Colorado puts new focus on fighting wage theft in construction industry

Armed with a roll of stickers and GoPro cameras, Mark Thompson and his crew patrolled the Sports Castle Lofts construction site at Broadway and 10th Street near downtown Denver.

The team calls itself the “Payroll Fraud Task Force,” aimed at rooting out wage theft and employee misclassification at job sites across Colorado.

On a recent September morning, the team talked up workers on their lunch break, asking if they’re being paid correctly and on time. They handed each laborer a sticker with a QR code to help them file wage claims with the Denver Auditor’s Office, if needed.

Thompson, a senior representative with the Southwest Regional Council of Carpenters union, said his unit finds wage-related issues on nearly every job site they visit, including the Sports Castle Lofts project. (A foreman on site declined to comment and the project’s owners couldn’t be reached.)

“It’s about cleaning up the construction industry,” Thompson said. “It’s a dirty, criminal world.”

Colorado has entered a new era of wage-theft enforcement — combining public and private efforts to tackle systematic issues in the construction industry, which has long struggled to rein in unsavory practices.

In 2023, nearly 30% of the $2.04 million in wage-theft money recovered by the Denver Auditor’s Office came from the construction industry.

The state’s Department of Labor and Employment recently concluded multiple years-long efforts to hold contractors and subcontractors accountable for misclassifying their workers as independent contractors instead of employees, which costs workers thousands of dollars per year. These proactive investigations mark a stark change from how the agency has run for decades, a departure from the complaint-driven model that looked at worker complaints individually as opposed to company-wide practices.

The city of Denver, meanwhile, has passed several ordinances in recent years giving regulators more power to go after bad actors, including up-the-chain liability designed to hold general contractors accountable for the actions of their subcontractors. An attempt to mirror that at the state level this year stalled following a veto by the governor.

“This is becoming less and less of a hidden problem,” said Scott Moss, director of the state’s Division of Labor Standards and Statistics. “It’s coming out into the daylight.”

Representatives of the construction industry pushed back on the notion they have a systemic wage-theft problem, but said they support the state investigating and holding companies accountable.

“We don’t want to be in the headlines anymore,” said Michael Gifford, advocacy director for the Associated General Contractors of Colorado, an industry trade group. “We’re working hard to be a clean industry.”

Why misclassification runs rampant in construction

Wage theft cuts across all industries, but has long been prevalent in the construction industry due to multiple levels of contractors and subcontractors.

The more layers there are, the more competition there tends to be at each layer. This dynamic leads to a bevy of companies vying to be the lowest bidder on a project.

“Very often the thing you can control as a contractor is your labor cost,” said David Weil, a former administrator of the Wage and Hour Division at the U.S. Department of Labor under President Barack Obama. “This raises the incentive to cut your labor cost.”

One easy way to do this: Misclassify your workers as independent contractors, rather than direct employees.

Unlike employees, independent contractors aren’t entitled to overtime pay, paid sick leave, health benefits, vacation or workers’ compensation. Companies also don’t need to pay payroll taxes.

“All those things have always made construction a place where misclassification has become almost a competitive strategy for people who are not worried about following the law,” Weil said.

A true independent contractor is in business for themselves and can increase profit through business decisions. They typically provide their own tools and equipment and decide when and how they will perform the work.

Employees, on the other hand, work for someone else’s business and generally can only earn more by working additional hours. They typically use their employer’s tools and equipment, with the employer deciding how and when the work will be performed.

In construction, workers generally fall into the employee camp — whether they’re classified as employees or not.

A 2022 Economic Policy Institute study found a typical construction worker classified as an independent contractor would lose out on as much as $16,729 a year in income and job benefits compared with what they would have earned as an employee.

As many as 10% to 30% of employers across all industries may misclassify their workers, according to a 2020 analysis from the National Employment Law Project.

“Misclassification represents a social problem,” said Matthew Fritz-Mauer, executive director of Denver Labor. “It’s something that hurts all of us.”

Misclassification also includes changing the type of job for which a worker might be paid.

At a Denver Housing Authority project in Sun Valley last week, José Salacar picked up food during his lunch break. Since April, he’s been paid as a roofer even though he’s a sheet metal worker. That difference means more than $44 less per hour.

For public projects, the city of Denver sets a prevailing wage for different types of work. A sheet metal worker makes $61.30 per hour, including fringe benefits, while roofer’s rates are set at $16.56 per hour.

“It’s unfair,” Salacar said.

Other workers on the job site told The Denver Post they work 45 hours per week but are only paid for 40 hours. Since they’re independent contractors, they’re losing out on benefits.

The Denver Housing Authority did not respond to requests for comment.

Some workers said they have filed claims with the city, state or federal government, though others said they’re worried about retribution.

That’s not uncommon, experts say.

A 2016 survey by University of Denver researchers found 62% of day laborers have experienced wage theft, but just half of them attempted to recover their wages. Fewer than 40% of workers asked for assistance in recovering their wages.

Fewer than 17% of state wage claims in 2016 were Spanish language claims, despite the fact that foreign-born Latinos experience wage violations at double the rate of U.S.-born Latinos and nearly six times that of U.S.-born white individuals, researchers found.

Housing insecurity, lack of English fluency and fear about their immigration status also serve to prevent workers from fighting for their rights. Most day laborers included in the study did not know about wage-and-hour laws or how to seek help with wage theft claims.

“When workers feel that they cannot come forward with their claims, wage theft becomes normalized as a systemic business practice that provides employers with a relatively unchecked license to continue to undercut wages and labor conditions for all Coloradans,” the authors wrote.

Change in enforcement

Colorado lawmakers and regulators recognized these conditions when they passed a series of laws aimed at giving more teeth — and manpower — to the Department of Labor and Employment.

In 2020, the agency received funding for four investigators to probe misclassification, primarily in construction. That same year, the department received money and a mandate to pilot strategic enforcement — meaning regulators proactively look for violators at the company-wide level as opposed to waiting for individual complaints.

“We hadn’t done strategic enforcement in construction before,” Moss, the Department of Labor and Employment director, said. “We had neither the mandate nor the manpower.”

Gradually, the department started to build cases against some major players in the Colorado construction industry.

Two subcontractors with pervasive violations — Super Mario Construction and Excel Drywall — shut down once the department ordered reforms and payment to workers.

Two other subcontractors, Randy’s Drywall Services and Interior Contractors Inc., agreed to reclassify their workers as employees and pay all wages due.

Lee Webb, human resources director with Interior Contractors Inc., acknowledged that classification “is definitely a serious problem in the industry.”

It’s difficult, he said, for companies to accurately vet subcontractors.

“Anyone can get registered with the state,” Webb said.

In June, the state fined another large subtractor, Diversified Builders Inc., more than $1 million and ordered the company to cease illegally misclassifying employees as independent contractors and denying them key rights. DBI, the department found, intentionally destroyed its own records, failed to pay overtime and provide paid sick leave.

“That is why unremedied labor violations risk a race to the bottom, imposing an ugly choice on honest employers: lose market share to your unlawful competitors or join their illicit ranks,” state investigators wrote in the citation.

The goal with these investigations, Moss said, is to make clear misclassifications are not a sustainable business model.

“These are proving to be a wakeup call,” Moss said.

Gifford, the construction industry advocacy director, said he supports the state investigating misclassification and wage theft, but added, “I wouldn’t say there’s a problem in the industry.”

“It’s hard to understand when you’re complying with the rules and when you’re not,” he said.

Other recent laws allow the state to pay workers who are owed money from their employers from a wage theft enforcement fund. The state then assumes the debt and collects from the company.

A 2022 law increased penalties that the state can assess on non-compliant companies. The legislation also established a unit in the Colorado Department of Law to investigate and enforce wage theft and unemployment insurance and misclassification claims.

Along with the state reforms, Denver has passed a host of new ordinances aimed at fighting wage theft and misclassification.

The Denver City Council in April voted unanimously to give Denver Labor subpoena power to use during wage-theft investigations — a tool the city used for the first time this month as it sought records from a trio of strip clubs accused of misclassifying workers.

Before the April ordinance, the Denver auditor’s office could only issue fines to companies that did not hand over requested documents in wage-theft investigations. Businesses could pay the fines rather than comply with the investigation.

The law change also empowered the auditor’s office to charge 12% interest on unpaid wages as well as to levy fines up to $25,000 per violation. Denver Labor can collect up to 300% of unpaid wages as civil damages to compensate workers.

“Compared to 10 years ago, it’s a completely different ballgame,” said David Seligman, executive director of Towards Justice, which provides pro-bono legal help for individuals stiffed by their employers. “We had decades here of wage-and-hour enforcement at the state level that seemed to be more invested in creating loopholes in our law to allow employers to steal people’s wages than actually enforcing the law.”

Between new leadership and legislative reforms, “we’ve seen a tremendous reshaping of our wage-theft enforcement scheme,” Seligman said. “But we still have a long, long way to go.”

To that end, the state and city only recover a small fraction of the wage theft that occurs every day across Colorado.

At least 45,000 workers a year were paid below the minimum wage in the Denver area from 2007 through 2022, according to a report issued this month by Rutgers University. By contrast, Denver Labor in 2023 recovered restitution and damages for about 1,850 minimum wage workers.

Workers also received a blow this summer when Gov. Jared Polis vetoed a bill that would have made general contractors liable for the wage theft committed by their subcontractors. The governor, in his veto letter, called wage theft a “deplorable crime,” but said the bill would have let subcontractors “off the hook” while penalizing good actors further up the project’s chain of command.