Wage theft is a broad phrase commonly used to describe worker misclassification, as well as wage and hour violations. The U.S. Department of Labor enforces the Fair Labor Standards Act, but many states are increasing their focus on this issue and have stronger wage theft laws. Wage theft can come in many forms and can sometimes be tricky to identify.  In this post, our team discusses what general contractors can do to be proactive in their identification of wage theft.

As a first step, it can be very helpful to conduct some background research on the subcontractors you are considering for the project to review performance on past projects.

Once you have selected a subcontractor for your job, it’s critical that you have visibility into the work that is being done on your project by all your subcontractors and their tiers, and the manner in which they are engaging their workers.

This includes:

• how they are classifying their workers,
• the wages that are being paid to their workers,
• the functions the workers are performing,
• and even if their workers are designated as a 1099 or w-2 employee.

Each of these areas can be ripe for wage theft.  In addition, it’s important you protect yourself by including appropriate language in your subcontractor contracts articulating the subcontractors’ responsibilities to their workers. It is also important for the organization to be able to follow the money by increasing your line of sight into what contractors and subcontractors pay their workers.  This will provide a mechanism to flag potential issues early and get ahead of any inconsistencies that may arise.

Other precursors are often the trades and scope of work. Wage theft can be more prevalent within drywall, landscaping, and carpentry trades where you can see issues like not paying the correct overtime formula. In the MEP trades, you should be aware of worker misclassification, where workers are sometimes identified as an unskilled laborer vs. a skilled laborer.

These are the types of issues where researching the subcontractors during the prequalification phase can be helpful by looking for “flags” that may give indication that data and what they are reporting/inputting do not align. Assessing these issues up front, before the project begins, confirms data and wage classifications prior to issuing the first check.

Another helpful review is to look at the size of the contract being awarded and the employee capacity of that firm doing the work.  For example, if there is multi-million-dollar contract awarded to a firm with a limited number of employees, there is a likelihood they are using contract workers to increase the capacity of the firm. This is not necessarily inappropriate but provides a flag for the contractor to check in. If there is a proportionally high share of laborers to skilled workers you may want to observe the work at the project site that is being conducted, and by whom, to see if there is any worker misclassification.

Observations on the job site can be very informative. For example, the PPE of the workers on the job site.  Does the PPE match or reflect that of the company that the subcontractors are working for on the job?  If there is a mismatch it could be indicative of someone working in a 1099 capacity or a tiered subcontractor that is unaware of the wage rate for the project.

None of these examples necessarily represent wage theft situations but provide you with signs to look for to help you protect your organization.

What tools can an organization use to aid in addressing wage theft issues?

Accessing and reviewing labor data for the individuals working on a project can be a tremendous resource in addressing potential wage theft issues.  Too often, data doesn’t get captured, gets lost, or is incorrectly documented which then inhibits your ability to review any potential issues.  SkillSmart’s InSight technology addresses these organizational challenges around collection of wage and other data from all prime contractors and all subcontractors on any project.  It provides a scalable, single, and secure repository of information that, with the right software, can be configured to flag and alert staff to many of the key issues. This allows the project team to address any issues with a subcontractor in real time.  It will also give your project team a view into which subcontractors to engage with on regular project site visits to get more information and proactively address any potential wage theft issues.

An example of how technology can be used, in addition to capturing wage data, is the collection daily reports, electronically. It is no longer enough to have papers dropped off at the site trailer for someone to review at the end of the week. Dynamic data allows for in time review of who is on site and the work be performed. This ensures that the workers on site match the scope of work to be performed and most importantly the worker has been correctly classified and receiving the correct wage.

There are other technology solutions an organization could consider.  For example, RFID technology can track workers who are accessing the site throughout the project. This data can be correlate to subcontractors’ payroll data and their employees working on the project. This technology along with real time payroll data can confirm and document who is on-site well before the scope of work has been completed.

Finally, the use of consultants or increased staff to either be on site for all of your projects or to do periodic site visits to identify prospective wage theft issues is another avenue for an organization to explore.  They, along with technology, can help to observe and identify trends that may be potential cases of wage theft.

In each of these approaches you’ll want to look at effectiveness, cost and scalability to ensure that which of these best meet the firms needs on the jobsite while providing you with information and ability to be proactive to address items in the moment.

This article builds on our previous posts about wage theft and hopefully provides some insight into how you can better protect your organization by:

• asking the right questions up front,
• setting up the right contractual structure,
• observing actions on the jobsite,
• incorporating tools that give your organization real time insight beyond what is directly observable, flagging certain issues that need further investigation, and
• being proactive, instead of reactive.

Please reach out to us for more information about how SkillSmart’s software solutions can help you address wage theft issues and to discuss the ways we are helping general contractors, developers and owners across the country be proactive in their review of project teams, at all tiers, to try and prevent liability throughout the project.

There has been an increased focus on wage theft in states and jurisdictions throughout the U.S.  In order to be better advocates for ourselves and others, we should all be educated on what wage theft is and why it is relevant to your firm and projects.

What is Wage Theft?

Though not often discussed, wage theft is the largest form of theft in the United States totaling more than $15 billion a year.  It occurs when workers are not paid the appropriate wage. Common types of wage theft are workers misclassified as contract workers instead of full-time employees, or workers that receive a lower salary level than is appropriate, or when an employer withholds some of their pay, taxes, or benefits (including meal or rest breaks).  Each of these circumstances results in a worker not receiving the appropriate payment for hours worked and can broadly be considered wage theft.

Why is there increased attention on Wage Theft now?

A number of states and jurisdictions have passed laws to expand the responsibility of addressing wage theft beyond just an employee’s immediate employer to also include the prime and/or general contractors for whom the employer is contracted. These laws create a right of action for the employee against their employer and any contractor for which their employer is working.  In other words, all contractors are now responsible for making sure that every worker, for each of their subcontractors, is paid the correct, timely wage.

Is Wage Theft more common in the construction industry?

Wage theft can be particularly pervasive in the construction industry where there can be hundreds of subcontractors and workers on a single project.  It can be difficult if all of the firms are paying overtime or tracking their labor compliance by project.  Many construction companies only pay workers a flat, daily or weekly rate that does not include overtime pay. Some firms misclassify employees as independent contractors. It has become increasingly identified that workers are being misclassified as lower-paid job classifications, such as general laborers or apprentices, even if they are doing the work of a higher-paying classification.

Are there different types of Wage Theft?

Yes, there are several different ways that wage theft can occur. Some are more common than others, but all can create havoc and liability issues for employers, including fines and negative publicity.

• Misclassification Violations – incorrectly classifying employees, such as independent contractors
• Minimum Wage Violations – not adhering to minimum wage laws
• Illegal Deductions – when employers take a portion of an employee’s paycheck for items that do not qualify
• Overtime Violations – when employers wrongfully deny overtime pay to an eligible employee
• Rest Break Violations – not adhering to rest break laws, including deductions for meal breaks from an employee’s paycheck

How do I know what my states labor laws are?

Each state has its own labor laws, and these labor compliance laws vary from state to state. Click here to learn more about the labor laws and wage theft reporting in your state. If you qualify as a small business or disadvantaged business, read more on the Small Business Administrations’ state labor law guides by clicking here.

Why should I care about wage theft?

If you’re a general contractor you may wonder why should you even worry if your subcontractors are onboarding their workers in the appropriate fashion, classifying them in the right fashion, and ensuring they get paid the correct wage.  Beyond the morale point of ensuring that individuals receive the wage that they are owed in compliance with the law, the new general contract liability laws make the general contractor liable for incidences of wage theft.  Even more specifically, the general contractor may now be liable for up to 3x unpaid wages, damages, penalties and attorneys fees.  Further, in addition to the financial cost that may come with a wage theft claim, there is also credibility and public relations risk.

Is there an increase in government monitoring of wage theft?

In addition to the new laws in many states and municipalities, the U.S. Department of Labor announced in early 2022 that it will hire new investigators for the Wage and Hour Division to assist with complaints filed with DOL. The infrastructure package passed in 2022 will require an increase in investigations and enforcement for this topic as well. The Build Back Better Act includes more than $4B earmarked for the Wage and Hour division to bolster enforcement activities, along with other measures to protect workers. In addition, there has been increased attention in wage theft enforcement from state attorneys general.

What laws are broken in Wage Theft cases?

There are a number of state and federal laws that can be triggered when wage theft occurs.  The Fair Labor Standards Act (FLSA), which provides for a federal minimum wage and allows states to set their own (higher) minimum wage, and requires employers to pay time and a half for all hours worked above 40 hours per week, is often triggered.

How is the Davis-Bacon Act related to wage theft?

The federal Davis-Bacon Act and many states’ laws require all contractors and subcontractors on most government-funded construction projects to implement a wage standard that exceeds the federal minimum wage.

Coming Next    

In our next post we will begin to discuss ways in which you can preemptively address wage theft issues, and how to look for indications of wage theft on your projects.

In the meantime, read more about InSight and schedule a demo to see how the software functions, click here.

Up to date information on contractor requirements, worker classifications, and protections can be found on the USDOL’s website.

We can all agree that “an honest day’s work deserves an honest day’s pay.”  Unfortunately, millions of workers across the country are victims of wage theft and don’t receive the full benefits of their work.  Moreover, general contractor’s who may be completely unaware that wage theft is happening may be liable for lost wages, damages, and attorney’s fees.  SkillSmart’s InSight technology is designed to both minimize liability for contractors and ensure workers receive the full benefits of their honest day’s work.

Most people are unfamiliar with wage theft, but it is the largest form of theft in the United States totaling more than $15 billion a year.  While it is prevalent in many industries, it is often undiscussed because it disproportionately affects the most marginalized — those in  lower wage, hourly jobs, who are most at risk of losing their job should they speak out against wage theft practices.  It occurs when workers are misclassified as contract workers instead of full-time employees, or at a lower salary level than is appropriate, and the employer withholds some of their pay, taxes, or benefits.

Wage theft can be particularly pervasive in the construction industry where there can be hundreds of subcontractors and workers on a single project.  A number of states and jurisdictions have passed laws to expand the responsibility of addressing wage theft beyond just an employee’s immediate employer to also include the prime contractors for whom the employer is working. These laws create a right of action for the employee against their employer and any contractor for which their employer is working.  In other words, all contractors are now responsible for making sure that every employee, for each of their subcontractors, is paid the correct, timely wage.

We believe technology can be used to help improve the well-being of people and communities, and wage theft is a perfect example of how that can occur.  Our InSight technology captures the wage information for every worker, of every subcontractor, working on a job-site and analyzes the wage data to ensure the workers are being paid the appropriate wages and benefits as well as flagging any discrepancies for the contractor and subcontractor. This provides visibility into the process, identifies any issues, and gives notice about potential wage theft instances to be quickly addressed.  This approach mitigates the liability for the prime and subcontractor – avoiding expensive damages and attorney’s fees, helps ensure subcontractors are appropriately paying their workers, and ultimately helps to achieve “an honest day’s work for an honest day’s pay” strengthening our workers and communities.

As we continue to navigate the effects of the COVID pandemic, businesses have confronted the challenges and opportunities left in the pandemic’s wake.  For example, the Great Resignation has created an opportunity for employees and employers to re-think, re-train, and refine what an evolving workplace looks like and what each stakeholder can get out of it.  We have also used this time to wrestle with our responsibility and step into our opportunity.

At SkillSmart, we first got into the technology business because we believed that technology could help communities thrive by focusing on the workers and businesses in those communities.  We believe that by creating a more connected ecosystem where better data is collected and provided in a faster, more efficient way to stakeholders – that better decisions can be made and outcomes for all stakeholders are improved.  Of course, we realize that technology itself can’t produce those better outcomes. Only when people are committed to those better outcomes and leverage our better technology can those improved outcomes be achieved.

We have turned our focus in the last few years to the construction industry which has typically been predominately white and male.  However, there are assumptions with each construction project that it will necessarily benefit a community – that it will create jobs or provide contracting opportunities to local businesses – but, too often, those components are only afterthoughts and its increasingly difficult to even articulate the benefit to the broader community.  Our goal is to work with owners to specifically track, manage, and demonstrate how their efforts do benefit the community.  Our tools also increase the transparency to increase opportunities for local businesses and residents to help that new project grow.  By increasing the visibility into these efforts, it helps to build trust in our communities because it provides the data that demonstrates our commitment to each other and the interdependence that makes us stronger.

This Labor Day, as we all continue to regain our footing and move forward, we reflect on our workers and how technology can enable them to be more successful to the betterment of our employers and communities, if leadership is committed to those outcomes.  Over the coming weeks and months, we will identify and discuss topics that demonstrate how working together, technology can be used to make people, communities, and businesses stronger.  We hope to enlighten, provoke a little, and provide an opportunity for discourse.

We look forward to engaging with you further.

Wishing you all a restful Labor Day holiday!

Jason and Mike

What you should know when searching for DE&I Tracking and Labor Compliance Software.

Power Construction’s implementation of SkillSmart’s InSight technology on more than two dozen projects has allowed them to track workforce and business data and provides a clear view of how and where Power is able to make the biggest impact in the community.

Power Construction, a Chicago-based general contractor, began using SkillSmart InSight in 2019.

“We loved how SkillSmart works. Their team is flexible and open to new ideas, much more than any other company we had talked to,” said Sean Glowacz, Diversity & Inclusion Manager for Power Construction explained. “They wanted to work with the Power team to make a tool that was useful for more than an individual project. Their goal was to implement it across the entire organization.”

Site tour at the Terminal 5 Expansion and Renovation at O’Hare Airport. Hosted by Power Construction for Revolution Workshop students in Chicago, IL. Power offers site-tours through their partnerships with pre-apprentice organizations. These programs are focused on preparing local, minority, and female candidates for careers in construction trades. Photo Credit: Power Construction

InSight is deployed on more than two dozen Power projects, ranging in size from $2 million to $500 million. The technology allows Power to manage project reporting in a centralized portal, with the ability to:

• Track all contract awards made on Power projects – including sub-tier awards made by prime contractors – and track payments to those contractors
• Track contract awards and payments made to certified contractors (the system can track any certification of interest to our clients)
• Track workforce hours performed on Power projects, including associated demographic and geographic details
• Generate reports summarizing contract and workforce achievements for individual projects and across all active jobs
• Track Power’s community outreach efforts

Power Construction hosts Chicago Women in Trades students at their Shops at Big Deahl project site. This retail and residential development is located in the Goose Island neighborhood in Chicago, IL. Photo Credit: Power Construction

Using InSight, Power can view data in real-time on a day-to-day basis to learn more about workforce on specific project sites. Examples of data collected include subcontractor and vendor location, demographics, and financial resources.

One unexpected observation that InSight has provided Power is the ability to identify sub-tier subcontractors that they had not previously been aware of. With this knowledge, Power has invited some to participate in their subcontractor onboarding program, giving subcontractors the potential opportunity to bid Power as a prime contractor.

Unlike traditional tracking strategies utilizing payroll data and spreadsheets, InSight produces dynamic reporting metrics that inform Power of successes, shortcomings, and most importantly, where they make the biggest economic impact. SkillSmart was also able to integrate with two of Power’s software providers—CMiC and Ceridian—to assist in accurate data transfer without needing to reenter data.

Data generated by InSight provides Power additional valuable information regarding building subcontractor project teams for upcoming projects.

“When subcontractors make a commitment, Power can see there are actions behind it that are quantifiable,” Glowacz said. “Our team knows the kind of contracts they’ve let, the specifics of those contracts and the workforce being brought to the table.” Often, the most powerful partnerships occur between a subcontractor that is not minority certified but brings sub-tier participation with a diversified workforce to the project, giving Power more confidence that the subcontractor understands the purpose behind the DEI efforts.

Evanston Rebuilding Warehouse students joined Power Construction for a site tour of District 1860. Photo Credit: Power Construction

Power Construction plans to implement InSight on more projects throughout 2022, as well as utilize another SkillSmart technology, Seeker, to amplify the hiring efforts of their subcontractor partners.

To learn more about SkillSmart’s InSight technology for the construction industry, please visit: https://www.skillsmart.us/insight-demo/.

What firms and general contractor’s should know before purchasing certified payroll reporting software for your business.

SkillSmart was selected by the new design-build consortium for Maryland’s Purple Line project. This project will require thousands of workers across 100+ subcontractors and their tiers. As part of the project, all companies must comply and demonstrate compliance with the established wage rates for each trade and County. The Purple Line will use SkillSmart’s InSight technology to engage all of the subcontractors and their tiered subs, tracking all required reporting data and enabling real-time reporting.

SkillSmart was enlisted at the start of the Purple Line project in 2019, so the project team could take advantage of the software’s powerful features. These features, outlined below, are the same elements that will be used to track the construction data for this project.

Submit and track monthly payroll. Contractors and tiered subcontractors use SkillSmart InSight to enter and gather the data they need to ensure project requirements are met.

• Enter weekly payroll hours
• Track monthly man hours
• Track workplace incidents
• Upload signed payroll forms and daily reports
• Track employees (including demographics, nationally targeted worker status, and social/economic disadvantaged status)
• Generate monthly utilization and EEO reports

Centralized reporting. The team will be able to have this data at their fingertips in one, simplified dashboard.

• Manage subcontractor accounts and permissions
• Call up submitted payroll forms
• Generate and track monthly utilization and EEO reports
• Streamline compliance reporting

This 16-mile, $9.3B, light rail project is estimated to be completed in 2026. To read more about the Purple Line project, click here: https://www.purplelinemd.com/about-the-project/overview

Our team took the opportunity to highlight nearly all of the areas that the construction industry either should be focused on or are already getting a head-start on elevating these areas within their organizations and how SkillSmart’s technology platform, InSight, can help your firm with all of it.

Correctly Submitted WH 347’s – What Data is Needed?

And Here’s How SkillSmart Can Help Your Firm Collect It.

Incorrectly reporting certified payroll leads to serious consequences from the IRS. But many companies completing a WH347 form are misidentifying staff without even knowing it.

Because of confusion identifying W2 employees versus 1099 independent contractors, some companies are mistakenly submitting incorrect information – opening them up to fees and other serious consequences – often because the data with their organization’s system is not being collected or organized correctly.

W2 Employee vs 1099 Contractor

Let’s look at the difference between a W2 employee and a 1099 contractor, as classified by the Internal Revenue Service (IRS).

Most employees in the U.S. work for a single company full or part-time and are what is known as a W2 worker or contracted employee. They get the security of consistent employment (even if it is temporary) and access to the equipment and training necessary to perform the job, but the company gets to dictate almost all the remaining terms of the arrangement, including when, where, and how the work is accomplished. As a result, these employees are given a W2 tax form at the end of each year. The employer has to pay employer taxes and withholds the employee taxes and remits to the government on behalf of the worker. Employees also get certain protections that we’ll discuss in the next section.

If you’ve ever wondered what a 1099 position means, it’s simply the classification of a worker as an independent contractor instead of an employee. An independent contractor operates as an unincorporated, individually owned business, and in many ways, these workers can be viewed as the opposite of a W2 employee. They are responsible for paying their own taxes, both at filing time and quarterly throughout the year, and holding a 1099 position means they aren’t entitled to receive any of the traditional benefits that accompany full-time employment, such as retirement plans and health insurance. There are many different types of independent contractors, but a few examples include independent owner/operators for trucking, drywall finishers, painters, flooring installers and many finish trades where manpower is at a premium.

The classification of workers is one that organizations are legally required to report to the IRS, but one that can trip up companies, based on the data they have gathered for the year.

Reporting Classifications on the WH347

The deductions recorded on the WH347 form include FICA, federal with-holding tax, state with-holding tax, medicare – all of which are not deductions for 1099 contractors.

The payroll form is also required to be signed on the last page stating the organization is correctly reporting their employees and hours paid for the last 12 months. On this final page is the area where organizations can provide an explanation for areas that were checked “other” or not filled in. This is where organizations often clarify that there are “1099 workers” listed on the form.

And this is where SkillSmart can help.

SkillSmart InSight is the ONLY comprehensive construction solution for labor and business compliance tracking. Manage one or many projects through a centralized, secure portal. Track your hours, payroll, contractor wages rates, construction data, MBE participation, supplier tracking and more. InSight is also the only software on the market that offers organizations the ability to track both W2 and 1099 contractor data, collectively or broken out, for name, address, hours worked, gender, and ethnicity.

What does this mean for your Workforce Inclusion Reporting?

For the administrators collecting the data, needed to submit a WH 347 so your organization can be paid, eliminating duplicate data entry and ensuring the right data is aggregated is invaluable. Utilizing InSight, organizations have one entry point for both W2 data, collected through payroll, and 1099 data, submitted by subcontractors. By having two collection areas within the system, InSight can automatically generate the WH 347 for your team, as well as the 1099 report to accompany that, in turn giving the government entities all the information they need, in a legal and precise format.

With this accurate and aggregated data, your firm can confidently sign and submit the required forms for payment without the consequence of your business being prosecuted for falsification of documents or wrongful reporting.

The data collected goes beyond the benefits of the correct submission of WH347 forms. InSight provides organizations the ability to create custom reports for review, analysis, and QA/QC for your team. Our team works hand in hand with your in-house experts to identify which reports will be helpful and when. For some, monthly or quarterly reports on hours worked and project status, for others, weekly reporting on payroll to proactively identify non-compliance on wage rates.

SkillSmart can help you achieve all of this.

For more information on SkillSmart or to set up a demo with our team, click here.