Zurik: A white-collar game with blue-collar pieces
NEW ORLEANS (WVUE) - You've heard the saying - a picture is worth a thousand words. This story, about 1,200 words, can be summed up with this picture:
In one corner - a business owner, trying to get one by you by filling out a government document improperly;
In another corner - a worker being mistreated;
And in the middle - the state of Louisiana, the federal government and you, a taxpayer, all bilked by people trying to skirt the law.
We found that part of this so-called billion dollar blueprint involves businesses improperly filling out certified federal records.
"This happens in blue collar, white collar, pink collar… all kinds of collars," notes Joel Friedman, a law professor at Tulane University.
Still, the prevalence is rampant in the blue-collar construction industry.
On state and local construction projects funded by the federal government, contractors fill out certified payroll reports - records that show how much each employee earned on the job.
"There needs to be more scrutiny over these documents when they're actually turned in," says Jason Engels with the Carpenters Union.
On one certified reporting form given to the City of New Orleans, a Kenner company, Lightning Construction, put 10 digits down as its contractor's license number. But it's not the company's contractor's license - they didn't have one. The number they listed as the license number was actually a phone number.
A Georgia-based flooring company, American Flooring worked on two projects for the East Baton Rouge Housing Authority at the same time: Willow Creek and Autumn Place town homes. Look at one employee named Luis, a tile floor installer. For the same week in September of 2012 he worked 34 hours on one project, 32 on the other.
For this worker's 66-hour work week, he earned no overtime.
Engels says that's clearly a problem. "He should have been paid overtime, working over 40 hours," he says.
Employees, by law, can make overtime pay. But when someone is labeled an independent contractor, businesses generally don't have to pay overtime - so workers may be missing out on money they are owed. And many of the workers simply go unreported, off the books, and receive cash for their work.
Businesses fill out these certified payroll records to ensure they follow federal laws. While the money for these projects comes from the federal government, it's up to the state and local governments that receive the money to police the records.
But whoever is overseeing some of these contracts is failing to also inspect the documents to make sure they are accurate, and that the contractor's following the law.
"That is part of their contractual obligation," says Troy Mouton with the U.S. Labor Department's Wage and Hour Division, "to ensure that - by virtue of using those federal funds - that they are in compliance, which includes the receipt, retention and review of certified payrolls."
And if they're not? "That's technically a violation of the contracting agency," Mouton says.
A Pensacola steel company worked on a project at LaPlace Elementary. On one payroll sheet, the company reported three different employees:
- Andres Lopez Gomez
- Andres Gomez Lopez
- Andres Lopez Lopez
"You know, i guess it could be possible, but in this situation, for this… yeah, it's probably unlikely," Engels says.
The company's phone is disconnected; an online search suggests it's no longer in business.
Some of the certified payroll forms came with Social Security numbers on them. We ran them through our computer, and we found that many don't exist.
On one payroll report, six of the seven workers for Orleans Sheet Metal Works have Social Security numbers written down the government says have never been issued. The company told us by email that an "administrative error" led to incorrect Social Security numbers appearing on the reports.
When we called another company, USA Professional, someone hung up on us. We wanted to ask about all five employees on a USA Professional payroll report having incorrect Social Security numbers. For one male carpenter, USA Professional used a Social Security number, given to a female who died in 2003.
"That means these people either don't exist or they're undocumented workers," Friedman says.
These payroll reports reveal a larger problem - businesses misclassifying workers as independent contractors instead of employees.
"It's a big problem," Mouton acknowledges.
By our calculations, it's a billion-dollar problem for the federal government - billions in lost taxes, both federal and state, along with Social Security, Medicare and unemployment tax payments.
"As big of a problem as it is, it's going to take some time to wrap our hands around," Mouton tells us, "but we're making every effort to do so."
Both the state and federal government have strict guidelines on who is - and who isn't - an independent contractor. If you're labeled an employee, your boss deducts all of those taxes. If you're an independent contractor, your boss deducts nothing - you're given a Form 1099 instead, and you pay those taxes directly. But the IRS says many don't.
"Many employers think that simply providing the worker with the form 1099, for tax purposes, simply converts that person to an independent contractor," Mouton says. "And that's not true at all."
The federal government says it's very difficult for a construction worker to actually be an independent contractor.
"We see some cases where painters who are working an hourly wage of $10 to $12 an hour, and provide only a token number of material for their own purposes, are classified as independent contractors," Mouton says. "We have found that in those cases, those construction workers who are paid on an hourly basis, who don't meet the other criteria for exemption, are often misclassified."
On the federal level, the Department of Labor's Wage and Hour Division oversees 130 million employees nationwide. But the division has just 1,000 investigators.
"Someone has referred to that analogy as a dot on the sun," Mouton says.
Mouton insists his office makes a difference. The federal government has allowed states to get more proactive in investigations. In 2010, auditors from the state's Workforce Commission found just 283 misclassified workers. Last year, they found 12,782.
"What you're doing is going to help," the Louisiana Workforce Commission's executive director, Curt Eysink, tells us. "Since we do have a complaint line that we encourage employees to use. If they believe that they're misclassified, tell us about it. If somebody wants to tell us about somebody else who's misclassifying, that's what the tip line is for."
We viewed tens of thousands of pages of payroll records, and many raised serious questions. One payroll report shows the owner of the company actually called his workers "employees," but said those employees working" for the company are issued 1099 forms. So he calls them employees, but doesn't treat them like employees, instead handing them a form given to independent contractors.
"They're clearly confused or they've misrepresented what they are," Engels says.
Many of the documents we reviewed showed workers being labeled "independent contractors" actually working on the job with a supervisor or a foreman. Independent contractors have to essentially be their own boss, with no supervision.
"An independent contractor, you're supposed to be your own boss, right?" says Engels.
A picture may be worth a thousand words, but we found plenty more to add for this story - we could have gone on and on and on, offering example after example.
"It's not that difficult for employing entities to skirt around the rules," Friedman says.
These broken rules may paint a pretty picture for businesses looking to save money. But for taxpayers and blue-collar workers, it's no work of art, this billion dollar blueprint - just an ugly mess that can't be cleaned up soon enough.
We reached out to all of the companies mentioned in this story, seeking comment - most declined comment or could not be reached.
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