California agencies target 'underground economy'

SANTA CRUZ - Aptos contractor Jeff Talmadge recalled the time he bid on a job for $250,000 while a competitor bid half that amount.

Later, he read that his competitor was cited for not paying workers' compensation and paid a fine as a result.

The competitor is still in business, according to Talmadge. Talmadge is a member of the Santa Cruz Construction Guild, a network of local tradesmen that requires members who are contractors to be licensed and recommends scofflaws be reported.

Two years ago, the state Department of Industrial Relations was tasked with running the newly formed Labor Enforcement Task Force to combat "the underground economy" -- businesses paying employees in cash, eliminating the expense of paying taxes and workers' compensation insurance.

This puts operators who follow the rules at a disadvantage and all Californians feel the effects of tax revenue shortfalls.

The size of the underground economy is difficult to measure, but early this year Department of Industrial Relations director Christine Baker told the Little Hoover Commission that the state loses from $800 million and $1.2 billion each year from employers paying workers in cash, failing to pay into the workers' compensation fund or wrongly classifying employees as independent contractors and not paying for their benefits.

The state's roofing industry is under particular scrutiny after 367 falls were reported in three years, resulting in $70 million in compensation and medical costs. Following tips, the task force cited more than 60 violations in less than a year.

The Labor Enforcement Task Force involves nine agencies, with the goal to be more efficient and more effective.

Participants include the Division of Occupational Safety and Health, Employment Development Department, Contractors State License Board, Bureau of Automotive Repair, Agricultural Relations Board, Department of Insurance, Labor & Workforce Development Agency and the Attorney General and district attorneys throughout the state.

The joint effort gives inspectors more enforcement tools. Last year, 40 percent of the joint inspections resulted in violations by every participating agency.

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California agencies target 'underground economy'