(Radio Iowa) – A new report suggests up to 10 percent of Iowa construction workers have been underpaid because they’ve been incorrectly identified as independent contractors rather than employees. Sean Finn, who authored the report for Common Good Iowa, says that “misclassification” is against the law. “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 says, “‘not paying any of my employer fees and responsibilities like workers’ comp, unemployment, etc.'”

About five percent of employed Iowans work in the construction industry. While the majority of them earn good wages and benefits, Finn says 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 says. “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.” Finn says BILLIONS of dollars will be flooding into the state in the next decade due to federal programs, but the very complicated web of general contractors and sub-contractors will make it difficult to hold bad actors accountable.

Finn says illegally classifying someone as an independent contractor saves a business about six-thousand dollars annually in fringe benefits and another six-thousand dollars in Social Security and Medicare taxes. They’re also 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 says, “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 says. “That’s not nearly enough.” Finn says 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 dollars in wages in 2022 due to fraud.