A new study has brought to light a concerning trend within Iowa's construction industry. It suggests that as many as 10% of construction workers have been unjustly underpaid. Sean Finn, the author of the report for Common Good Iowa, addressed reporters during an online news conference. He stated, "The practice we're seeing is that employers are wrongly classifying their employees as independent contractors to avoid paying taxes and fulfilling employer responsibilities like workers' comp and unemployment."

Underground Economy in Construction

Approximately 5% of Iowa's employed population works in construction. While many construction workers earn fair wages and benefits, the report reveals the emergence of an underground economy. Finn explained, "A significant amount of public money goes into infrastructure projects. In most cases, the lowest bidder secures the contract. These low bidders often consist of non-local construction contractors who engage in illegal employment practices with little enforcement."

This situation not only affects individual workers but also has implications for the state's infrastructure development. Billions of dollars are set to flow into the construction industry in the next decade due to federal programs. However, the complex web of general contractors and sub-contractors makes it challenging to hold bad actors accountable.

Financial Implications

Illegally classifying someone as an independent contractor provides businesses with significant savings. Finn pointed out that it saves about $6000 annually in fringe benefits and an additional $6000 in Social Security and Medicare taxes. Misclassified independent contractors are also ineligible for unemployment benefits if they are laid off. Finn gave an example, "Workers who face extreme medical debt due to injuries on the job site while misclassified as independent contractors have no workers' comp coverage."

This financial burden falls directly on the workers, leaving them vulnerable and struggling to make ends meet. It is a clear case of exploitation within the industry.

Recommendations for Legislation

Common Good Iowa is advocating for Iowa legislators to update the state's wage payment collection law. Currently, the state employs only four investigators to oversee wage payment collection for a workforce of 1.6 million. Finn emphasized, "This is clearly not enough. More staff could not only investigate businesses evading labor laws and taxes but also educate Iowa employers about the correct business practices."

A 2022 report from Common Good Iowa showed that Iowa workers lost $900 million in wages due to fraud. By strengthening the law and increasing enforcement, the aim is to protect workers and ensure fair compensation.