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  • Writer's pictureJ. Eric McAndrew

It’s Time to Fight the Scourge of Wage Theft in the Construction Industry - for the Sake of Both Wor

In my 20-year FBI career, I faced off against gang members, drug traffickers, international terrorists, cybercriminals, and corrupt politicians. It was fulfilling work, even though I knew there would always be more criminals and my job would never be done. I enjoyed taking small steps every day to make things better.

That approach has prepared me well for my new challenge: fighting the massive problem of wage theft in the $2.7 trillion U.S. construction industry as CEO of the tech startup Verfico™ Software, LLC.

Wage theft is the illegal practice of not paying employees the full wages or benefits they are entitled to. This can take many forms, such as failing to pay overtime, misclassifying employees as independent contractors, or making improper deductions from an employee's pay.

It’s not as high profile a crime as, say, ransomware attacks—but it has a staggering impact. While ransomware theft is estimated to cost companies $11.5 billion globally, wage theft in the U.S. alone costs workers more than $40 billion per year in earned but unpaid wages. This puts their employers at risk for significant fines and penalties, as well as reputational damage.

In 2020, a construction company in New York was ordered to pay over $10 million for failing to pay its workers the prevailing wage and for engaging in other forms of wage theft. In another case, a California company was ordered to pay over $15 million for failing to pay overtime to its employees.

While some construction companies knowingly underpay their workers, many contractors have no idea they are doing anything wrong. It can be difficult to follow all the rules in a complex, multitiered industry such as construction, where there might be hundreds of subcontractors and workers on a single job.

That’s the problem Verfico aims to solve. And it’s why our mission is to protect employers as well as workers.

The construction industry is especially prone to the risk of wage theft. The multitiered labor environment that dominates many of the trades in construction can create an environment where workers on a jobsite may be victims of wage theft without the general contractor or top-tier subcontractors even knowing the theft is occurring. Ignorance in this instance is not bliss. In many jurisdictions, the liability for wage compliance flows up to the general contractor, creating financial and reputational risk for each tier of the industry.

The most common form of non-compliance stems from the original sin of worker misclassification. This occurs when subcontractors pay their employees as independent contractors even though they do not pass the independent contractor test. The vast majority of workers on a commercial construction jobsite should be on somebody’s payroll.

This is not a new phenomenon, and the complexity and highly competitive nature of the market make wage compliance challenging. Contract language, training, and auditing are good first steps, but they may not be enough to protect your company if your subcontractors are paying their “employees” as independent contractors.

The misclassification, or worse, lack of any classification or reporting of large numbers of workers causes that $40B loss amount to grow exponentially when the lost tax revenue is contemplated. The result – workers are not the only victims in the scenario. Those misclassified, or unreported, workers do not contribute to unemployment insurance, workers compensation insurance, social security, or income tax. Nor do their employers contribute when workers are misclassified. The workers do, however, use public assistance and public healthcare benefits. As a result, we are ALL indirect victims of ballooning costs and lost tax revenue.

In recent years, wage theft in the construction industry has been receiving increased attention from government agencies, plaintiffs’ lawyers, and workers’ right groups who are attempting to address the issue by assigning responsibility and enforcing accountability. As a result, general contractors and prime subcontractors are assuming significant legal and reputational risk based on the practices of their lower-tied subcontractors.

What steps can be taken to ensure that both your company and the workers on your job are protected? We have a solution: Verfico was designed by contractors for contractors to protect companies and workers from wage theft. Verfico™ provides transparency and enables accountability and compliance in multi-tiered labor environments.

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