Disability Law

First DCA Decision May Provide Financial Incentive to Hire Undocumented Workers

By David A. McCranie, Esq.

All disability payments to an injured worker under the Florida Workers' Compensation Law are based upon the worker's "average weekly wage" at the time of his accident.  But what qualifies as "wages" in making the "average weekly wage" calculation?  Section 440.02(28) defines that term as including "only the wages earned and reported for federal income tax purposes. . . " (emphasis added).

"Reported" by whom?  That's the issue that was raised by the facts in Fast Track Framing, Inc. v. Caraballo, decided on 9/15/2008.  Mr. Caraballo was employed by Rolando Mendez.  Mr. Mendez supplied workers to and was a subcontractor for Fast Track Framing, which was itself a subcontractor on a construction project where Maronda Homes, Inc., of Florida, was the general contractor.  There was no dispute that Mr. Mendez (1) did not have workers' compensation insurance, (2) that he paid Mr. Caraballo (and all of this other employees) in cash ($280 per week), (3) that he never required Mr. Caraballo to complete a W-9 form (Request for Taxpayer Identification Number and Certification), and (4) that he never withheld federal withholding, Social Security, or Medicare taxes from Mr. Caraballo's wages. Unfortunately for Mr. Caraballo, however, he apparently never "reported" his wages to the IRS by filing a federal income tax return either.

Fast Track Framing did have workers' compensation insurance, however, and the JCC ordered Fast Track and its insurer to provide the medical care and disability benefits (using an average weekly wage of $280 per week) necessitated by Mr. Caraballo's 11/5/2004 accident.  (Section 440.10(1)(b) a "contractor" the "statutory employer" of the employees of any subcontractor which has failed to secure workers' compensation coverage).  You can read the JCC's decision here.

In a 2-1 decision, the First DCA reversed.  The court held that because the injured employee did not report his wages to the IRS, his average weekly wage was zero.  Therefore, he was entitled to no disability benefits as a result of his accident.

For what it's worth, I agree with Judge Padovano, who argues in his dissenting opinion that the majority's decision provides a financial incentive for employers knowingly to hire undocumented workers.  26 U.S.C §3402 requires an employer to withhold taxes from an employee's wages.  26 U.S.C §3111 requires an employer pay 6.2% of an employee's wages for Social Security tax and 1.45% for Medicare tax.  The employer must deposit those all of those taxes with a participating financial institution at the time the wages are paid.  And at the end of each quarter, an employer must file a Form 941 in which he  reports all employee wages to the IRS.  In addition, §§440.10 and 440.38 require an employer to secure workers' compensation insurance coverage for his employees, which Mr. Mendez did not do.   Therefore, it appears to me that at the very least Mr. Mendez is in pari delicto (in equal fault) in failing to "report" Mr. Caraballo's income to the IRS.  Given that fact, and the fact that §440.02(28) does not specify who must report the wages in order to have them counted as part of the average weekly wage, I think that the risk of this loss should fall on the employer rather than the employee.

Full post as published by Florida Workers’ Compensation Law Blog on September 26, 2008 (boomark / email).