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Contractors scoff at new law to catch tax cheaters

By Darryl Enriquez

The state is on its own trying to nab tax cheaters in the industry, according to contractors who said they would not report colleagues who misclassify their workers.

“I want to agree with the legislation, but I just don’t trust them (government officials),” said Rich Steele, vice president of Allen Steele Co. Inc., Lake Delton. “We follow the rules, and it bothers me when my competitors don’t.

“No, I wouldn’t report them.”

A new state law gives the state Department of Workforce Development the teeth to fine contractors and subcontractors up to $25,000 for each incident in which the state catches employers ignoring their obligation to pay workers unemployment, workers’ compensation and Social Security benefits or for not withholding state and federal taxes.

Contractors can get around making the payments by listing work site employees as independent contractors and telling workers they will be paid only in cash and receive no benefits. Prior to the law, the only way for the state to catch illegal misclassifications of workers as independents was through audits.

DWD doles out unemployment checks to out-of-work construction workers, and the agency wants to make sure the benefits are paid while workers are drawing paychecks, said Hal Bergan, administrator of the Division of Unemployment Insurance of the DWD, on Wednesday shortly after Gov. Jim Doyle signed the law.

The new law has two components — enforcement and education. The state agency will hire four inspectors to follow up on tips about potential cheats and to make unannounced visits to work sites to check potential violations, Bergan said Wednesday.

Based on contractors’ reactions to the law, enforcement will be a struggle.

“The practicality eludes me on how in the hell they are going to do this,” said Tom Altman, vice president of Altman Construction Inc., Wisconsin Rapids.

Contractors stressed it’s not within the customs of their industry to report on each other or dig too deep into competitors’ compensation practices. Stan Johnson, president of A.C.E. Building Service Inc., Sheboygan, said he wouldn’t report a known violator, preferring the issue be handled in other ways that do not directly involve his firm.

Bergan on Wednesday said he is unsure about what method would uncover the most violations — tips or site visits. He said tips could play a large part and unannounced site visits would occur regularly.

The law attempts to level the playing fields on which contractors compete for jobs through bids, Bergan said.

If one contractor lowers labor costs by illegally omitting unemployment, Social Security and other taxes, firms that adhere to compensation rules could be priced out of bidding, he said.

Bergan said Wednesday that educating contractors and subs on the legal differences between a staff worker and an independent contractor would ultimately bolster enforcement and reporting efforts. He added that some contractors don’t know the difference between the two classifications and are simply following practices of their predecessors.

Bergan predicted it would take time for contractors to embrace the new law. He could not be reached for a response to the contractors’ reactions on Thursday to the new law.

Mark Reihl, executive director of the Wisconsin State Council of Carpenters, pushed to get the new law passed. He said studies on the issue from Illinois and Minnesota show that misclassifying workers as independents can slash labor costs by 30 percent or more.

Yet contractors need to police their subcontractors and handle problems themselves, Altman said. Subs caught cheating on paying wages and taxes are let go.

Steele said he’s skeptical of a government agency trying to step into an industry that is capable of handling its problems.

“All these rules and regulations,” he said. “Are they there just to make government jobs and collect fees from contractors that are barely making it?”

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