The U.S. Attorney’s Office is now looking into whether Related Group’s reduced costs on a Miami construction project by hiring subcontractors who failed to pay their taxes. The Miami Herald reported that 11 of Related Group’s 15 subcontractors for Edificio Piñeiro, 34-unit senior apartment complex in Miami’s Shenandoah neighborhood, used independent contractors instead of in-house workers. Doing that would let the companies avoid paying costly employment taxes like Social Security and Medicare because independent contractors pay their own taxes. It can reduce payroll costs by 20 percent, the Herald reported.
Federal authorities have been investigating South Florida’s biggest developer as part of an expanding probe into South Florida’s affordable housing industry that involves at least a dozen publicly subsidized developments by other developers. In Florida’s construction industry alone, the Herald estimated that misclassification cost taxpayers nearly $400 million per year. In North Carolina, the number was even bigger: nearly $470 million per year. And in Texas, taxpayers were cheated of a staggering $1.2 billion annually.
Florida and Subcontractors
The practice can put workers in danger: One misclassified employee was left without crucial medical care after he hit a live-wire during a Naples construction job. Misclassified workers can be denied minimum wages, overtime pay, workers’ compensation and unemployment benefits. It wouldn’t be the first time a South Florida developer is in the hot seat for affordable housing abuse and fraud. Last year, former Carlisle Development Group executives were convicted of stealing $34 million in subsidies by inflating construction costs for more than a dozen affordable housing developments in Miami-Dade County. In another more recent case, Pinnacle Housing Group principals settled with federal prosecutors for $5.2 million after the government accused them of inflating costs for low-income housing projects.
In addition to dominating condo development in the region, Related has also been very active in affordable housing. Last summer, the county commission unanimously supported Related Urban’s bid to redevelop Liberty Square and Lincoln Gardens into one of the largest affordable housing developments in Miami-Dade County.
A spokesperson for Related told the Herald that its subcontractors “paid workers in full compliance with the law,” and that it’s working with prosecutors on a “industry-wide review of the affordable housing sector.”