A new report from the Iowa Policy Project shows that wage theft costs the Hawkeye State $600 million each year.
Spread across an array of industries, the report labels wage theft as a “growing problem” that will continue to get worse unless strong action is taken. For purposes of clarification, the report defines wage theft as:
…a broad category that includes any time an employer breaks laws or contracts to illegally reduce pay to workers. Nonpayment and underpayment of wages, deduction violations and misclassification of workers (listing employees as independent contractors, for example) are all considered wage theft.
As with many compensation problems, the affect of the unscrupulous behavior reaches beyond the employee being shorted, though some 266,000 Iowans may be in that boat. State and local governments also lose tax revenue when workers are paid incorrectly. The report estimates that Iowa loses nearly $60 million annually in tax revenue. Businesses obeying laws and paying their workers fairly face a disadvantage by having to compete against companies who knowingly do not.
A case study from the report involving a restaurant shows the type of wage theft that occurs across the country. Unfortunately, it often comes at the expense of low level wage earners, who already have difficulty making the most of every dollar they earn. From the report:
In 2010, employees at Joe’s Italian Grill in Marshalltown accused owner Joe Dika of paying less than minimum wage and failing to pay overtime. One waitress reported being paid $263 for a total of 218 hours of work plus 12 hours of overtime.
Iowa does allow employers to pay less than minimum wage for employees who receive tips, but the $2.25 per hour paid in that case was well below the law’s requirement of $4.35 per hour.
Dika has opened two restaurants in Ottumwa, Joe’s Italian Grill and Joe’s Family Restaurant.
The report suggests that wage theft is “abetted by weak and poorly enforced labor laws at the state and federal level.” It suggests tightening restrictions and enforcing current laws as starting points to combating this disturbing business trend.
“Stronger enforcement is key because right now, the chances of unscrupulous employers getting caught are slight — and so are the penalties when that happens,” Gordon said. “In a difficult economy, conditions make it more likely that employers will resort to wage violations, and fewer workers will risk their jobs to object.”
The report also notes that the construction industry is severely affected by wage theft, especially in the form of employee misclassification. Surveying construction workers and business leaders in other states, the report found that 38 percent of construction workers in Texas are incorrectly paid as independent contractors. The same survey found that one in five workers had reported not receiving payments and 50 percent had reported not receiving overtime pay.
Wage theft is a growing problem in our nation that affects multiple aspects of the economy. While bright spots of headway can be found, such as North Carolina’s brand new Executive Order on misclassification, studies frequently find that state governments have inadequate means of sharing vital information to efficiently coordinate oversight efforts.
The report concludes that laws are not enough to stop wage theft and that enforcement of current laws and community attention are also necessary to make permanent positive changes.