Union carpenters spotlight tax fraud in construction industry

Union carpenters across the Midwest this week are calling out contractors who commit payroll fraud to gain an unfair leg up in bidding on construction jobs, a practice that drains $136 million from state coffers each year in Minnesota alone, according to one recent study.

In northeast Minneapolis Wednesday, members of the North Central States Regional Council of Carpenters picketed a residential construction site, taking aim at Wisconsin-based Painting America Inc., a contractor on the project, for undermining area wage and benefit standards.

Painting America has faced charges from the Minnesota Department of Labor Industry for illegally misclassifying employees as independent contractors, and union representative Woodrow Piner said former employees have reached out to the Carpenters for help recovering lost wages.

“At some point workers get frustrated by how they’re being treated and look for a change, and they find their way to our office,” said Piner, the NCSRCC’s director for central and southern Minnesota.

“A number of workers from Painting America Inc. have reported being paid off the books, not having withholdings or taxes held off their checks, and not being paid overtime after 40 hours,” Piner said. “And these were workers directly under the supervision of Painting America.”

Contractors who follow the law and pay workers fairly struggle to compete on cost with unscrupulous bidders, driving down standards in the industry. Piner said the practice is most prevalent on multifamily, wood-frame construction sites.

But construction workers aren’t the only ones hurt by employee misclassification and other forms of payroll fraud. It costs taxpayers, too.

In a study issued in January 2021, researchers from the Midwest Economic Policy Institute found Minnesota loses $136 million in state revenues annually due to construction payroll fraud, including $65 million in lost income-tax revenue. Nationally, tax fraud in the construction industry costs the public $8.4 billion per year, according to the Carpenters Union.

“That means hardworking taxpayers are picking up the slack,” Piner said.

Construction payroll fraud also drains $13 million from the state’s unemployment insurance fund and $58 million from the workers’ compensation pool, according to the report. Adding insult to injury, workers misclassified as independent contractors or paid off the books are not eligible to access those funds if they are laid off or injured on the job.

Although payroll fraud persists in Minnesota, the state’s new wage theft law – touted by supporters as the strongest in the nation when it passed in May 2019 – gives state regulators new tools and more resources to crack down on the practice. County attorneys in the metro are increasing their attention on wage theft, too.

That’s good reason, for carpenters on the picket line in northeast Minneapolis, to keep shining a spotlight on the multifamily, wood-frame construction industry.

“We’re looking for elected officials, developers and contractors to pay more attention, to be accountable for what is happening on these projects,” Piner said. “Not only does it hurt the taxpayer, it’s about the dignity of workers.”