A recent post by Joe Paduda, principal of Health Strategies Associates, in his blog, Managed Care Matters, titled “Construction Labor Fraud is Screwing Everyone” was the second in his series on labor fraud and the damage it is doing to the insurance industry. In this issue, he interviewed Matt Capece, representative of the General President at the United Brotherhood of Carpenters and Joiners of America, about how bad the worker’s comp problem has become in some key states like Florida, Georgia, Colorado, Oklahoma and Tennessee.
Capece said, “When we go onto jobsites in Florida, on 8-9 out of 10 sites we hear from carpenters that they are getting paid in cash.” He indicated that subs and labor brokers in Florida are paying in cash with no overtime or any other benefits like vacation, worker’s comp or training. Usually they are also misclassified as independent contractors as well.
According to Capece, “Fraud in the industry is growing. The problem is so large that legislation hasn’t shut it down but has given law enforcement more firepower when a case is found.” The problem is the lack of inspectors and the lack of willingness of the courts to prosecute without strong cases usually when a death or career ending injury occurs. The enforcement is also impacted by lack of funding by the states for enforcement because the Legislators are reluctant to provide funding.
One reason for not funding the law enforcement to go after the labor brokers and companies who are not providing worker’s comp insurance is that the legislators see that strict enforcement creates a burden on small business especially in the construction industry.
When asked, Capece lists 3 things that would most help control payroll fraud:
- “Insurance industry practices need to change from tracking COIs to underwriting and auditing practices to root our (out) corrupt construction businesses.
- Contractors that use labor brokers are putting insurers at increased risk so their premiums should be higher.
- The insurance industry needs to join with stakeholders on investigating corrupt contractors and giving federal and state law enforcement agencies adequate tools and resources.”
In closing, Paduda states, “So there you have it. Corrupt construction firms, aided by crooked agents and brokers, are stealing from taxpayers, insurers, state funds and workers.”