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November 08, 2018
Should workers report underground businesses?

In addition to government, which is defrauded of tax revenue, workers are often a casualty of the underground economy. Underground businesses are not likely to expend effort to protect workers from occupational hazards, much less comply with federal and state workplace safety rules. And given that a great deal of underground employment involves physically taxing and highly hazardous work, the risk of injury and death far exceeds what is typical in a law-abiding business.

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While the risk may be worth it for individuals who cannot find employment with a legitimate business, government still urges workers to report businesses that operate outside the law. For example, California’s Labor Enforcement Task Force (LETF) notes that its enforcement efforts benefit greatly from leads from the public. The LETF, in fact, lists the kind of information that makes for a good lead, and the better the information, the better the chance the lead will be investigated quickly.

$385 billion tax gap

California’s Employment Development Department (EDD) says that the term underground economy refers to “those individuals and businesses that deal in cash and/or use other schemes to conceal their activities and their true tax liability from government licensing, regulatory, and taxing agencies. Underground economy is also referred to as tax evasion, tax fraud, cash pay, tax gap, payments under-the-table, and off-the-books.”

The EDD notes that the actual size of the underground economy is difficult to measure. In January 2012, the Internal Revenue Service (IRS) released a new set of tax gap estimates for tax year 2006. The “tax gap” is defined as the amount of tax liability faced by taxpayers that is not paid on time. After adjusting for audit and collection activities, the IRS estimated that in 2006, the net national tax gap was approximately $385 billion.

“Reports on the underground economy indicate it imposes significant burdens on the State of California, businesses that comply with the law, and workers who lose benefits and other protections provided by state law when the businesses they work for operate in the underground economy,” states the EDD.

OSHA

The Occupational Safety and Health Act of 1970 gives employees and their representatives the right to file a complaint and request an OSHA inspection of their workplace if they believe there is a serious hazard or their employer is not following OSHA standards. Workers do not have to know whether a specific OSHA standard has been violated to file a complaint. The complaint should be filed as soon as possible after noticing the hazard or lack of compliance because OSHA citations may only be issued for violations that currently exist or existed in the past 6 months.

“Complaints from workers or their representatives are taken seriously by OSHA,” says OSHA. “OSHA will keep your information confidential.”

A good lead

The LETF says it focuses on low-wage industries and high-hazard occupations but, regardless of the industry sector, will review all reported cases of unlawful activity and “handle each case appropriately.”

 “You may remain anonymous when you make your report,” states the LETF. “However, if you leave your contact information, we can ask follow-up questions, which may determine whether we are able to investigate the lead or not.”

If there is uncertainty about whether an employer is breaking the law, the LETF says answers to the following questions will help:

  • Is the employer providing itemized statements to employees?
  • Is the employer paying minimum wage and overtime?
  • Does the employer have a valid workers’ compensation insurance policy?
  • Does the employer provide a safe working environment for employees?
  • Is the employer correctly reporting wages to the EDD and paying payroll taxes?
  • Is the employer operating with the appropriate licenses or registration?
  • Is the employer correctly classifying workers as employees versus independent contractors?

In addition, the LETF’s willingness to act on a lead may depend of the amount and quality of information it receives. Key information includes:

  • Name of registered business or individual employer.
  • The DBA (Doing Business As) name if different from the registered business name.
  • Business telephone number.
  • The number of employees.
  • Length of time the unlawful activity has been going on.
  • The business location and whether the location changes. “We need to be able to locate where the employer and the employees are operating on a given day,” says the LETF.
  • Physical evidence, such as payroll records or a written contract, that would prove unlawful activity.
  • Pictures, e-mails, or video recordings.
  • Names and contact information of other people (especially other employees) who have also witnessed the employer engaging in unlawful activity.

Contact information for the LETF is available here.

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