Tackling the Underground Economy

CSLB stepped up one of its government agency partnerships this year to combat the underground economy and help level the playing field for licensed, law-abiding contractors.

Known as the Joint Enforcement Strike Force (JESF), this coalition of agencies was established by the Legislature in 1995 under Unemployment Insurance Code section 329. Along with CSLB, JESF members include the Employment Development Department (EDD), the Department of Insurance, the Franchise Tax Board, the Board of Equalization, and the Department of Justice.

JESF's broad goals include protecting consumers by ensuring that all businesses are properly licensed and adhere to California's consumer protection regulations to eliminate unfair business competition. JESF also helps assure that workers are protected and receive all benefits to which they are entitled by law that relate to wages and hours, health and safety, and income replacement; the burden on law-abiding citizens and businesses is reduced by ensuring that all businesses and individuals comply with the state's licensing, regulatory, and payroll tax laws; and that the tax gap is reduced by increasing voluntary compliance of the state's payroll tax laws to maximize its general and special fund revenues.

In January 2012, CSLB and EDD expanded these efforts by establishing the Construction Enhancement Project (CEP) and increased the number of joint investigations that are conducted, targeting contractors who intentionally evade licensing, payroll taxes, and workers' compensation insurance requirements. Through CEP, CSLB investigators and EDD agents joined district attorney investigators and building officials to issue Stop Orders to uninsured employers; reduce owner-builder permits; increase joint enforcement presence with participating counties; target contractors that intentionally evade payroll taxes; and increase criminal filings for insurance and license violations.

As of October 31, 2012, its first year, CEP already is considered a great success with 54 CSLB undercover sting operations that have resulted in the criminal prosecution of 405 unlicensed and/or uninsured contractors. In addition, 426 inspections were conducted at active job sites that resulted in 309 Stop Orders for uninsured workers and 729 administrative actions for licensed and unlicensed violations.

EDD's CEP enforcement actions have included 1,448 tax audit inspections that resulted in 516 tax audits; $61 million in estimated unreported wages; $24 million in CSLB license suspensions for outstanding tax liability; and $9.5 million in recovered tax penalties.

CSLB has developed plans and strategies with its partner agencies to effectively address the underground economy in 2013.