On July 22, 35-year-old Mattias Miguel-Baltazar fell to his death at a construction site in Chesterton. Though he had an Indianapolis address, he was carrying a Guatemalan identification card, spurring an (as yet incomplete) investigation into whether he was legitimately on the payroll of the contractor doing the work.
Payroll fraud is an all too common practice in the construction industry, especially by nonunion contractors. Not only does it defraud taxpayers, it also creates the conditions for tragic accidents like the one that ended Miguel-Baltazar’s life. Simply put, a contractor willing to cheat on his payroll taxes is probably cheating on other parts of the job – materials, craftsmanship, safety – as well.
Now, some people might argue that accidents do happen on construction sites from time to time (sadly true) and that if paying people under the table lowers costs as well, that’s a good thing, right? Gets the job done, saves taxpayers money, what’s the harm?
Well, for one thing, I’m not buying that a cheating contractor is running a safe work site. If that contractor wants to prove to me that they care about the health and safety of their workers, paying them fairly and providing health insurance is a good place to start.
But beyond that, payroll fraud doesn’t save you money as a taxpayer or a private citizen. In 2010, a study found that payroll fraud costs Indiana more than $400 million a year, including $100 million in unpaid local income taxes. Who do you think pays those taxes instead (hint: look in a mirror).
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Sure, payroll fraud allows cheating contractors to cut labor costs by as much as 30%, so you think you can get your project done that much cheaper. Well, guess what? You’re still going to pay. According to a 2017 Smart Cities Prevail20 study, at least $2.6 billion in state and federal income taxes, Social Security and Medicare taxes went unpaid due to employers paying 1.2 million construction workers off the books and lying about another 300,000, calling them “independent contractors.”
The bottom line is that your taxes are higher because these contractors are cheating and breaking the law. They aren’t paying their fair share, and they’re most likely producing inferior work and endangering lives in the process.
Oh, and if you’re a business owner? A study done at the University of Missouri estimated that $831.4 million in unemployment taxes and $2.54 billion in workers' compensation premium losses are shifted by cheaters to law-abiding companies. You’re getting played if you shrug at payroll fraud.
To their immense credit, this reality was already penetrating the leadership of some local communities even before Miguel-Baltazar’s death, with Portage, Merrillville and Hobart all passing tax fraud ordinances earlier in the year. These require contractors to comply with the law and pay employees as employees, not bogus independent contractors. Valparaiso was the most recent community to put such an ordinance on the books.
I urge all communities in the Region who want to make sure that their construction projects are done by responsible, safe and fully qualified contractors to consider passing a responsible bidder ordinance, tax fraud ordinance and project labor agreement ordinance as soon as possible. All three of these ordinances can co-exist in the same municipality. It makes financial sense, you’ll get better work, a local workforce, and you just might save a life.