Report claims wage theft affecting workers, businesses, state

IOWA CITY - A report released Monday by an Iowa City-based not-for-profit public policy organization contends Iowa workers could be  losing as much $600 million each year due to wage theft.

Wage theft is defined by the Iowa P0licy Project as a worker not receiving legally owed wages because their employer breaks the law or a contract. Common forms of wage theft include:

• Nonpayment of wages: An employer fails to pay workers for some or all hours of work performed, or fails to pay workers in a timely manner.
• Underpayment of wages: An employer pays workers less than they were promised or less than they are legally owed under state or federal minimum wage or overtime statutes.
• Tipped job violations: An employer pays tipped employees less than the legally mandated minimum wage for tipped jobs, forces tips to be “shared” with managers or steals workers' tips.
• Deduction violations: An employer diminishes workers' pay by making unauthorized or illegal deductions from paychecks.
• Employees are improperly classified: An employer falsely labels an employee as an “independent contractor” to avoid obligations to pay minimum wage and overtime.

The Iowa P0licy Project cites the case of Henry's Turkey Service in Atalissa as an example of wage theft. Texas-based Henry's placed developmentally disabled men in jobs at West Liberty Foods, a West Liberty turkey processor.

Henry's collected the men's wages, along with their Social Security disability payments. In return, the men were paid a $65 monthly stipend that did not vary with hours worked or overtime, the equivalent of 41 cents per hour for full-time work.

The rest of their hourly wages was consumed by monthly deductions (usually over $1,000 for each worker) for room, board and “kind care” at a crumbling, century-old bunkhouse that Henry's rented from the city of Atalissa. There were no written authorizations from the workers for the deductions.

In March 2011, Iowa Workforce Development fined Henry's over $1 million for more than 9,000 violations of state labor laws, including failure to pay the minimum wage, failure to provide pay stubs, and making illegal deductions from paychecks. In July 2011, the U.S. Department of Labor added another $1.7 million award for violations of the federal Fair Labor Standards Act - half in unpaid wages, half in penalties.

"While we hear about wage theft only occasionally, it is a problem so vast that many have described it as an epidemic," the report states. "It is an epidemic that is nearly invisible because most of its victims are the invisible workers in our society - low-wage workers in factories and home care, construction, day labor, immigrants, the disabled, the poor and the powerless."

The Iowa Policy Project report contended that wage theft is aided by weak and poorly enforced labor laws at the state and federal level. The report noted that enforcement resources and staff are especially scarce in Iowa.

Iowa Workforce Development has in recent years employed a single full-time wage claims investigator, responsible for pursuing upwards of 175 cases at any given time. The Iowa investigator is responsible for over 1.2 million private-sector workers - more than eight times the average state workload and over three times the workload of any other wage and hour unit in the upper Midwest.

While the primary impact of wage theft is borne by Iowa workers, particularly those in low-wage jobs or those who were  born outside the United States, it also is shortchanging the state and adversely affecting responsible employers.

The I0wa Policy Project argued that wage theft may be costing the state at least $45 million annually in unpaid tax revenue and another $14 million in lost revenue to the state's unemployment fund. Every dollar taken from a worker's paycheck is a dollar not spent on local goods and services and a dollar that is not counted when calculating payroll and income taxes.

In the construction sector, responsible employers are being underbid by contractors willing to shave bids and increase profit margins by lowering their labor costs, the report said. It also saddles legitimate construction companies with more than their share of funding programs such as unemployment insurance or workers' compensation.

The report contended Iowa needs to be more proactive in investigating wage theft, rather than waiting for complaints to be filed by individual workers. It also argues for more funding to increase the number of investigators and other staff.

Noting that cases typically are settled with employers paying back wages, the report argued that Iowa also needs to use existing authority to impose civil penalties.