Kossiwa Agbenowossi is not happy.
It’s been over nine months since the 38-year-old Coralville resident stopped working for an area subcontractor — and Agbenowossi said she still hasn’t been paid.
After mopping floors and cleaning the kitchen in the wee hours of the morning at a now-closed Outback Steakhouse restaurant in Coralville for a year and five months, Agbenowossi said her former employer — which is actually subcontracting company, not the restaurant itself — owes her 49 days of pay, totaling more than $2,000.
“I’m not feeling happy because he has to pay me,” Agbenowossi said of her former employer, as she sat on a kitchen chair cradling her 3-year-old son, Mark. “No one works like that” and doesn’t get paid.
But unfortunately people do work, but they don’t always get paid.
Iowa workers could be losing as much as $600 million each year due to wage theft, according to a 2012 report from the Iowa Policy Project, an Iowa City-based not-for-profit public policy organization.
Wage theft is something Misty Rebik, executive director of the Center for Worker Justice of Eastern Iowa, said she deals with on a daily basis as part of her job.
Though Rebik said few cases are as egregious as Agbenowossi’s, she often helps people deal with late payments, missed weeks of pay and illegal deductions on paychecks.
Rebik said Agbenowossi’s case highlights the intertwined issues of wage theft and worker misclassification that are beginning to plague many who work low-wage jobs.
“It’s an industry problem,” Rebik said. “It’s the people who are filling these low wage jobs that experience this because the employers know that the people they’re hiring have certain barriers — whether it be educational obtainment, language, country of origin, skin color — whatever it is they know they can exploit them more easily.”
Agbenowossi believes she was misclassified by her former employer, which, Rebik said, has made it more difficult for her to get her money. With Rebik’s help, the mother of five filed a misclassification claim with Iowa Workforce Development’s Misclassification Unit in early March.
Misclassification occurs when an individual is classified as an independent contractor when they should be classified as a permanent employee.
Worker misclassification is “becoming, unfortunately, more and more prevalent,” said Catherine Ruckelshaus, general counsel and program director with the National Employment Law Project based in New York. Though misclassification has long-been a problem in the construction industry she added that it is beginning to pop up in retail.
Depending on how a worker is classified, an employer has various legal, tax and financial obligations. Those obligations include withholding Social Security and Medicare taxes from an employee’s wages, paying those taxes, in addition to an employee’s share, paying unemployment taxes, buying workers’ compensation insurance and complying with state and federal wage and overtime laws.
If an employer misclassifies an employee as an independent contractor rather than an employee, the worker often has tax burdens they wouldn’t have otherwise, such as paying self-employment taxes and quarterly estimated income taxes.
A misclassified worker also could be denied unemployment insurance benefits if laid off, lose employment protections such as minimum wage and overtime, and might not receive workers’ compensation if hurt on the job.
“Independent contractor misclassification almost always results in wage theft because of overtime and lack of record keeping,” Ruckelshaus said. “Sometimes it’s making people work off the clock and not paying them, or making improper deductions that bring the wages below the proper levels. There are lots of ways employers are squeezing workers now.”
RESOURCES FOR WORKERS
The Misclassification Unit, which falls under Iowa Workforce Development, was created in 2009 after a general fund appropriation.
After receiving a misclassification tip or claim about an employer, the unit reviews the claim for validity and investigates it in a way that allows both sides to provide input on why a business is or is not classifying workers correctly.
Kerry Koonce, spokeswoman for Iowa Workforce Development, said the length of an investigation can vary depending on the complexity of the case.
“Early on, when the unit first started they were getting easy-pickings tips that were so egregious it was easy to get through the investigations really quickly,” Koonce said. “Now they are getting into more complicated cases which take a lot more investigation.”
A hearing is held for a final decision, and the decision can be appealed.
The unit also does spot checks on businesses to ensure they’re classifying their workers properly, but how frequent those spot checks occur depends on the caseload the unit is carrying, she said.
At the end of 2013, the task force found over 380 employers that had misclassified more than 5,000 workers. Koonce said the wages that had not been reported exceeded $90 million.
Though the Government Accountability Office contends the national prevalence of employee misclassification is unknown, a 2000 study commissioned by the U.S. Department of Labor found 10 to 30 percent of companies audited in 9 states misclassified at least some employees.
Ruckelshaus said misclassification can have a cascading negative effect on the economy.
If people are working longer hours and not getting paid overtime or have extra tax burdens, they may not be getting the money they should — which means there’s less money to spend in the economy and less money circulating, creating a negative stimulus effect from wage theft, she said.
Misclassification also hurts law-abiding employers who are classifying their workers correctly.
“They can’t compete with companies that treat employees as independent contractors because it’s cheaper,” Ruckelshaus said, “especially in places like janitorial or construction, where there is a lot of bidding for jobs. They can’t compete because they keep getting underbid by companies with lower labor costs.”
Wage theft could be costing the state $45 million annually in unpaid tax revenue and an additional $14 million in lost revenue to the state’s unemployment fund, according to the Iowa Policy Project Report.
A bill intended to give employees more protections against wage theft died during the last legislative session.
Ruckelshaus said interagency task forces that do spot checks — such as Iowa’s — tend to be the most successful in identifying industries where misclassification is a problem and collaborating on enforcement.
Other states, such as Ohio, Virginia and North Carolina, have introduced laws in an attempt to tighten the definition of who is an employee and who is running their own business to make it harder for employers to evade labor employment protections.
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