After two long years of investigating tax cheats the state of Connecticut put the hammer down on companies scamming the payroll taxes and workers’ comp system by misclassifying employees as independent contractors. A closer look at the construction industry revealed worker misclassification and tax fraud are just the tip of the iceberg. Other criminal offenses include worker exploitation, hiring undocumented workers and identity theft to name a few all in the name of greed.  How wide spread is the problem in Connecticut? A team of state labor department employees issued 220 stop work orders during the past 22 months, a rate that far exceeds New York and Massachusetts.

Worker misclassification has plagued our nation for years and the tax cheats appear to be winning. Not so fast.  States like California, New York, New Jersey and Massachusetts state authorities have been winning the war for quite some time. Joining the ranks is Delaware who became the latest state to impose stiff penalties on construction industry employers who improperly classify employees as independent contractors. Enforcement programs or “feet on the street”, a  task force comprised of state and federal agents are how these states are shutting down illegal operators.

The payoff? In New York, authorities recovered more than $4.8 million in unemployment taxes since September 2007, issued more than $1 million in unemployment insurance fraud penalties, and more than $1.1 million in workers’ compensation fines and penalties. In Massachusetts, authorities recovered $1.4 million between fines, unpaid wages and tax assessments.