Contractors who avoid paying taxes by paying their employees cash or as independent contractors could face fines and other penalties under a new ordinance passed by the Hobart City Council.

About two dozen local union carpenters attended the meeting June 19 and applauded the council’s action.

“On behalf of the 40,000 men and women our council represents, I want to thank Hobart for taking the lead on this,” said Randy Palmateer, business manager for the Northwestern Indiana Building & Construction Trades Council.

Palmateer joined the Indiana Kentucky Ohio Regional Council of Carpenters in urging passage of the contractor tax fraud ordinance.

Palmateer said the unpaid employment taxes hurt the state and local communities as well as contractors who are following the law.

“Millions and millions of dollars are lost (in tax money),” Palmateer said.

According to information provided by Palmateer, a a Smart Cities Prevail20 study conducted this year found that in 2017 a conservative $2.6 billion in state and federal income taxes, Social Security and Medicare taxes went unpaid in the U.S. due to employers paying 1.2 million construction workers off the books and misclassifying another 300,000 as independent contractors.

The study didn’t include unpaid federal and state unemployment contributions, city income or business taxes or losses.

Another study, done by a University of Missouri economics professor, found that $831.4 million in unemployment taxes and $2.54 billion in workers’ compensation premium losses are shifted annually to those employers who abide by the law.

“This levels the playing field and ensures contractors will do what they’re supposed to do,” said Councilman Dan Waldrop, D-At large, of the new ordinance.

Waldrop said the city had some issues with outside contractors in the past, and at the time the city had no laws that allowed it do anything about it.

Under the new ordinance, any contractor working on a commercial building in the city, or residential building containing at least five units, must provide evidence of having appropriate workers compensation insurance coverage for its employees to the building commissioner.

The contractor must properly classify its workers as employees, not independent contractors, pay them overtime and follow rules regarding workers compensation and the various taxes.

Contractors also need to maintain detailed written payroll records, comply with state code regarding timely payment of wages and pay contributions to the uninsured benefit fund.

Karen Caffarini is a freelance reporter for the Post-Tribune.