Marcelia Freitas and Marcello Pompa, both of Saugus, Massachusetts, have been indicted in connection with a workers’ compensation insurance fraud scheme. According to Massachusetts Attorney General Maura T. Healey, the scheme allowed Freitas and Pompa to avoid paying over $74,000 in insurance premiums.
Freitas and Pompa are owners of M&M Cleaning Inc., a company based in Malden, a city to the north of Boston. According to its website, M&M Cleaning offerings include janitorial, handyman, and special event services. The AG’s office alleges that Pompa falsely claimed work carried out by his company had, in fact, been performed by subcontractors. This enabled Freitas and Pompa to conceal over $2.8 million in payroll from the state.
Freitas, 43, has been indicted on two counts of Workers’ Compensation Insurance Fraud. Pompa, 40, has been indicted on five counts of Larceny Over $250 and five counts of Workers’ Compensation Insurance Fraud. They were indicted by a Statewide Grand Jury in Middlesex Superior Court. After pleading not guilty, the two were granted release on personal recognizance.
Misclassification of employees is becoming an increasingly common method used to avoid paying workers’ compensation insurance. In the past few months alone, I have reported on similar stories from across the country. In New York, a construction company has been charged with underreporting payroll to avoid $7.8 million in premiums. Meanwhile, in Ohio, a man was found guilty of misclassifying workers; he now owes $350,000 to the Bureau of Workers’ Compensation.
By misclassifying workers, M&M Cleaning was able to reduce their overhead costs. They were then able to bid for contracts at a substantially lower price than their competitors. By doing so, M&M Cleaning was putting their employees’ safety at risk. Ironically, the M&M Cleaning website contains a page advertising the safety training all employees undergo.
The behavior of companies such as M&M Cleaning also raises the cost to do business for the companies that follow the rules. In the face of competition, companies often do what they can to reduce overhead expenses. Faced with the pressures of keeping a business afloat and also making payroll, it can be tempting to misclassify workers to reduce workers’ compensation insurance premiums.
On average, businesses in Massachusetts pay $1.37 per $100 of payroll on workers’ compensation premiums. Even though this is lower than the national average of $1.70, it nonetheless represents a substantial expense. It is also important to note that this is simply the average cost—for positions involving manual labor, premiums will be far higher. This has led some companies to misclassify these employees as office workers in order to reduce costs.
The case will be prosecuted by Assistant Attorney General Geoff Wood with assistance from Michelle Silva of the Attorney General Office’s Insurance and Unemployment Fraud Unit.
This case comes months after Attorney General Healey announced a 12.9 percent reduction in the state’s workers’ compensation insurance rates. “This settlement saves businesses millions of dollars,” said Healey at the time. “When we lower the rates for workers’ compensation insurance, we protect workers and allow businesses to invest in higher wages and growth.”
Freitas and Pompa will be in court on December 13 to attend a scheduling conference.
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