Payroll fraud is now so widespread in Utah’s construction industry that unions, government investigators and contractors agree it is pushing legitimate companies out of business — because they can’t compete financially with rulebreakers.
“It’s very blatant,” said Brendan Call, an assistant Utah attorney general.
The groups delivered that message to the Legislature’s Business and Labor Interim Committee this week, but offered few solutions. State and federal officials say they have many ongoing investigations, but are hampered by a lack of investigators.
Patrick Bieker, representing the Southwest Regional Council of Carpenters labor union, displayed a pay stub that he said shows the heart of the problem.
“There are no taxes taken out,” he noted.
Too many bad-actor contractors and subcontractors now do not employ many of their workers directly, he said, but use “labor brokers” — and send would-be employees to be hired by them. The tax stub he showed came from such a worker.
The brokers do obtain employer tax identification numbers and some workers’ compensation insurance — but pay premiums only for a handful of workers instead of the hundreds they often actually employ. They provide certificates that workers can show purporting that they are insured and that payroll taxes are collected.
But officials said they often are not. Brokers and the contractors they serve also often also do not pay extra for overtime. So such employers spend far less on labor.
“It allows them to underbid any of their competitors,” said Scott Johnson, a special agent for the federal Internal Revenue Service.
“This is becoming normal, pervasive — and it’s a real threat to our business,” said Greg Letey, general manager of DAW Construction Group, who says that he pays required insurance and taxes.
Bieker, with the carpenters’ union said, “workers like myself that are running out of opportunities to work for legitimate contractors.”
He showed pictures of some labor brokers operating out of cars at a hardware store parking lot. Workers must go there to collect their weekly paychecks, which are often in different stacks on dashboards for various contractors served.
“They are stacking the deck against legitimate contractors because they are getting away from the payroll tax, the unemployment insurance, the workers’ comp — everything,” Bieker said.
Johnson said some employees willingly go along as they are paid a bit more — because no taxes are taken out. But he said in coming years when they might try to apply for Social Security, they will find they may not qualify for much because payments for their work were not collected.
Call said state investigators see another growing problem. He said some employers knowingly hire undocumented immigrants who use fake or stolen Social Security numbers.
When the Social Security Administration finds a problem, employers simply tell employees “’when you come back Monday, you have to come back as a different person.’ It’s that blatant,” he said.
“Because of that, again, they are paying no taxes,” he said. “Some of these workers know they can’t get hired other places, so they will continue to come back even though they are making $5 to $10 an hour less at these locations.”
Johnson said trying to enforce laws against such practices with so few investigators is like trying to hold back the tide. He said the IRS has about 20 investigators in the state, and they currently have six major probes ongoing.
“These are not quick cases,” he said. “They generally are going to taka a good year, year and a half,” and are complicated.
Chris Hill, general counsel for the Utah Labor Commission, said it has had 625 investigations this year so far into instances of workers’ compensation insurance fraud, “and we have three staff members” who handle them.
Call with the Attorney General’s office said it also has several complicated ongoing investigations — and it is targeting not just low-level labor brokers, but the bigger businesses using them. “When we take down one or two of those, it will be known that will not stand in Utah.”
Investigators from several agencies appealed to the public for more tips and information when they see payroll fraud — and vowed to pursue them even if they may not have many investigators.
Matthew Capece, from the Washington, D.C., office of the United Brotherhood of Carpenters and Joiners of America, also urged legislators to take a more active oversight role of the problem, including helping to ensure the state has enough investigators and resources for the problem.
He and several investigators also urged a new law to require main contractors to ensure their subcontractors or labor brokers actually cover payroll taxes and workers’ compensation insurance.
Now, “There is very little that these general contractors are asked to verify,” Johnson said.
“As long as they see that someone has a workers’ comp certificate and liability insurance validation, there’s no requirement … to verify the number of individuals who are covered by those policies, no requirement to see that employment taxes are withheld and paid,” he said.
Sen. Curt Bramble, R-Provo, co-chairman of the committee, said he sees little chance politically of enacting laws to require that.
