Business

Waging War: Why Ignorance of Wage Theft Is No Excuse

Does it matter that many if not most of the contractors that engage in wage theft do so unknowingly? Not at all. But new technology solutions can help you avoid it altogether.
By Matt DeSarno
February 14, 2024
Topics
Business

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.

A $50-BILLION PROBLEM

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.

This isn’t as high-profile a crime as, say, ransomware attacks—but it has a far greater impact. While ransomware theft is estimated to cost companies $11.5 billion globally, wage theft in the United States alone costs workers more than $50 billion per year, according to the Economic Policy Institute.

That’s more than the annual cost of robberies, burglaries and car thefts combined. Notice, too, how that $50-billion loss affects all Americans, not just laborers. Stolen wages are taken out of circulation, out of the economy and out of the tax base.

Every month, it seems, there are new headlines illustrating the depth of the crisis:

In November, the California Labor Commissioner’s Office settled a lawsuit with Calcrete Construction for $1 million over violations of overtime and paid sick leave law.

In December, Minnesota regulators announced they are seeking $2.4 million in back wages and damages for construction workers in a case against two subcontractors.

In January, Colorado lawmakers introduced a bill to crack down on a construction industry they say has been “polluted by wage theft.”

These examples emphasize the urgency for collaborative action and innovative solutions to protect workers’ rights and ensure fair compensation—and to also protect contractors from legal risk and reputational damage.

WHY THIS MATTERS

For construction leaders, wage theft is a strategic liability with far-reaching consequences, both legally and reputationally. This is especially frustrating because in many if not most cases, general contractors do not engage in wage theft knowingly. They simply have limited visibility into the labor practices of their numerous subcontractors.

Either way, employers risk serious criminal and civil penalties—as well as reputational damage. In a recent Verfico survey on wage theft, for example, fewer than half of U.S. adults found it credible that “employers sometimes commit wage theft by mistake”—meaning that when mistakes do occur, many Americans will not give construction companies the benefit of the doubt.

Respondents said that when construction companies practice wage theft, it makes them concerned about other aspects of those companies’ operations. Specifically: Nearly three-quarters of respondents (72%) said they worried that construction companies that committed wage theft would cut other corners as well.

Many respondents also said they worried these practices would result in slower construction times (53%), lower-quality work (49%) and a negative impact on communities that rely on construction jobs (63%).

For the great majority of general contractors that demonstrate honesty and ethics, the importance of eliminating wage theft extends beyond legal and reputational considerations. It has significant financial implications as well.

Those companies that cheat not only discredit the industry, they also have an unfair advantage over legitimate companies. Stamping out wage theft levels the playing field among competitors.

TIDE-TURNING TECHNOLOGY

While politicians in Washington and in statehouses across the country have been introducing legislation and tightening regulations around wage theft, I don’t believe this approach is what’s best for preventing wage theft in the construction industry. A better direction is to develop market-based solutions driven by technology.

This is not the most natural path for an industry that has traditionally been slow in adopting new technologies. But this reluctance or delay in embracing technological solutions can impair the ability to effectively tackle complex issues like wage theft. By integrating innovative tech solutions, companies can monitor, track and reconcile wages in real time, thereby preventing incidents of wage theft and reducing the likelihood of legal and reputational damage.

Technological solutions in this context serve a dual purpose: They not only protect companies from legal risks but also promote a culture of fairness and ethical treatment of the workforce. By ensuring that workers are paid what they are owed, companies can foster a more positive work environment, leading to higher productivity and employee satisfaction.

Taking a proactive approach to technology solutions while collaborating with other interested parties on the topic of wage theft, such as the government and advocacy groups, is the best way forward for the construction industry to lead in solving this longstanding issue. Ultimately, all stakeholders must work together to ensure the future of the construction industry is rooted in fairness and just compensation for all.

A SHARED RESPONSIBILITY

Rebuilding trust in the construction industry requires a deliberate commitment to transparency, collaboration and tech-driven solutions. By embracing these principles, construction leaders can not only mitigate the risks and costs associated with wage theft but also build a more productive, efficient and sustainable workforce. This, in turn, leads to improved project outcomes, enhanced client satisfaction and a stronger reputation for the industry as a whole.

The future of construction, like the buildings it creates, must rest on a solid foundation—of fairness, integrity and shared prosperity.

by Matt DeSarno
Matt DeSarno - CEO, Verfico Technology

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