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Payroll fraud rife in construction in Illinois

Construction workers face a greater risk of workplace injuries. But a recent report found that construction workers in Illinois, Wisconsin and Minnesota were victims of widespread payroll fraud. This apparent violation of federal and state wage and hour laws impacted 52,000 or 20 percent of Illinois construction workers.

Misclassification

This report was prepared by the Illinois Economic Policy Institute and the Midwest Economic Policy Institute which are organizations funded by construction trades unions. Its conclusions were based on comparing household survey data from the U.S. Census Bureau with payroll records filed with state unemployment compensation programs.

The fraud typically involves misclassification of workers as independent contractors and paying them off the books. They are paid around a third less than employees who are legally compensated.

Although fraud can occur on any job, according to the Illinois Economic Policy Institute, most of these underpayments occurred in residential work. This payroll fraud involved almost 100,000 workers out of a total 538,000 workers in the three states, according to the report.

Tax loss

Including lost wages and benefits, the wage underpayments cost Illinois $186 million in tax revenues. The tax loss for the three states was $362 million in 2018, according to the report.

States lose tax revenue when employers do not pay required payroll taxes or make unemployment and workers’ compensation contributions.

Enforcement

For construction of government-financed projects, the Illinois Prevailing Wage Act requires that contractors and subcontractors pay the prevailing wage rates in the locality where the construction occurs.

The Institute called for increased enforcement of this law and more unemployment insurance audits. It also recommended laws requiring compliance with wage and hours laws as a condition for obtaining zoning approval and construction permits.

Minnesota, as one example, approved a law in 2019 that contains fines of up to $100,000 and imprisonment for up to 20 years for an employer who commits payroll fraud. Even if Illinois imposes similar penalties, however, enforcement is required to assure contractor compliance.

Payroll fraud is costly for workers and impacts their ability to provide for their families and pay their daily living expenses. An attorney can help them pursue legal actions for their wages and damages under federal Fair Labor Standards Act and Illinois’ wage laws.