Abuses cheat taxpayers, workers

Introduce one kind of lawbreaking to the workplace — immigrants on the job illegally — and other cheating follows.

The result swindles workers, the government or both.

Businesspeople, unions and immigrants list a variety of tricks used to game the system. Such tactics aren’t exclusive to job sites with immigrants in the country illegally. But the use of an illicit work force sets the tone, and can offer easier opportunity because workers here illegally — with poor English, little education, vulnerable to deportation — stand particularly vulnerable to the abuses.

• Some immigrants get paid in cash — meaning no money goes to taxes, to unemployment insurance, to workers’ compensation. In one local survey, 12 percent of immigrants said they were paid in cash.

• Others are paid on the books but treated as independent contractors. That avoids payroll taxes and the paperwork that might identify the company as the employer of illegal manpower. The workers become subject to self-employment taxes, radically deflating their wages if they obey the law.

• Even immigrants getting legitimate paychecks often aren’t offered health insurance — or immigrants perceive the premiums as too expensive — so when workers end up in the emergency room, the hospital or taxpayers absorb much of the cost.

• Workers can inflate the number of dependents to reduce their tax withholding. The employee’s true tax liability doesn’t change, but his take-home pay goes up without affecting the boss’ bottom line.

Consider a certified payroll for one rebar subcontractor on the taxpayer-subsidized apartment building in Kansas City’s Jazz District. The workers were clearly on the books as employees, paid solid wages with state and federal taxes withheld.

Yet along with sham Social Security numbers used by the crew, all but one of 19 workers listed themselves as married, and all but four claimed seven to nine dependents (claiming 10 or more requires a special consent form). Although it is illegal to provide false information to the Internal Revenue Service, workers in seasonal businesses such as construction often inflate their dependents.

Kim Alley, vice president of Rebar Setters, said the company meets its obligations in establishing that its workers are properly identified and eligible to work. No one at the company would advise an employee to lie on a W-4 form, she said. A local labor union is focusing attention on the company, she said, because it is an “open shop” that employs nonunion workers.

“We’ve had (immigration authorities) in here three times in the past few years, and our documentation is fine,” Alley said. “We have done everything aboveboard and beyond.”

An official with Immigrations and Customs Enforcement said the agency shows no audits for the past three years but couldn’t vouch for the time before that.

The certified payroll also indicates Rebar Setters wasn’t withholding Kansas City’s 1 percent earnings tax, meaning lost revenue for the city.

An accountant for the firm said the tax was withheld for the city but couldn’t explain why that didn’t appear on the payroll record. A City Hall official said certified payrolls are a reliable way to check if the tax is paid by the employees.

“We need to make sure the appropriate taxes are being withheld and that they are being sent to the city,” said Deb Hinsvark, Kansas City’s chief financial officer. “We need to do a better job, and we are heading in that direction” by having an external audit team working by the end of the year.

Such practices infuriate unions, who believe immigrants are often used to undercut their rates. They’ve complained long and loud to City Hall.

“It’s not fair to any hard-working American citizen,” said Dave Coleman, an organizer for Ironworkers Local 10.

“Why should we pay more taxes than they have to? We’re very frustrated that the city will let a contractor come in and they’re not held to the same standard as our good local contractors.”