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Report: Wage theft, payroll fraud hurting WI construction workers

Volker Kreinacke/sculpies - stock.adobe.com

A new report finds declining wages in the construction industry, fueled by wage theft and payroll fraud, are pushing more construction workers into social-support programs.

The analysis, by the Labor Center at the University of California-Berkeley, found between about 12% to 21% of construction workers across the country are either misclassified as independent contractors or paid under the table, depriving them of health insurance and other employer-provided benefits.

Peter Barca, secretary of the Wisconsin Department of Revenue, said the practice is cheating.

"These scammers, many of whom are coming into the state surreptitiously, they're cheating the state out of revenue," Barca asserted. "Worse, they're cheating workers by misclassifying them. They're cheating law-abiding companies within the state, and they really cheat everybody."

The report noted 15% of construction workers in Wisconsin do not have health insurance, more than twice the rate of all workers in the state, and $207 million is spent annually on social-support programs, such as SNAP and Medicaid, to support families of construction workers.

Last month, a task force empaneled by Gov. Tony Evers released new recommendations to tackle wage theft and payroll fraud, which include bolstering penalties and tracking policies for the illegal practices.

Barca acknowledged it is difficult to nail down exactly how much money has been lost to payroll fraud in Wisconsin in recent years. As the state's report describes it, wage theft is an "underground economy" hidden from regulators.

"I'll give you an example: When contractors or companies come into the state, they're obligated under state law to register with the Department of Financial Institutions," Barca outlined. "But many of them don't do it, and DFI has no authority to fine them, penalize them and even to investigate them."

Barca noted he would like to see lawmakers take up some of the task force's recommendations during next year's legislative session.

Adam Duininck, director of government affairs for the North Central States Regional Council of Carpenters union, said adopting such laws would benefit all taxpayers.

"Construction industry tax fraud affects everybody," Duininck contended. "You have this workforce that's not being paid. There's payroll taxes [that] aren't paid on them, unemployment insurance, health care that they may use. It ends up costing us as taxpayers. We have to pick up the tab."

Per the Berkeley report, more than a quarter of families of construction workers in Wisconsin are enrolled in a social-support program, significantly lower than the national rate for construction families of nearly 40%. Almost a fifth of Wisconsin's construction workers are in a union, compared with just over 13% nationally.

Jonah Chester is Wisconsin Public Radio's 2022-2023 Mike Simonson Memorial Investigative Reporting Fellow embedded in the Wisconsin Watch newsroom. He most recently worked at Public News Service, a national radio news service, where he covered Wisconsin, Illinois and Indiana. He previously produced the 6 O'Clock News at WORT 89.9 FM in Madison, where he won numerous awards from the Milwaukee Press Club and Wisconsin Broadcasters Association for his reporting on issues in Dane County and south-central Wisconsin.
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