Tag Archive for: Politics

Four Questions Interview with Matthew Capece

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America is rife with complex plots by businesses to illegally dodge workers-comp premiums. The flourishing underground economy that exists in many urban centers adds more kindling to the fraud fire, especially in construction. FraudWire reached out to Matthew Capece, senior executive with the United Brotherhood of Carpenters, for his thoughts. He’s been a specialist in employer payroll fraud in construction since 1989.

Workers compensation insurers have long dealt with premium-avoidance schemes. Among the ploys are lowballing workforce size and payroll, and misclassifying employees as independent contractors. How prevalent are premium scams in construction trades, and are any variations unique to construction?

Workers-compensation premium scams involving construction projects are alarmingly commonplace. They regularly occur on residential projects. We even find them on large commercial sites, schools, hospitals, high-rise condos and government jobs like military bases. Fraud has become standard operating procedure in a number of states, including Colorado, Florida, Georgia and Tennessee. But it is happening all across the country.

The schemes vary in sophistication, but the growing practice is using subcontract labor brokers. For instance, interior-systems specialty subcontractors install metal studs, sheetrock and ceilings. They also provide supervision and, maybe, some hands-on labor.

The bulk of their labor comes from brokers. Yet the specialty subcontractor supervises and treats the labor brokers’ workers like their own employees. Labor brokers aren’t staffing companies; they are individuals who can muster a handful to hundreds of construction workers. They may have a business office, but much of the time they operate out of a residence. They can either be incorporated or be dba’s.

Labor brokers will misclassify employees as 1099 subcontractors, but most pay employees under the table in cash or with a check. Some labor brokers are uninsured and use fake certificates of insurance, but many have policies. The problem is they pay premiums on a fraction of their true payrolls. There is a case in Florida where an insurance broker issued 450 insurance certificates to a labor broker, claiming $43,000 in payroll for four workers. Sophisticated schemes like those in Florida involve insurance brokers, accountants, upper-tier contractors, shell companies and check-cashing stores.

These schemes work well for specialty subcontractors. They use the lower labor costs from the brokers to underbid law-abiding competitors, while brandishing the subcontract relationship with brokers and insurance certificate to shield against liability. That is how they drive full-premium-paying contractors out of business and take control of markets.

I am not as familiar with other industries as I am with construction. I do know that the labor-broker system grew from the agricultural industry. In general, the practice of subcontracting labor has been growing. Still, the various studies of fraudulent employment practices universally list construction as a leading abuser.

We know it’s hard to measure workers compensation fraud nationally. Still, do you have any sense of how big premium scheming is (including lost revenues), and how it compares to bogus work injury claims in overall size?

I haven’t found a national study on the degree of workers-compensation premium fraud in the construction industry, but there are state studies. In Tennessee, carriers lost $91.6 million in 2006 and in California they lost $264 million in 2011. We think those estimates are low. Consider the 2008 West Palm Beach, Florida Grand Jury report on illicit use of check-cashing stores. The report described how just 10 contractors moved $1 billion in cash pay through check cashers in less than three years. You can find these studies and reports on our informational website.

Claimant fraud is less costly than employer premium fraud. A California report, though, shows premium fraud losses to carriers are much greater than claimant fraud. Total fraud losses from cases with the Department of Insurance amounted to $8 million in the first six months of 2013. Of that, $6.7 million came from premium fraud and $1.3 million from false claims. Those numbers were not broken down by industry. It’s noteworthy that claimant fraudsters were more likely to get jailed than employers.

Carriers are losing a shocking amount of premiums. Still, despite the significant dollars lost, premium fraud doesn’t get the attention it should. If we could double the premium-fraud losses caught by California it would mean a yearly number of $13.4 million. That’s just 5 percent of the $264 million lost in the construction industry alone.

How are key states identifying premium schemes and strengthening laws or other enforcement tools to combat them?

A number of states are taking innovative actions against premium fraud. The California insurance department gives grants to county district attorneys to fund insurance fraud prosecutions.

Washington is a monopolistic state. It uses fraud-detection software that compares information in various databases to identify likely abusers for premium-fraud audits. Tennessee is a private-market state. It has just installed a similar system. The legislature funded the system and additional compliance investigators. They also added a law creating civil penalties for premium avoidance.

Florida has dedicated workers-compensation compliance prosecutors in select counties. They also have a new database that gets real-time information about checks cashed at check-cashing stores that they compare to proof-of-coverage information. Both Florida and Connecticut also have demonstrated that they aren’t afraid to use their stop-work-order authority.

States need robust tools for both civil and criminal enforcement. But they can’t just be used against labor brokers. Enforcement must reach all parties involved, including the specialty subcontractors and other upper-tier contractors involved in schemes. Labor brokers are abundant and easily replaced.

How can the anti-fraud community partner with your union to combat workers-comp premium scams?

Because we are a construction union, we know how the industry operates, and specific job-site conditions and cheating employers. We can share that information with carriers and enforcement agencies willing to act. We also welcome others to work with us to strengthen state and federal law- enforcement capabilities. They include union and non-union employers, carriers and community organizations.

But it can’t stop there. We each must examine our own practices that encourage, enable or fail to detect fraud. The construction industry must change course and stop awarding work to scofflaws. Insurance certificates need to be modified so insurers can track the number being issued, and insurance certificates should indicate the amount of payroll and work classifications. Also, insurers should re-evaluate their auditing procedures, and whether premiums truly capture the risk posed by contractors and subcontractors using the labor-broker system.

Also, educating stakeholders is a large part of what we do. For more information, follow us on Twitter @nixpayrollfraud and visit payrollfraud.net.

We are prepared to engage with fellow stakeholders. Action is needed. Contractors who pay their full premiums are being marginalized in significant markets. They face increasing pressure to join in illegal schemes or go out of business. Moreover, insurance carriers are losing millions in premiums daily.

Source: Fraud Wire
Photo: Fraud Wire

Guilty plea by contractor, nearly $800K in restitution to cheated workers

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NEW  YORK – Attorney General Eric T. Schneiderman and New York City Department of Investigation Commissioner Mark G. Peters announced on Friday, March 18, 2016, the guilty pleas of Sergio Raymundo, 28, and his New Paltz-based construction company Lalo Drywall, Inc. 

Both defendants pleaded guilty in Manhattan Supreme Court and must pay $793,509.60 in restitution and $83,143.76 in unpaid unemployment contributions due to the New York State Department of Labor, Unemployment Insurance Division. 

Raymundo and Lalo Drywall, Inc. cheated eight workers at a Harlem housing project out of approximately $800,000.00 in wages during a 17-month period, and attempted to conceal the underpayments by signing false checks drawn on the company’s account indicating that employees on the job were paid properly under the law. However, those checks were never actually given to the workers.

“No matter how creative they become in their illegal schemes, dishonest contractors will be held accountable. This guilty plea demonstrates that my office will continue to take aggressive action against public works contractors who cheat their employees out of proper wages and who abuse taxpayer money” said Attorney General Schneiderman. “Workers must be paid for their labor, and my office is committed to ensuring that workers who are cheated out of wages are rightfully compensated.”

NYC Department of Investigation Commissioner Mark G. Peters said, “The pleas by these defendants, and the restitution being awarded to workers who were cheated out of nearly $800,000 in rightful pay, demonstrates that wage theft at public works projects is a serious crime with consequences. DOI will continue to pursue and expose employers who attempt to steal workers hard-earned wages. I thank the Attorney General and our partner agencies for their efforts in uncovering and prosecuting these crimes.”

Sergio Raymundo pleaded guilty to one count of Falsifying Business Records in the First Degree under New York State’s Penal Law, a class E felony, as well as to one count of Failure to Pay Wages under New York State’s Labor Law, an unclassified misdemeanor.

With his plea, Raymundo paid $350,000.00 to the Office of the Attorney General (OAG). representing restitution and unpaid unemployment contributions by Lalo Drywall, Inc. At sentencing, under the plea agreement, Raymundo must pay another $210,000.00 representing an additional amount of restitution and unpaid unemployment contributions.  The remaining $318,150.56 in restitution and unpaid unemployment contributions will be paid during Raymundo’ post-conviction sentence.

Lalo Drywall, Inc. pleaded guilty to one count of Falsifying Business Records in the First Degree, a class E felony, and will be sentenced to a conditional discharge.  Under the plea agreements, both Raymundo and Lalo Drywall, Inc. are also barred from bidding on or being awarded any public works contracts in New York State for the next 5 years.

This plea stemmed from the April 2015 arrests of five subcontractors as part of an ongoing focus by Attorney General Eric T. Schneiderman and New York City Department of Investigation Commissioner Mark G. Peters on widespread allegations of wage theft at public works projects in New York City. One of the subcontractors was Lalo Drywall, Inc., which was investigated for underpayment schemes that took place between April 10, 2013 and August 27, 2014 at the New York City Department of Housing Preservation and Development’s (HPD) Sugar Hill Houses, a mixed-use, commercial and low-income residential project in Harlem, which was subject to prevailing wage requirements.  Federal and state prevailing wage laws seek to ensure that government contractors pay wages and benefits that are comparable to the local norms for a given trade, typically well above the state and federal minimum wage.

The case was investigated by Deputy Inspector General David Jordan and Assistant Inspector General Ondie Frederick under the supervision of Inspector General Jessica Heegan. The Department of Investigation’s effort to combat prevailing wage violations was overseen by Senior Associate Commissioner Michael Carroll and Associate Commissioner William Jorgenson.

Source: Hudson Valley News Network

Bill would make state investigations into wage theft a public record

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COLORADO – A Rocky Mountain PBS News investigation has prompted proposed state legislation to improve transparency of information concerning employers’ wage violations.

House Bill 16-1347 would turn previously secret records on whether an employer had violated wage laws into public records. That means that the public would have access to such information as cases of employers who were found to have illegally withheld pay or underpaid their employees.

Rocky Mountain PBS News showed how some employers have made cheating workers a way of business and how state labor authorities and outdated laws have shielded the actions of bad actors from public view.

The existing 100-year-old law has been interpreted as requiring the investigative process to be kept secret, even when issues are resolved. Federal labor investigations, meanwhile, have an easily accessible mobile app.

House Bill 16-1347 makes one caveat: the state Department of Labor and Employment is prohibited from releasing trade secrets, which are deemed confidential. When someone requests information on wage violations, the bill mandates that the department must notify the employer, who then has ten days to respond with further information to show if a trade secret is at issue.

You can read the full text of the proposed legislation here.

Source: Rocky Mountain PBS News

Senator Brown proposes anti-wage theft legislation

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CINCINNATI, OH – In the wake of Cincinnati becoming the first Ohio city to pass a wage theft ordinance, one of Ohio’s senators is trying to bring the momentum nationwide.

U.S. Sen. Sherrod Brown introduced the Wage Theft Prevention and Wage Recovery Act Wednesday. The legislation would give workers the right to receive full compensation for all of the work they perform, as well as the right to receive regular paystubs and final paychecks in a timely manner.

It would also provide workers with tools to recover stolen wages and make assistance available to enhance the enforcement of and compliance with wage and hour laws.

The bill was co-sponsored by U.S. Sen. Patty Murray, D-Wash.; U.S. Rep. Rosa DeLauro, D-Conn., introduced companion legislation in the House of Representatives.

Wage theft occurs when employers refuse to pay workers money that they are owed by withholding pay, tips or overtime.

“When bosses don’t pay their workers what they’re owed, it robs them of money they earned for their hard work and hurts businesses that play by the rules,” Brown said in a news release.

“We must create a system where employers who steal wages are held accountable and workers have the tools they need to recover their wages when they’ve been cheated.”

A 2009 study by the National Employment Law Project (NELP) of nearly 4,500 low-wage workers found that more than 60 percent had been shorted by their employer each week, equivalent to $2,634 per year in unpaid wages. Analysts applying this study to Cincinnati estimate that low-wage workers here lose $52 million per year to wage theft.

Low-wage and immigrant workers are victims of wage theft when they are paid less than the minimum wage, are shorted hours, forced to work off the clock, are not paid overtime or not paid at all. These are pervasive practices across many industries.

Despite complaints about wage theft, Ohio has cut the number of state wage investigators from 15 to five since 2008.  The closest investigator to Hamilton County is located in Dayton, Ohio.

In early February, Cincinnati became the first city in Ohio to pass an ordinance to improve enforcement of existing wage laws.

City Council voted 7-2 for the ordinance. Under the measure, if the city or another agency determines a company has committed wage theft, city officials would be able to have the money returned and the company would be barred from doing business with the city.

During a news conference call Wednesday, Brown was joined by Brennan Grayson, director of the Interfaith Workers Center in Cincinnati, who helped organize support for Cincinnati’s recently-passed wage theft ordinance.

“Sen. Brown’s bill is the type of change we need to begin making things right, to begin restoring dignity to wage earners,” Grayson said.

Under the Ohio Democrat’s proposal, workers would recoup the full compensation that employers have taken from them, create a civil penalty of $2,000 when employers violate minimum wage and overtime protections and  increase the time that employees have to bring a claim for owed wages.

The bill also would make it easier for employees to take collective action to recover their stolen wages and remove the current requirement that employees affirmatively “opt-in” to engage in a collective action under the Fair Labor Standards Act.

Last November, Brown introduced legislation to take action against employers that misclassify their workers to cheat them out of wages, benefits, and important workplace protections – one of the practices that contributes to wage theft. He has also introduced bills to raise the minimum wage, expand paid sick leave to all workers and support workers’ right to bargain with employers.

Source: Cincinnati.com

Residential construction industry built on ‘payroll fraud’ model

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MINNEAPOLIS, Minn. – Jose Ramirez had never heard the term “wage theft,” but he knew he was being cheated when a roofing subcontractor refused to pay him.

“We finished a couple houses, roofing houses, and we tried to collect the money and the guy said, ‘I haven’t gotten paid by our boss,'” he recalls. “That was a big project. I mean, we were shingling one house, putting back shingles, moving to the next one, and eventually there was two of them where I did not get paid. I told the guy, ‘That’s it. I can’t keep working until you pay me those two houses.'”

“So they stop answering the phone, you start chasing them for the money, and then suddenly, they disappear . . . and there you go – you got two weeks without pay . . . So you have to figure out how you’re going to support your family.”

Today, Ramirez is one of the lucky ones. After seeing a billboard advertising the carpenters union, he called and signed up. He spent several years with a reputable contractor and just recently became an instructor in the training center operated by the North Central States Regional Council of Carpenters.

Looking back, Ramirez realizes that not getting paid to roof two houses was just the tip of the iceberg. He was being cheated every day on the job, forced to work long hours without overtime pay. Often, he never got a paystub to track whether or not he was being paid for all the hours he worked.

Fortunately, he did not get injured on the job. Even though construction employers are required to carry workers’ compensation insurance, untold numbers of injured workers have been fired, left to try to get medical help on their own.

“Back in the day, I didn’t know that you had those rights,” said Ramirez. “I have friends who still work the same way. Depending on the situation that they have, some people don’t think they have a choice but to work that way. People have to make a living.”

Tens of thousands of construction workers are victims of wage theft in Minnesota ever year, but no one knows the exact number. Some of the workers are undocumented and afraid to come forward. Many, regardless of their background or citizenship status, simply don’t know that they are being cheated.

Minnesota Department of Labor & Industry: An Evaluation of the Contractor Registration Pilot Project and the Misclassification of Workers in the Construction Industry

Read More

Source: Workday Minnesota

Tennessee contractors avoid workers’ comp to win bids

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NASHVILLE, Tenn. – The amount of growth in downtown Nashville requires a lot of labor, but not every worker is equally protected in case of injury.

The practice of winning low bids by avoiding workers’ compensation payments is called worker misclassification.

The Channel 4 I-Team has found the same thing uncovered nearly five years ago at the Music City Center is now happening right across the street.

WSMV Channel 4

In 2011, a drywall subcontractor with a large workforce was failing to deduct taxes of any kind or pay workers’ compensation or overtime.

Some contractors use worker misclassification to win competitive bids. They can undercut a rival by 20 percent or more by not paying into insurance pools.

“Everybody is hurt by employee misclassification, all of us,” said Scott Yarbrough with Workers Compensation Compliance. “If an employee is hurt, they don’t have a workers’ compensation policy to fall back on. The hospitals have to treat them as a charity case most of the time.”

When the I-Team investigated the Music City Center, the state had never audited a job site for compliance. They do now.

At an apartment complex in Bellevue, a subcontractor named Pablo Delgado was fined more than $87,000 for understating his payroll.

At another Bellevue complex, Aguilar Carpentry was caught misclassifying its workforce and was hit with almost $73,000 in fines.

Investigators also levied a $39,000 fine on a Vanderbilt dormitory project.

Government jobs aren’t immune. A Metro-funded project in north Nashville led to a $69,000 fine for a roofing subcontractor.

A worker at the new Westin Hotel across from the Music City Center spoke to the I-Team. He asked not to be identified.

“Yes, it’s very common. They’re still doing it,” the worker’s translator said.

The man showed us his paychecks with no tax deductions whatsoever. There was also no overtime pay, even though he works 50 hours a week.

The man said it’s done everywhere.

“He said that 95 percent of the jobs he has done, they don’t take taxes off the cash and they don’t pay time and a half overtime,” the translator said.

“It’s a huge risk for families,” Yarbrough said. “When an uninsured employee gets hurt, it starts an economic death spiral for them. They can’t pay their hospital bills. They lose their car, can’t get to work. They lose their job, lose your house.”

Many fines go unpaid. The offender has yet to pay a dime of the $87,000 fine mentioned early. Only $5,000 of the nearly $73,000 fine against Aguilar Carpentry has been collected. The subcontractor on the Vanderbilt dorm has paid less than half of what he owes. The roofer from the Metro-funded project has managed just $3,000 of the $69,000 he owes the state.

Offenders are given 24 months to pay.

“The main thing we want to see is people coming back into compliance,” Yarbrough said. “We don’t necessarily want to run them out of business. We want to give them an opportunity to pay over time.” The state just started cracking down on this in 2013.

Collections have increased from $85,000 statewide to $132,000 last year. As of Wednesday, there is still $325,000 owed by violators.

Experts said in the construction field alone, misclassification is shorting the state Medicare pool somewhere between $7 million and $42 million.

Source: WSMV News 4, Nashville, Tenn.

Manchester drywaller jailed for under-the-table payroll scheme

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MANCHESTER, N.H. – A city dry-wall contractor was sentenced to 18 months in federal prison and ordered to pay the Internal Revenue Service more than $780,000 for his role in an under-the-table payroll scheme.

Cruz E. Galvan, 39, who operated Four Star Drywall, was ordered to pay the IRS restitution totalling $786,553. Authorities said he had paid $100,000 of that amount several weeks before being sentenced Tuesday in U.S. District Court.

According to U.S. Attorney Emily Gray Rice, Galvan pleaded guilty to one count of federal employment tax evasion, admitting to a scheme to dodge payment of federal employment taxes on wages he paid to his employees.

During his plea hearing, Galvan admitted that from April 2010 until December 2012 he paid employees with vouchers instead of with checks. The employees were then instructed to present the vouchers to a local check-cashing business to which Galvan had previously provided funds with instructions to pay the vouchers in cash.

He acknowledged he did not report the wages he paid to the IRS, evading federal income tax withholding and Social Security, Medicare and federal unemployment taxes.

Immigration proceedings are underway to deport Galvan, who authorities say is in the country illegally, after he serves his sentence.

City police, the IRS, the U.S. Department of Homeland Security and the U.S. Department of Labor, Office of Inspector General, investigated the case, which was prosecuted by Assistant U.S. Attorney Bill Morse.

Source: Union Leader

Senator Brown Reintroduces Fair Playing Field Act

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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.

Why should politics matter to you?

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American workers have felt a slow decline in their wages since the early 1980s, meaning wage increases have been slightly lower than the cost of living increase. This means less money for groceries, clothing, your children and the everyday essential you may need for raising a family or saving for retirement.

Union wages for the construction industry are no different, except unions have contracts that include wage increase, healthcare and retirement plans. With ongoing training programs for apprentices and journeymen this allows the workers to be more skilled than the nonunion workers. Productivity levels are higher, accidents are lower, and attitudes on job sites are more positive than ever before because of the investments in training by the members and their union. These union contracts are agreements between Labor and Contractors. The more highly skilled workers usually result in better wages, better working conditions and better benefits for their family.

On the other hand, payroll fraud is spreading rampant through the construction industry. This is where unscrupulous nonunion contractors choose to hire hourly workers and pay them cash or as independent contractors (1099s) by not withholding the employee’s state or federal tax deductions, FICA withholdings and Medicare deductions, leaving this responsibility on the workers to pay.

Learn more about payroll fraud

Who are my legislators in Kentucky?

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The Kentucky Legislative Research Commision provides a map to reveal the elected officials in your area. You can use the search by address at the top or select your location. By clicking on his/her bio page, you can find contact information including phone, email and mailing adress. We encourage everyone to reach out to your elected officials regarding issues of concern.