Tennessee Department Of Labor And Workforce Development Focuses On Tax And Insurance Fraud In Construction Industry

  • Wednesday, September 25, 2013

The Tennessee Department of Labor and Workforce Development is taking new measures to ensure employers in the construction industry are protecting workers who are injured on the job or need unemployment benefits.

Legislation that became effective July 1, gives the department the authority to issue civil penalties against construction service providers who have avoided workers’ compensation and unemployment insurance tax premiums.  The department will also refer cases involving business operations that are in violation of the law to the Tennessee Bureau of Investigation or the appropriate district attorney general for criminal investigation and prosecution.

The department will investigate employers who fraudulently misclassify employees as independent contractors, under-report the number of employees, under-report the amount of payroll, misrepresent the type of work performed, or make unlawful workers’ compensation deductions from employees’ salaries or wages.  Employers who pay workers “off the books” or in cash often do so in order to avoid proper classification of their workers.  The department will obtain Fraud Detection Software to assist in identifying potential suspects.   

“This will help level the playing field for construction companies that provide insurance for their employees, but end up losing bids when others cut corners,” said Labor Commissioner Burns Phillips. “The department continues to work with stakeholders including government agencies and employers to ensure the appropriate actions are taken.”

Companies proven to have committed fraud are subject to a penalty of $1,000 or one and one-half (1 ½) times the average yearly workers’ compensation premium minus the premium dollars paid on the policy that was the object of the understatement or concealment, whichever is greater.

Based on estimates there are between 21,990 and 36,680 misclassified and unreported construction industry workers.  In Tennessee, misclassified and unreported workers are estimated to range from 11 to 22% of all workers in the construction industry (Misclassified Construction Employees in Tennessee. Dr. William Canak and Dr. Randall Adams, 2010). 

At least 34 other states have enacted legislation to locate noncompliant employers and deter unlawful practices.

Those wishing to report suspected employee misclassification in the construction industry may contact the Fraud Tip Line at 888 243.7283. A fraud tip form, as well as information about misclassification, can be found at http://www.tn.gov/labor-wfd/EMEEF/misclass_main.shtml.  The public is also invited to participate in Employee Misclassification Advisory Task Force public meetings which are posted at https://apps.tn.gov/pmn/index.html.

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