By This form of fraud is a very common practice hurting many hard working janitors throughout the country. Unscrupulous companies take advantage of janitors who often don’t speak English, may be undocumented or simply oblivious to employment laws and protections.
A janitorial employee provides his/her time and efforts in exchange for wages. Equipment, tools, materials, supervision, a schedule and work instructions are provided by the employer. This type of worker must have payroll taxes withheld from their paychecks and receive a W2 to file income tax returns. In this work relationship the employer (payer) keeps control over the employees schedule and modus operandi.
A janitorial subcontractor is in the business of subcontracting from larger companies. Subcontractors have registered a DBA, bank account in the business name, insurance along with all tools, equipment, materials & labor to perform this services. The relationship between company and subcontractor is only a trade of payment for a service.
The scam works as follows:
A Janitorial Company hires janitors and agrees to pay X amount of dollars per hour. Company instructs janitors to perform services on a schedule and modus operandi. Company provides tools, equipment and materials for employees. At the end of the year the company sends a 1099 instead of the W2 the employee was expecting.
By sending a 1099 to the employees as if they were subcontractors, the companies avoid their payroll tax responsibilities. The employees are now having to pay the taxes that were supposed to be withheld from their checks along with the taxes the employer had to match and pay for them. Also, those employees miss-classified as subcontractors will have a liability with the comptroller of public accounts for not collecting sales taxes. Considering those workers are already paid low hourly wages, having to pay payroll taxes of the employers puts them in a lower poverty level.
This scam not only hurts janitors, it hurts the industry. Since the cost of labor is significantly lower for those companies, they underbid every project creating unfair competitions. Most companies that work this way are new to the industry or franchisees of large companies.
If you are a victim or know victims of payroll fraud report your case by email to taxteu@twc.state.tx.us or by phone at 512-463-2700.
Note that you can report a company who works this type of scam anonymously.
https://comptroller.texas.gov/taxes/publications/94-111.php
https://justworks.com/blog/consequences-misclassifying-workers-independent-contractors
https://www.nelp.org/blog/1099s-w-2s-boss-broke-law-might-make-taxes-higher/