Op-ed: Construction industry tax cheats need to be held accountable

Taxpayers put their trust in elected officials to ensure that responsible contractors pay local workers properly to complete the infrastructure work we all rely on. Unfortunately, Pennsylvania has construction organizations that do not meet the standards the taxpayers deserve. That is why Pennsylvania Attorney General Josh Shapiro must be commended for filing criminal charges against Glenn O. Hawbaker Inc., a construction company whose project manager, Tim Kessling, chairs the influential Associated Builders and Contractors Association of Central Pennsylvania. The company is charged with stealing millions from its employees’ retirement, health, and welfare money.

According to Shapiro, individual workers lost tens of thousands of dollars from their retirement. His office has accused Hawbaker of using workers’ fringe benefit funds to lower their costs, and thereby increase profits, which would be in violation of Pennsylvania’s Prevailing Wage Act and the federal Davis-Bacon Act. The charges include that instead of putting money into workers’ 401(k) accounts for prevailing wage workers, the company used some of it to pay other workers’ pensions.

Hawbaker has received an estimated $1.7 billion in project funding from the Commonwealth of Pennsylvania to date and has built hundreds of roads and bridges. The charges raise questions about how many workers got ripped off in the process.

But it also raises larger questions about wage theft and the misclassification of workers as “subcontractors,” neither of which is new. The Attorney General’s Office notes that this is its third prosecution in recent months related to wage theft and worker misclassification. Unscrupulous construction companies have been cheating employees and taxpayers for decades by skipping out on paying their full tax liability. A 2020 study from researchers at Harvard and Michigan State Universities and Allegheny College found that federal, state, and local governments lose an estimated $8.4 billion a year in tax revenue from the industry.

According to the research, more and more contractors are employing labor brokers who pay their workers under the table and keep them off the books — failing to pay and report correct payroll numbers to tax authorities and insurance officials. There are an estimated 2.16 million construction workers in the U.S. who are misclassified as “independent contractors,” when in reality they are actually employees.

These construction industry tax cheats fail to pay their workers fair living wages and rarely provide medical coverage, while also evading federal, state, and local taxes, overtime, and workers’ compensation premiums. This gives them a tremendous competitive edge when it comes to bidding on both public and private jobs against law-abiding contractors who absorb all the costs related to paying taxes and health, retirement, and workers’ compensation benefits.

Leaders in other states are also stepping up to the plate to combat worker misclassification. The New York state Department of Labor and the Manhattan District Attorney’s Construction Tax Fraud Force pushed through an agreement with a construction company that will return approximately $6 million in wages to exploited construction workers.

D.C. Attorney General Karl Racine authorized an in-depth study entitled “Economic Analysis of Incentives to Fraudulently Misclassify Employees in the District of Columbia Construction.” The study found that in the District, an estimated 20% of project costs are additional profits for contractors who misclassify their workforce.

The overwhelming majority of Americans pay their fair share of taxes. Aside from the dramatic impact on our federal Treasury — estimated to be $450 billion a year in revenue lost to unpaid taxes — state and local governments throughout the country lose millions each year when construction and other companies pay their workers off the books, or intentionally misclassify them as “independent” contractors, or steal their wages. Elected leaders like Shapiro and Racine should be models for other attorneys general and law enforcement officials throughout the country — and we encourage others to crack down on this issue.

William Sproule is executive secretary-treasurer of the Eastern Atlantic States Regional Council of Carpenters.