Dive Brief:
- Florida contractor Carlos Contreras, doing business as DJC Builders & Construction, was arrested last month after a Florida Department of Financial Services (DFS) investigation determined that he underreported his payroll and the number of employees he had in order to avoid paying approximately $1 million in workers' compensation insurance premiums, according to the Insurance Journal.
- Authorities charged Contreras with one count of knowingly concealing payroll and one count of scheme to defraud after he wrote almost $6.5 million of employee checks from January 2017 to August 2017 but reported on his insurance application that his annual payroll was a little less than $274,000. According to DFS, Contreras also misrepresented the kind of work the company performed, which also would have resulted in a higher premium.
- If convicted, Contreras faces up to 60 years in prison.
Dive Insight:
Workers' comp fraud is not limited to only Florida, and there are various ways employers try to avoid paying the appropriate insurance premiums. According to the Coalition Against Insurance Fraud, some businesses will report their employees are doing less risky work to avoid high insurance costs. For example, a contractor with 10 employees who perform excavation work might inaccurately report that five of those workers perform janitorial services, which would be billed at a lower premium rate than the risky job of working in trenches.
Another way employers might try to illegally lower their workers' comp bill is to misclassify their employees as independent contractors because they don't have to pay workers' comp insurance premiums on them. William Canak, a professor at Middle Tennessee State University and a workers' comp and employment policy expert, told Construction Dive last year that approximately 20%-30% of construction workers are misclassified this way. He said that in these cases not only are employers not paying workers' comp premiums, but they're likely not paying employment taxes or unemployment insurance either.
This reduces those contractors' overhead, giving them an unfair advantage over their competitors during the bidding process.
But state authorities have caught on to these schemes and, like the Florida DFS, are actively pursuing these fraudsters. Louisiana authorities recently announced the new GAME ON (Government Against Misclassified Employees Operational Network) workers' comp fraud task force, according to WorkersCompensation.com. The multi-agency initiative will pursue fraudulent activity in the construction industry, as well as other business areas that, in the past, have engaged in misclassification of employees as a way to get out of paying workers' comp premiums.
