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Report cites ‘underground economy’ in Iowa’s construction industry
A new report suggests up to 10% of Iowa construction workers have been illegally underpaid because they’ve been incorrectly identified as independent contractors rather than employees.
Sean Finn, who authored the report for Common Good Iowa, spoke to reporters during an online news conference. “The practice that is going on is saying: ‘These employees that I have, I’m going to get away with calling them independent contractors and not paying taxes on them,” Finn said, “‘not paying any of my employer fees and responsibilities like workers’ comp, unemployment, etc.'”
About 5% of employed Iowans work in the construction industry. While the majority of them earn good wages and benefits, Finn said the report shows there’s “an underground economy” emerging. “Obviously a lot of public money goes to infrastructure work. A lot of this money goes to the lowest bidder in the vast majority of cases,” Finn said. “These low bidders are increasingly lawbreaking, non-local construction contractors that are using these really bad employment practices — illegal practices, going along with very little enforcement.”
Billions of dollars will be flowing into the state’s construction industry in the next decade due to federal programs, but Finn said the “very complicated web” of general contractors and sub-contractors will make it difficult to hold bad actors accountable. According to the report, illegally classifying someone as an independent contractor saves a business about $6000 dollars annually in fringe benefits and another $6000 in Social Security and Medicare taxes. Misclassified independent contractors are ineligible for unemployment benefits if they’re laid off. “Folks who face extreme medical debt because of injuries on the job site while misclassified as an independent contractor,” Finn said, “meaning they weren’t covered by workers’ comp.”
Common Good Iowa is recommending that Iowa legislators update the state’s wage payment collection law and hire more people to enforce the law. “The state employs four investigators to oversee wage payment collection for a workforce of 1.6 million,” Finn said. “That’s not nearly enough.”
Finn told reporters that more staff could not only investigate businesses trying to evade labor laws and taxes, but they could educate Iowa employers who want to do business the right way but are unaware of the law. A 2022 report from Common Good Iowa indicated Iowa workers lost $900 million in wages due to fraud.
