What is Worker Misclassification/Payroll Fraud?
Worker Misclassification happens when employers improperly classify workers as “independent contractors” instead of “employees.” Worker Misclassification is illegal and may rise to the level of criminal Payroll Fraud. Worker Misclassification happens throughout the construction industry, however, it has become pervasive in the carpentry trades (e.g., drywall and floor covering).
Why is Worker Misclassification/Payroll Fraud a Problem?
Worker Misclassification/Payroll Fraud deprives employees of important legal protections and employment benefits, including:
- no minimum wage and overtime protections;
- no worker’s compensation insurance coverage;
- no unemployment insurance coverage;
- no Family and Medical Leave rights;
- no employment discrimination protection;
- no payment of income tax, social security and Medicare taxes by the employer—instead, the employees are responsible for individual, quarterly payment of these taxes; and
- no employer-provided health insurance, retirement plans, vacation and sick leave, or other employee benefits typically offered in the workplace.
Worker Misclassification/Payroll Fraud also harms honest employers and the public by:
- artificially and illegally lowering wages on public and private construction projects, which causes unfair competition;
- potentially shifts liability for wages and work injuries to general contractors and project owners from down-stream subcontractors who are engaging in Worker Misclassification/Payroll Fraud;
- loss of tax revenue by the state and federal government; and
- placing a substantial strain on public resources due to lack of worker’s compensation and unemployment coverage for workers.
Who is an “employee?”
If a worker performs services for a business or individual and the business or individual controls the work to be done and how it will be done, the worker is very likely an employee.
Who is an “independent contractor?”
“Independent contractors” are in business for themselves, with an independent trade, business or profession offered to the public. Independent contractors retain the right to control how they will do the work and have the risk of losing money even though services have been performed.
For more detailed information on the various state and federal standards for determining whether someone is an employee or independent contractor go to:
WI Department of Workforce Development- https://dwd.wisconsin.gov/worker_classification/
U.S. Department of Labor-https://www.dol.gov/whd/regs/compliance/whdfs13.htm.
What can I do to stop Worker Misclassification/Payroll Fraud?
The WI Department of Workforce Development encourages workers, employers or any member of the public to report suspected Worker Misclassification. Reporting is as easy as sending an email. To learn more, go to https://dwd.wisconsin.gov/worker-classification/report.htm
You may also call Construction Business Group® at (608) 240-4170 and we will assist you in determining whether to file a complaint and with what governmental agency. Workers may be able to make a claim for wages owed and for additional damages and costs.
U.S. DOL Misclassification Initiative- https://www.dol.gov/whd/workers/misclassification/#stateDetails.
U.S. DOL How to File a Complaint- https://www.dol.gov/whd/howtofilecomplaint.htm.
U.S. DOL Fact Sheet #13 Am I an Employee?- https://www.dol.gov/whd/regs/compliance/whdfs13.htm.
WI Department of Workforce Development Employee or Independent Contractor Why it Matters- https://dwd.wisconsin.gov/dwd/publications/ui/ucd-17430-p.pdf
United Brotherhood of Carpenters- https://www.carpenters.org/protests-against-tax-fraud-across-canada-the-united-states/ and https://www.carpenters.org/tax-fraud-2/