Employer Payroll Fraud

Employer Payroll Fraud

Brothers and Sisters,

One of the most damaging practices in the construction industry today is employer payroll fraud. This happens when employees are misclassified as independent contractors, or 1099 workers, and  paid off the books.

Payroll fraud not only takes work away from legitimate contractors but also robs states of needed revenue and shifts the cost of cheating onto law-abiding taxpayers, including UBC members and contractors.

The UBC has made a commitment to combating payroll fraud nationally. Through the combined efforts of UBC and Council staff we have made significant gains in educating enforcement agencies and policy makers on the harmful effects of payroll fraud on our economy. In response to this practice, the United States Department of Labor recently issued an administrator’s interpretation to clarify the conditions under which a worker can be classified as an independent contractor.

On the USDOL’s blog, Dr. David Weil, administrator for the U.S. Department of Labor’s Wage and Hour Division had this to say about misclassification:

“Imagine working as a drywall installer building houses as an employee one day, but the next day, while performing the same work on the same site for the same company, you’re told you are now considered an independent contractor. You didn’t suddenly open a business of your own. Nothing about your work changed. But now, you’re told that since you’re no longer an employee, you’re no longer eligible for overtime pay, unemployment insurance, worker’s compensation or a host of other benefits that come with employee status.”

“In recent years, employers have increasingly contracted out or otherwise shed activities to be performed by other entities through, for example, the use of subcontractors, temporary agencies, labor brokers, franchising, licensing and third-party management. Among the many consequences of these “fissured workplaces,” misclassifying employees as independent contractors is among the most damaging to workers and our economy.

Whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make. The Labor Department supports the use of legitimate independent contractors − who play an important role in our economy − but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.”

“As fissuring and misclassification have spread, providing workers and employers a clear understanding of what makes a worker an employee may be more important now than ever. Accordingly, we have issued an administrator’s interpretation that analyzes how the Fair Labor Standards Act’s definition of “employ” guides the determination of whether workers are employees or independent contractors under the law. It discusses the breadth of the FLSA’s definition of “employ,” and provides guidance on the “economic realities” factors applied by courts in determining if a worker is indeed an employee.”

Read the full post here

Guidance can be found at:



Michael Capelli, EST