Questions About Payroll Fraud? Contact Labor United

Labor unions go to bat for union workers in many wonderful ways: campaigning for higher wages, securing better working conditions, implementing additional benefits, and more. Unions also champion the fight against payroll fraud, a rampant crime that affects both workers and employers.

Here’s what’s happening in the construction industry – a payroll scheme known as “misclassification.” Workers are either true employees paid through a W2 or independent contractors, aka 1099 employees. Unscrupulous employers or contractors intentionally misclassify workers as 1099 employees to avoid paying payroll taxes, unemployment insurance, and workers’ compensation. When they don’t pay those costs, they’re able to submit lower project bids and undercut responsible firms, as well as pay undocumented workers bare-bones wages or pay workers “under the table,” which alters the numbers in their books.

The collective voice of the labor unions helps mobilize the workforce to control payroll fraud. Sadly, payroll schemes can’t be prevented, but they can be stabilized. An effective tactic for fighting payroll fraud is lobbying to get Congress and state governments to enact legislation that penalizes contractors for violations of labor laws.

What Texas Did to Fight Payroll Fraud

John Davis was a roofing contractor from Houston who served in the Texas House of Representatives from 1999-2015. He introduced a bill that fines contractors $200 for each incident of employee misclassification and payroll fraud. The law was endorsed by many construction trade groups and labor unions, including Austin Local 520. They found widespread employee misclassification and payroll fraud cases in several high-rise apartment construction projects in Austin. They became watchdogs when companies bid for publicly funded jobs, letting them know they were being monitored for payroll schemes.

An Effort to Amend the Fair Labor Standards Act (FLSA) to Help Prevent Payroll Fraud

In 2013, Senator Richard Blumenthal of Connecticut co-sponsored the Payroll Fraud Prevention Act that expands FLSA to help fight payroll fraud and schemes. The Payroll Fraud Prevention Act seeks to require every employer to accurately classify a worker as an employee or non-employee. It penalizes first-time violators up to $1,100 and habitual violators up to $5,000 per payroll fraud violation. Labor unions and the construction in Connecticut supported the act, which was read twice (again in 2015) and referred to the Committee on Health, Education, Labor, and Pensions. Although it has not been made law as of yet, there is hope that it is a step toward stopping payroll fraud and schemes.

The United Brotherhood of Carpenters and Joiners of America’s (UBC’s) Plan of Action

Although payroll fraud is a major issue in the American industry today, not everyone knows about it – or at least its presence is an unspoken truth. The UBC’s strategy to combat payroll fraud is three-fold: education, legislation, and enforcement. They are promoting more stringent laws on companies or contractors that participate in payroll fraud, raising awareness among law enforcement of shady contractors and implementing a resource management program to track the ones who commit payroll fraud.

Another Way Labor Unions Can Help Protect Workers From Payroll Fraud

The trades unions are in a really good position because they often have access to the victims – the employees who have lost wages and benefits and the employers who want to operate their businesses legally. One of the best things union workers can do is raise awareness of the problem of payroll fraud. If you don’t know about a problem, you can’t fix it. According to a survey by the National Consumers League (NCL), 65 percent of Americans have never heard of employee misclassification, but once they become aware 90 percent oppose its negative effects on workers and taxpayers.

The collective voice of labor unions can make a difference by demanding that things change. There’s definitely power in numbers. To learn more about unions and payroll fraud  contact Labor United.