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KRDO Investigates: Loophole may let Colorado contractors skirt taxes

KRDO investigates contractor payments under the table

COLORADO SPRINGS AND DENVER, Colo. - A five-month investigation by KRDO NewsChannel 13 into a loophole to skirt some taxes and questionable hiring practices at construction sites is getting results, and even Colorado Gov. John Hickenlooper is taking action with an executive order.

Our team visited six different construction sites in Colorado Springs and Denver looking into complaints of questionable hiring practices where workers -- and Colorado taxpayers -- are shortchanged.

Under federal and state law, there are strict rules to make sure everyone is classified correctly so workers are protected and their taxes are properly withheld. According to the Colorado Department of Labor and Employment, or CDLE, the state is allotted millions of dollars to investigate employment fraud.

Our investigation uncovered a loophole that prompted state officials to take action.

After following all safety practices, we were guided by members of the Local 55 Southwest Regional Council of Carpenters, who created an advocacy group called Criminal Colorado. It has filed 55 complaints with CDLE about hiring and pay practices that allow subcontractors to take advantage of workers. The complaints say the contractors fail to follow state and federal law.

We weren’t on the site long until we ran into the foreman.

“Are you aware that you have a subcontractor that’s utilizing a labor broker that’s paying his employees cash under the table?”

“No comment,” he said. He later admitted that he was aware of the practice, but he said he doesn't have the authority to fix the problem.

That authority lies with Edgar Montoya.

The particular construction site had a general contractor, like most do, which has many subcontractors who hire workers to help complete everything from electrical and plumbing work. The focus of our investigation is on Montoya, who owns “Master Drywall” with his brother, Cesar Montoya.

Below is video provided by one of Montoya’s workers several months ago. 

According to the worker, Montoya pays in both cash and check.

Former employees claim Montoya pays in cash because he has misclassified them as independent contractors.

This means no income, Social Security, or Medicare taxes are being withheld from their paychecks. They also aren’t covered by workers compensation or unemployment insurance -- both crucial in an industry where injuries aren't uncommon.

KRDO talked to one of Montoya’s current employees, who we agreed to keep anonymous due to his fear of losing his job. He said he and his co-workers were paid in cash for over a year.

“When we first started working at the towers, he paid us cash, but then there was a problem, so they started paying us in check,” he said.

Over the next few weeks, we went to six different construction sites where Montoya’s employees worked alongside a number of other sub-contractors. 

We asked how they were paid, and got a variety of responses:

  • "Just cash… I mean, just checks."
  • “Uhhhh…. checks?"

"Do you see deductions on those checks?we asked.

  • "I honestly don't know.”
  • "I don't know anything about that.”
  • "No.”

NewsChannel 13 tracked down Montoya to ask him about the complaints directly. WATCH:

After Montoya refused to answer our questions, we talked to Colorado labor attorney Jim Abrams, who specializes in worker misclassification cases.

“Based on that check and the responses from those workers, it doesn’t appear to be in conformance with the law,” Abrams said.

But the CDLE doesn’t do surprise inspections, which gives subcontractors like Montoya plenty of notice to prepare for audits.

State Rep. Alec Garnett (D-Denver) said that’s the problem.

“I have been bringing this to the CDLE’s attention for the last three years, and nothing's been done,” Garnett said.

We asked the CDLE why they don't conduct unannounced audits.

“I should just say we found no … nothing that was fraudulent or illegal,” said Kristin Corash, the former interim executive director with the CDLE.

“Don’t you think it would be a viable thing to do to have these unannounced audits so you can have a better eye on the ground?” I asked.

“I’m not sure exactly what you’d want us to look at,” Corash said.

“If you’re giving a notice to these employers, ‘Hey we’re going to be coming onto your site,' they could clean up their act,” I said.

“We don’t do it now because we don’t have the resources to do it,” said Corash.

We learned the agency receives $2.6 million to investigate employment fraud.

“We’re at the point now where we really have to force CDLE to do their job,” Garnett said.

Gov. John Hickenlooper agrees that change needs to happen.

“It’s unpatriotic ... you’re stealing from taxpayers,” Hickenlooper said.

Since our investigation, Hickenlooper signed an executive order to create a task force looking into how to enforce stricter penalties for subcontractors who break the law. We requested a follow-up interview with the agency, but they declined to comment further.

The CDLE also met directly with Garnett. However, since the executive order has been signed, it's unclear if he's going to step in with legislation next year to require unannounced inspections.

We’ve since learned Montoya has moved to Texas, but still operates in Colorado. 

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