A report released by the University of California Berkeley Labor Center reveals that 39% of construction worker families nationwide are forced to enroll in one or more safety net programs to make ends meet - higher than the 31% of all workers enrolled in such programs. The yearly cost to state and federal governments to fund these programs is $28 billion. Additionally, 31 percent of construction workers lack health insurance coverage, compared to 10 percent of all workers. Researchers attribute their findings to low pay, wage theft and illegal employment practices in the construction industry.

“This report shows just how outrageous the common, illegal business practices in the construction industry really are,” said Douglas J. McCarron, General President of the United Brotherhood of Carpenters and Joiners of America (UBC). “It demonstrates that, not only are cheating contractors hurting construction industry families, but they are pocketing profits at the expense of taxpayers. We have a construction industry that rewards low-road employers and turns a blind eye to white-collar crimes against blue-collar workers. The result is that taxpayers foot the bill.”

The authors of the report explain how construction, one of the nation’s largest industries, once helped pave a pathway to the middle class for non-college-educated workers. But today, as unionization declines and government entities fail to enforce labor standards, the industry is heading down a different road: The labor standards enforcement void created by declining unionization in the industry has not been filled. Without government intervention, construction workers should expect to continue to be exploited and cheated, and lawful contractors should expect to find it more and more difficult to remain in operation.

A 2019 report by economists found that up to 20.5 percent of U.S. construction workers are illegally classified as independent contractors or paid off the books. The resulting state and federal tax losses, using mid-range numbers, amount to $8.4 billion a year. Workers’ compensation insurers lose $2 billion. Additionally, construction workers have almost a billion dollars a year in wages stolen from them, and to add insult to injury, employers foist onto workers’ backs $3.48 billion in Social Security, Medicare and other employment taxes that they should be paying.

“Good employers and good jobs that support strong families and create a strong middle class are no accident of history. They are the result of hard-working people in the labor movement and the employers, legislators and allies who united to organize for progress,” said UBC General Vice President Frank Spencer. “This report needs to be a wake-up call to the construction industry, legislators and law enforcement. You better believe that the UBC will continue to take action.”

Regional councils affiliated with the UBC will protest construction worker abuse and tax fraud in the industry April 13-16 throughout the United States and Canada.

UBC Releases Comprehensive Tax Fraud Report

The UBC has released its first-ever study to measure the national scope and extreme financial costs of construction industry tax fraud. The report, titled How Cheating Hurts Us All: The Costs of Fraud in the Construction Industry, provides an in-depth analysis of the scope, scale, and impact of the tax fraud issue on workers, businesses, and American taxpayers. The report also marks the first attempt to study this issue in more than 30 years.

“Rampant tax fraud in the construction industry is not just a labor issue or an issue of workers’ rights; it’s an issue of fairness,” said United Brotherhood of Carpenters General President Douglas J. McCarron. “When corrupt businesses cut corners to dodge their tax responsibilities, their tax burden doesn’t simply go away; it shifts to their employees, to law-abiding businesses, and to the American people. Workers, responsible businesses, and taxpayers are fulfilling their civic duties and paying their fair share. It’s only right that these businesses do the same.

“We commissioned this report by leading researchers because, for years, the main challenge slowing law enforcement and legislative action on combating tax fraud was a lack of data. Now, with the release of this report, we are showing the enormous scale and impact of this issue and providing government officials with the knowledge to do something about it. We cannot allow businesses to continue to commit this fraud at the expense of our workers, our families, and our communities. It’s time for our leaders to step up and take action.”

Construction industry tax fraud refers to a set of practices that construction firms and business owners use to reduce or eliminate their tax burdens in order to boost their profits and lower costs. Tax fraud, also known as payroll fraud, can include intentionally misclassifying full-time workers as independent contractors or paying them “off-the-books” in cash-only arrangements. By committing this fraud, businesses dodge their responsibilities to provide legally required worker benefits like workers’ compensation, unemployment insurance, and overtime pay. And because this fraud allows corrupt businesses to evade their taxes, workers, law-abiding businesses, and American taxpayers are forced to cover tax losses and shoulder the full costs of Social Security, Medicare, and other state and federal programs.

UBC commissioned this report to measure the incidence of tax fraud across the United States and the costs associated with this fraud, including tax losses, revenue shortfalls, and lost wages. The report, which relies on household surveys and 2017 payroll records, found instances of tax fraud on 12.4% to 20.5% of construction sites, affecting 1.3 to 2.16 million workers nationwide. It also found that tax fraud robbed workers of at least $811.1 million in overtime pay, offloaded approximately $3.5 billion of businesses’ employment taxes onto workers, and led to combined state and federal tax losses of approximately $8.4 billion. The full report is available here. 

The report arose from concerns about a lack of public information and relevant data on the tax fraud issue; the last government-issued report on this topic was published by the IRS in 1984. Without relevant data, lawmakers, regulators, and law enforcement cannot develop the tools or the expertise to combat tax fraud. This report seeks to address that challenge by demonstrating the enormous scale of construction industry tax fraud and proposing solutions and action steps for government and law enforcement officials to respond to it. 

Regional Councils to Hold National Days of Action Events to Raise Awareness, Demand Action on Tax Fraud Issue

In April, UBC members will take part in the 2nd Annual Tax Fraud Days of Action, a week-long series of public events to raise awareness about construction industry tax fraud. UBC regional councils across the United States and Canada will hold more than 100 events in 75 cities to organize workers around this issue and to call on government officials to fix it. The events will take place April 14-18 to coincide with National Tax Day. Learn more about this issue or the Tax Fraud Days of Action by visiting stoptaxfraud.net/standup/.