A troubling trend of construction firms illegally hiding workers in shell companies to avoid paying state-required workers-compensation coverage began emerging in Florida in the early 2000’s.
Historically, dishonest contractors low-balled large amounts of their payroll, undetected. The goal was to under-report employees and salaries and lie that employees worked safer jobs than they really did.
Fewer employees, lower payroll and safe jobs reduced workers-compensation premiums. Dishonest construction firms can illegally shave hundreds of thousands of dollars in premiums a year. They can also save up to 30 percent or more on contractor labor costs.
The shell-company schemes allow this deception and illicit savings on a much larger scale. Those Florida shell companies were a visible warning of a national trend in workers compensation premium fraud. Exact fraud losses are in short supply, yet shell-related schemes likely steal billions of workers-compensation insurance dollars a year, skew honest market competition and contribute to higher workers-compensation premiums.
Shell schemes often were discovered only when employees started making claims for often-tragic work injuries such as falls from scaffolding. Hidden in shell companies, insurers had no idea of the number of employees creating potential injury exposures.