How Construction Cons Steal Workers-Comp Premiums

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How Construction Cons Steal Workers-Comp Premiums


[xen_text text_style=”p-style-medium”]A troubling trend of construction firms illegally hiding workers in shell companies to avoid paying state-required workers-compensation coverage began emerging in Florida in the early 2000’s.

Historically, dishonest contractors low-balled large amounts of their payroll, undetected. The goal was to under-report employees and salaries and lie that employees worked safer jobs than they really did.

Fewer employees, lower payroll and safe jobs reduced workers-compensation premiums. Dishonest construction firms can illegally shave hundreds of thousands of dollars in premiums a year. They can also save up to 30 percent or more on contractor labor costs. 

The shell-company schemes allow this deception and illicit savings on a much larger scale. Those Florida shell companies were a visible warning of a national trend in workers compensation premium fraud. Exact fraud losses are in short supply, yet shell-related schemes likely steal billions of workers-compensation insurance dollars a year, skew honest market competition and contribute to higher workers-compensation premiums.

Shell schemes often were discovered only when employees started making claims for often-tragic work injuries such as falls from scaffolding. Hidden in shell companies, insurers had no idea of the number of employees creating potential injury exposures.

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    The Result? Workers-compensation insurers in Florida collectively were liable for millions of dollars in benefits, payable to injured employees they knew nothing about until receiving claims for work injuries.[/xen_text][xen_text text_style=”p-style-medium”][/xen_text][vc_empty_space height=”30px”][vc_row_inner][vc_column_inner width=”1/2″]

Shell networks expanding

The trend today: Shell schemes in construction have risen to new levels of scope and sophistication in the last 10 years. Networks of dishonest specialty contractors, labor brokers, facilitators, paid straw shell owners and check-cashing stores can avoid far more workers-comp premiums and taxes than the traditional premium scams. Shell schemes also have spread to other states, especially states with large construction activity.

Shell schemes generally have these illicit goals:

  • Remove and hide payroll to avoid workers compensation premiums, state and federal payroll taxes, and overtime pay;
  • Covertly allow cheap cash-paid labor onto work sites;
  • Create a fraudulent layer of insurance coverage between the employer and injured workers; and allow construction contractors and sub-contractors to under-bid honest competitors.

[/vc_column_text][vc_column_text]Construction projects are managed by owners or general contractors. Gone are the days when general contractors’ own employee built housing subdivisions, office complexes and other buildings. Specialty subcontractors now are typically hired to do work such as excavation, plumbing, electrical work, concrete work, framing and drywall.

“Shell owners usually create false identities for themselves using bogus yet official-looking government identification …”

Specialty subcontractors, also looking to reduce their payroll burden, hire labor brokers. They oversee a large, transient and uninsured workforce. The brokers supply the labor for the construction work to be performed. The brokers are not “companies” per say, rather they act more like company foremen or field supervisors. They also may be someone simply with phone numbers of dozens to hundreds of workers to place on a job site while supervised by the specialty subcontractor. Labor brokers are key cogs in sophisticated shell scams.

Then there are “facilitators.” They know construction and statutory requirements for insurance coverage and recruit someone as straw owner of the shell company, where workers will be hidden. Shell owners usually create false identities for themselves using bogus yet official-looking government identification. In Florida, for example, the ID might be a fraudulent Florida driver license.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_basic_grid post_type=”post” max_items=”3″ grid_id=”vc_gid:1655818686591-c998b4c2-6803-2″][/vc_column][/vc_row]