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. Hawaii is already losing millions of dollars in taxes with our downturned economy. On a national level, more than $8.4 billion is lost to construction industry tax fraud. Hawaii’s construction industry has been fortunate to continue working during this pandemic, but shouldn’t they all be paying their fair share of taxes?  

Wage Theft

Wage theft occurs when workers aren’t paid all or part of their wages they earn – sometimes for not paying 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 US Department of Labor today to report a contractor or business you know that’s playing fast and loose with the rules. 1-866-487-9243


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 pandemic, these independent contractors may find themselves needing government assistance, with taxpayers on the hook.

Employee Rights

Sometimes by choice, but oftentimes not, employees are misclassified as independent contractors without fully understanding the difference and impacts on themselves. Here are some of the benefits they 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. Dept. 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 are just a cost of doing business. Employers who dismiss health and safety regulations not only jeopardize the workers and their families, but the general public as well.

Visit State of Hawaii Occupational Safety and Health, HIOSH for more information.

Find out more about 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 that 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 Hawaii 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.

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 Hawaii.