Tax Fraud in the Construction Industry
When contractors pay workers off the books, they’re evading state, local and federal taxes. Tax dollars that support schools, public safety, infrastructure, and other essential services our government provides. Hawai’i is already losing millions of dollars in taxes every year, and this needs to stop. On a national level, more than $8.4 billion is lost to construction industry tax fraud. Hawai’i’s construction industry is fortunate that our tradespeople have enjoyed more than a decade of growth, but shouldn’t all companies be paying their fair share of taxes?
Wage Theft
Wage theft occurs when workers aren’t paid all or part of the wages they earn – either the legally mandated overtime pay or hours in excess of 40 hours per work week. And when employees are disenfranchised, employers use this to take advantage of these workers who may not fully understand their rights. This practice is often accompanied by other forms of tax fraud such as misclassification.
- You can help keep companies honest and stop unfair wage practices. Call the U.S. Department of Labor today to report a contractor or business you know that’s playing fast and loose with the rules. Call today at 1-866-487-9243, or 1-866-4-USWAGE.
Misclassification
When “employees” are misclassified as independent contractors, instead of employees, no one wins. Workers who are independent contractors are not entitled to unemployment benefits, medical insurance, social security, FMLA or vacation, workers’ compensation and other important benefits. During hard economic times, like the recent COVID-19 pandemic, these independent contractors may find themselves needing government assistance, with taxpayers on the hook to bail them out. That’s why every contractor needs to play within the rules.
Employee Rights
Sometimes by choice, but oftentimes not, employees are misclassified as independent contractors without fully understanding the difference and impacts such a classification has on them. Here are some of the benefits misclassified workers lose out on:
- Unemployment insurance
- Medical insurance
- Social security
- Paid vacation and Family Medical Leave
- Workers’ Compensation
Health and Safety
Every worker is entitled to a safe working environment and every employer should protect its most important asset – its employees. Construction consistently ranks as one of the top-most dangerous industries. According to the U.S. Department of Labor Occupational Safety and Health (OSHA), construction represented about 20% of worker fatalities – accounting for one in five worker deaths in 2019.
Unfortunately, safety education and skills training are costs that some contractors are unwilling to pay, and the consequences for these unscrupulous entities are just a cost of doing business. Employers who dismiss health and safety regulations not only jeopardize workers and their families, but the general public as well.
Visit State of Hawai’i Occupational Safety and Health, HIOSH for more information.
Find out more about workplace safety at U.S. Dept of Labor Occupational Safety and Health, OSHA
Licensed Contracting
Licenses ensure that a business has the necessary training, qualifications, and experience to perform the kind of work or service it claims to do. In construction, a licensed contractor ensures they have the necessary workers compensation and liability insurance to protect the owner from putting their property at risk if a worker is injured on site, or if property is damaged while under construction.
Most licensed contractors are qualified professionals who take pride in the quality of their work and craftsmanship. However, unlicensed contractors are usually hired to perform work that they are not qualified to perform, and oftentimes are the cheapest because they operate as part of the underground economy – receiving payment off the books and paying their workers under the table.
Check to see if a contractor is licensed.
Learn more about a contractor’s complaint history.
Environmental Health and Safety
Doing business in Hawai’i also means protecting our natural resources – our land, air, and inland and coastal water resources. In construction, the health and safety of each project encompasses both the workers and the physical environment.
Oftentimes, cheating contractors cut corners by not implementing best management practices that protect the jobsite from fugitive dust, construction runoff into sewers or waterways, or proper containment or disposal of hazardous waste. These environmental protection measures come with a cost, and unfortunately, it’s a cost that many unethical contractors are willing to forgo in order to enhance their profit margin. Our community is then left to deal with the consequences and damages caused by a contractor who wants to save a few bucks at the cost of the environment.
Find out more information about our state’s environmental management programs.
Fair Contracting
When competing for public-works contracts, all law-abiding contractors want to ensure that they can bid on a level playing field. Contractors that gain an unfair advantage by not following the law are not only stealing work from legitimate contractors, but they’re also stealing from our government and the tax-paying public.
All responsible and responsive bidders should be able to compete in a fair and transparent bidding environment. Contractors who win work through unethical and illegal business practices are essentially profiting on the back of you and me — the taxpayers. These unscrupulous contractors should be held accountable and prevented from doing business with government agencies in the future.
Visit the Department of Labor and Industrial Relations – Wage Standards Division for more information on prevailing wages for state and county public works projects.
Visit the State Procurement Office for more information on doing business with the State of Hawai’i.