Skilled Construction Trades and Respected Contractors

Building Wisconsin Together ^®

Welcome to Construction Business Group's Industry Updates. This monthly e-newsletter will help us communicate the important initiatives that we have underway and relevant updates on issues that impact Wisconsin's construction industry.

Message from Executive Director Robb Kahl

A Construction Industry Labor Broker is Finally Convicted in Wisconsin

It took a lot of work by state and federal officials and the team at Construction Business Group (CBG), but Wisconsin finally has a conviction of a known construction industry labor broker. The conviction is believed to be the first prosecution of a construction labor broker in Wisconsin for payroll fraud. Gustavo Reyes, who operated several drywalling businesses in Wisconsin, who was known to routinely misclassify workers, was convicted in U.S. District Court on August 17th on tax evasion charges and was sentenced to 18 months of incarceration, 2 years of probation and ordered to pay $557,907 in federal taxes owed. In addition to the federal criminal charges, Reyes also has had 20 separate liens totaling $2.3 million filed against him or his businesses since 2015 for failing to pay state taxes and unemployment insurance premiums.

Payroll fraud happens when workers, who should be classified as full-time employees, are instead treated as independent contractors or, more commonly, off-the-books workers. Off-the-books workers are paid cash, do not appear on any payroll or employment records whatsoever, and are often victims of wage theft. The ramification of payroll fraud can include tax fraud/evasion, insurance fraud and wage theft. While Reyes has only been convicted of tax evasion so far, it is clear he has a long history of not paying unemployment insurance and paying below-market wages to workers and further state charges are possible.

According to court documents, between 2018 and 2020, Reyes worked with others to create five entities in Dane County, most of which are dissolved, such as Royal LLC, American Drywall and Morales Construction, officials said. He tried to halt IRS collection for five tax years by operating his businesses through nominee entities. He also avoided IRS liens and levies by operating in large amounts of cash that he received from cashing checks at different establishments around the Madison area.

Labor brokers who pay in cash and/or misclassify workers, shortchange taxpayers and workers because they fail to pay payroll taxes, fail to remit unemployment insurance and FICA payments, and fail to claim all their employees on their workers’ compensation insurance policy. Payroll fraud Is not limited to drywall work. CBG investigators have documented payroll fraud in fiber optic work, landscaping, floorcovering, roofing, and many other industry sectors and trades.

It is important to understand that these are not victimless crimes. Workers are exploited by being underpaid and deprived of basic employee benefits. Taxpayers foot the bill when tax fraud occurs. And honest employers pay more in unemployment insurance taxes and workers’ compensation premiums when others cheat the system. Those honest employers also lose out on work opportunities as contractors utilizing Mr. Reyes and other labor brokers can underbid them due to the reduced costs they realize by evading the required tax and insurance payments.

This outcome demonstrates the impact of collective efforts by CBG and law enforcement to expose and eliminate exploitative practices that undermine the well-being of workers and the credibility of our industry. The consequences of misclassification and payroll fraud ripple beyond immediate financial losses, affecting tax compliance, insurance credibility and worker safety. We appreciate the efforts of the US Attorney, IRS Criminal Investigation team and the Wisconsin Department of Workforce Development to finally bring Mr. Reyes to justice.

Building Wisconsin Together®

Fall Externship Days - November 13-15

Please help spread the word with schools in your community about the Fall event with this event flyer and registration link. You can click and print copies for distribution or email as a pdf.

Contractors interested in participating in the fall event should contact Laura Cataldo for more information.

Industry News

Governor Kelly and Kansas Department of Labor Step Up Efforts Against Worker Misclassification Fraud

TOPEKA – Governor Laura Kelly and the Kansas Department of Labor (KDOL) today announced actions and highlighted resources to prevent worker misclassification, which occurs when an employer incorrectly classifies workers as independent contractors rather than employees. KDOL’s Unemployment Insurance Tax/Employer division is hiring additional auditors to continue its work to prevent, detect, and investigate this type of fraud. The agency will also raise public awareness by sharing educational materials on social media.

“Worker misclassification is an issue of fairness to workers, who deserve benefits they’ve rightfully earned, and to the honest businesses that do right by their employees,” Governor Laura Kelly said. “That’s why my administration is taking these steps to protect hardworking Kansans and ensure every business follows the law.”

Kansas employers are required to report wages to the Department of Revenue and the Department of Labor for the purposes of withholding tax, unemployment tax, and workers’ compensation. The intentional misclassification of workers is illegal and constitutes tax and insurance evasion.

Gainfully employed people should be afforded economic stability and security at a workplace where they are treated with fairness and respect. Unfortunately, these allowances are in jeopardy when businesses unjustifiably classify employees as independent contractors. To protect workers and taxpayers, Kansas law imposes penalties against employers who intentionally misclassify a worker as an independent contractor to avoid paying these taxes.

Misclassified workers lose essential protections and rights they would otherwise be entitled to in a traditional employee/employer relationship, including minimum wage requirements, overtime pay, workers’ compensation, unemployment insurance, and anti-discrimination laws. Not only is worker misclassification detrimental to business, workers, and their families, but the financial impacts on Kansas are significant.

“Worker misclassification can lead to unfair competition among law-abiding businesses. A business that attempts to defraud the system cheats workers of vital benefits and adversely affects other businesses,” Labor Secretary Amber Shultz said.

Below are additional ways Kansans can help combat misclassification:

Employers: For information about correctly classifying workers, refer to KDOL’s Employer Toolkit at www.dol.ks.gov/employers or call (785) 296-5027.

Employees: Concerns or tips regarding misclassification can be reported by email to KDOL.uitax@ks.gov or by phone at (785) 296-5027.

To learn more about worker misclassification, visit www.dol.ks.gov/employers and click Worker Misclassification.

FinCEN Notice Highlights Concerning Increase in Payroll Tax Evasion, Workers’ Compensation Fraud in the Construction Sector

Today, the Financial Crimes Enforcement Network (FinCEN), in coordination with IRS Criminal Investigation (CI), issued a Notice to financial institutions calling attention to a concerning increase in state and federal payroll tax evasion and workers’ compensation insurance fraud in the U.S. residential and commercial real estate construction industries. Every year, state and federal tax authorities lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks and check cashers.

The Notice describes how payroll tax evasion and workers’ compensation fraud schemes may involve networks of individuals and the use of shell companies and fraudulent documents. These schemes affect the local and national construction job markets and put legitimate construction contractors and their employees at a competitive disadvantage. The Notice aligns with the Anti-Money Laundering/Countering the Financing of Terrorism National Priorities and provides financial institutions with an overview of the underlying schemes, red flag indicators, and specific Suspicious Activity Report (SAR) filing instructions.

States submit federal grant application for Blatnik Bridge reconstruction work

Repairing and replacing the aging Blatnik Bridge in Superior requires a lot of money (an estimated $1.8 billion by 2028) and commitment. This week, Wisconsin and Minnesota took the crucial next step toward ensuring the money is there to actually do the work.

In a press release Monday, Gov. Tony Evers announced the two states formally applied for federal grant funding (through the Bipartisan Infrastructure Law) to get started on the Blatnik rebuild.

“This project is an effort that’s been years in the works, and in partnership with Minnesota, our departments of transportation are ready to take advantage of this federal funding to make the investments needed to see this project over the finish line,” Evers said in the release.

Through the 2023-25 budget, the Legislature and the governor committed about $47 million in transportation funds and authorized another $353 million in borrowing for the project. Minnesota committed comparable amounts, too, demonstrating to the U.S. Department of Transportation that the two states are prepared to proceed with work.

“From both an economic development and safety perspective, the reconstruction of the Blatnik bridge should be one of not only our region’s but our nation’s top transportation priorities,” WTBA Executive Director Steve Baas said.

“I am pleased by the leadership and partnership shown by WisDOT and MnDOT and optimistic that they have made a compelling case to Secretary Buttigieg and the U.S. DOT about the importance of this project.”

Opened in 1961, the Blatnik Bridge is a key economic driver for the Twin Ports and the Great Lakes region. About 33,000 vehicles cross the bridge daily and it allows the transport of more than $3.5 billion in American and international goods every year.

However, the bridge has many structural deficiencies and has been posted at 40 tons since 2019.

WisDOT and MnDOT anticipate revealing their preferred replacement option in October. If federal funding is secured, construction could begin in 2027.

STUDY: Indiana's Union construction Apprenticeship Programs Outperform Universities on Training, Diversity, Debt, and Wages for Graduates

La Grange, IL: Union apprenticeship programs in Indiana’s construction industry deliver more training hours and better diversity outcomes, and result in average earnings for graduates that actually exceed other types of workers with four-year college degrees, according to a new study by the Midwest Economic Policy Institute (MEPI) and the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign. . And, as the construction industry combats a historic labor shortage, the report concludes that union programs are outperforming the nonunion alternative in the production of new construction apprentices.

Read the report, “Construction Apprenticeships as a Career Development Alternative in Indiana: Enrollment, Diversity, Hours, Completion Rates, and Earnings in Registered Apprenticeship Programs.”

To assess the state of construction workforce training in Indiana, MEPI and PMCR researchers utilized 2010-2020 data from the U.S. Department of Labor’s Registered Apprenticeship Partners Information Management Data System (RAPIDS). The researchers also used Current Population Survey data from the U.S. Bureau of Labor Statistics to contrast the performance of union and nonunion apprenticeship programs in Indiana’s construction industry with graduates of two- and four-year college degree programs.

Full Article

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