Dive Brief:

Pennsylvania prosecutors allege that a Bethlehem, PA, commercial framing and drywall contractor concocted a scheme to pay misclassified workers through a shell subcontractor in an effort to avoid paying taxes and workers' compensation insurance premiums, The Morning Call reported.

Although they not have not yet brought charges, prosecutors claim that between 2011 and 2013, contractor Mark White paid almost $900,000 to middlemen who, in turn, paid cash to White’s off-the-books employees.

District Attorney John Morganelli, who said charges would be filed against White and his company, Salukas & White Contracting Inc., in the next few days, argued that the misclassification of workers — in construction and other industries — costs the U.S. approximately $35 billion in tax revenue.

Dive Insight:

The District Attorney's office began its investigation into White and his company in 2014 after receiving reports of complaints from local trade groups, which claimed the misclassification of employees and under-the-table payments in the construction industry are "rampant," the Call reported.

"It's very unfair to taxpayers in this country," Kevin Lott, of the Lehigh Valley Carpenters Union, told the Call, "because it's very unfair to businesses that play by the rules, who pay their taxes and workers' compensation."

Attorney F. Emmett Fitzpatrick III, who represents both White and his company, told the Call that White "emphatically denies" the accusations and "intends to defend vigorously against any criminal charges that may be filed against him or his company and to present his side of the story at the appropriate time in a court of law."

According to prosecutors, the grand jury found that White and his company circumvented Pennsylvania's Construction Workplace Misclassification Act and that White perjured himself, which is a felony.

The misclassification of employees has recently emerged as a heightened area of prosecution, according to legal experts.