Published date: 09/28/2022

What is wage theft in the context of public works construction?

It sounds bad, right? Like many would assume, wage theft occurs when money is “stolen” from an employee by means of paying them a wage rate less than what they are legally entitled to – whether intentional or not. And while this happens in virtually every industry, it is quite a bit more prevalent on publicly funded construction projects.

Why is Wage Theft so Common in Construction?

For one, determining a construction worker’s pay rate is often not as simple as ensuring it is meeting a simple minimum wage that applies across the board. Each trade can have its own designated minimum (a.k.a. prevailing wage), and even classifications within those trades can differ in rates as well. And that’s just scratching the surface – because those rates can change depending on the location of the project, when the project was bid, whether state or locally-specific overtime rules or shift pay applies, and many, many other variables.

The truth it is, there are a lot of things that can affect prevailing wage rates, and this opens the door for a lot of mistakes to be made. And one of the most common among them are misclassifications. This occurs when a contractor incorrectly classifies an employee as working one trade (such as carpentry) when he or she is actually performing work in another (like brick laying).

And again, intentional or not, this happens ALL. THE. TIME. Don’t believe us? Here are a couple recent cases …

USDOL Investigation Finds North Jersey Contractor Paid Electricians Incorrect Wages & Fringe Benefits

This North Jersey contractor paid 11 workers as laborers instead of correctly classifying them as electricians, which resulted in employees getting paid lower rates. This was uncovered during a  US Department of Labor (USDOL) investigation  on a project in Paterson, New Jersey. The USDOL was able to recover $799,479 in back wages for the workers who were wrongly misclassified.

The contractor’s error in the above case was in direct violation of the Davis-Bacon and Related Acts. “Contractors and subcontractors on federally funded projects are legally obligated to accurately identify workers on work sites, pay them the local prevailing wages and fringe benefits, and submit weekly certified payroll records to the contracting agency,” explained Wage and Hour Division District Director Paula Ruffin in Mountainside, New Jersey.

Now, while it is neither productive nor fair to assume why this misclassification occurred in this particular instance, it is important to discuss common hypothetical scenarios that can result in outcomes such as these. Could laborers be working on the same jobsite as electricians? Sure. Is it possible that there are “mixed crews” i.e., an electrical contractor having a crew made up of both electricians AND laborers? Absolutely. This is common practice in construction, no matter the scope of work that is happening. You can have three, four, or even five different trades working together on one crew.

Here’s where it gets tricky, though: are laborers cleaning up on the site? Are they helping thread wire through a pipe? Are they moving materials from location to location? One of these tasks is not something a laborer should be doing, but rather a pipelayer or electrician depending on area practice or who claims the work. This is the kind of thing that can often lead to misclassification.

Minnesota DLI Investigation Recovers $44K for Workers Misclassified as Apprentices

Let’s take a look at another case. In an investigation led by the Minnesota Department of Labor and Industry (DLI), it was found that a contractor had misclassified five workers as apprentices on a state-funded renovation project at Camp Ripley, MN. 

Under Minnesota Rules 5200.1070, these workers had not met the definition of an “apprentice” and therefore should have been paid the journeyperson prevailing wage rate. To make matters worse, they were also not paid overtime. Per the prevailing wage law, when working more than eight hours in a day or more than 40 hours in a week, workers must be provided proper overtime compensation. All in all, the DLI investigation recovered $44,873.15 in back wages owed to the workers, with one employee receiving as much as $21,925.16.

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The examples above of wage theft from misclassification happen all the time. It’s important for contractors to understand: investigators search for these types of mistakes because they know they are so widespread and rampant. It’s one of the very reasons why contracting agencies will conduct site visits to interview workers on the job and determine if they are being correctly classified.

If you are unsure how to correctly classify a worker or apprentice, you can visit the USDOL’s website to be up to date with all of the worker classifications. If you are interested in learning more about Davis-Bacon and prevailing wage compliance, check out our online and on demand classes by visiting https://lcptracker.com/academy/.

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These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other professional services and is providing these for informational purposes only. If legal, accounting, or tax expert assistance is required, the services of a competent legal, accounting or tax professional should be sought.