awareness of the issues, which the union says hurt workers, taxpayers and the prominent contractors, according to a press release. .
- Wage theft is one predominant problem in the construction sector. In fiscal year 2023, the Department of Labor recovered more than $35.5 million in back wages for construction workers in 2,134 cases, the highest dollar amount of any industry. In addition, many workers are misclassified as independent contractors.
Diving knowledge:
“Employer fraud is a cancer that has become a business model,” UBC President Douglas J. McCarron said in a statement. “It’s a systemic problem that involves all sizes and types of construction jobs and employers at all levels, from the smallest subcontractors and labor brokers to the largest developers and construction company owners.”
In 2021, up to 2.1 million American construction workers were misclassified or paid for the books, according to a report by the Century Foundation, a think tank and research group focused on equity in education, health and employment.
That would represent about 20 percent of the industry, and misclassification could cost taxpayers $5 billion to $10 billion a year in unpaid income tax funds, the Century Foundation found.
An example of the type of fraud that UBC is protesting came to light on April 11. Kent Bo Fridolfsson, former president and owner of construction company Diversified Specialists in California, pleaded guilty to six counts of insurance fraud and grand larceny, according to a statement from the California Department of Insurance.
A joint investigation found that Fridolfsson understated his payroll by nearly $1 million to save on workers’ compensation insurance and taxes. The fraud became apparent when an employee suffered a work-related injury and contacted the insurance provider.
Impact of wage theft on employers
The nature of construction, where subcontractors serve as labor brokers for workers who are often not full-time employees, further complicates the payroll process, said Joe Natarelli, managing partner of the New Haven, Conn., office of the accounting firm Marcum.
Natarelli said contractors often claim they don’t realize they’re committing wage theft, especially when they’re a non-union contractor earning work on a project labor agreement job.
“I think a lot of people go into it without knowing the yard,” he said.
However, ignorance may not be a sufficient excuse and can seriously harm employers in the long run. Wage theft on a company’s record can affect its ability to find qualified workers or even gain jobs, Natarelli said.
“Now I’m going to sound like an accountant, sorry, but you have to make sure you set up internal controls to mitigate any of these things that fall through the cracks,” he said.
