What You Need to Know About the New Wage Theft Law

The beginning of 2022 marked the onset of an important change in the construction compliance and regulatory landscapes. On January 4th, New York’s amendments to the Wage Theft Protection Act (WTPA) went into effect, applying to any contracts that were executed, modified, extended or renewed on or after the date the WTPA was enacted. Specifically, the new law establishes greater liability risk for general contractors, construction managers and top-tier subcontractors that engage their own contractors and vendors, and also institutes more stringent wage-reporting requirements for all subcontractors. Wage theft includes not paying minimum wage, withholding overtime pay, or requiring off-the-clock work. It can also include harder-to-detect activities, like automatically deducting time for meal breaks or not paying for remote work.

Liability Flows Up

Liability will now be the full responsibility of general contractors or top-tier construction managers — whichever reports directly to the owner/developer. If there are any discrepancies, errors or omissions of wages to employees, the liability flows all the way up the chain of payment. Regardless of the source of the wage theft claim, whether it be a third party, a union, attorneys or an individual employee, the top-line contractor on the project is responsible and liable for damages, lost and back wages, benefits, penalties incurred and any other payment issues that may arise as a result of nonpayment claims. Included in the liability for general contractors are any unpaid health, welfare and retirement benefits, as well as vacation, separation and holiday pay. Basically, top-line contractors need to ensure that every employee on a project is paid agreed-upon rates and benefits.

In effect, the legislation included in the Davis-Bacon Act of 1931, which places the onus on top-line contractors to ensure payment to all workers on federally funded or public projects, has now been expanded to encompass private projects as well. With these sweeping changes taking place, general contractors will need expertise on New York Labor Law (NYLL) requirements to ensure they are effectively overseeing and maintaining payroll, wages and benefits for all employees on a construction site.

Penalties for Noncompliance

There can be significant penalties for noncompliance, whether intentional or not. The penalties can include 100 percent of unpaid wages plus prejudgment interest of 16 percent and attorneys’ fees. In addition, contractors may face Department of Labor penalties. All of this can equal approximately 200 percent of the unpaid wages. Depending on the extent of the transgression, this has the potential to be a substantial expense that can eat into profit margins for general contractors.

But this isn’t an uncontrollable risk. Here’s how you can be proactive to avoid issues down the line.

Develop a Thorough Qualification Process

General contractors and those in similar positions should prepare thoroughly and be vigilant throughout the project lifecycle. Do a comprehensive review of all contracts (especially agreed-upon wages and benefits), updates to language and change orders. Clarify your subcontractors’ audit rights and plan for potential alterations or change orders that may be needed down the line, especially now, when supply chain delays are the norm.

Similarly, detailed record-keeping needs to be instituted among all subcontractors. Increased oversight and scrutiny of wages by the State means that general contractors can be held responsible for subcontractors that keep incomplete records. For instance, a subcontractor that does pay its employees, but pays in cash and doesn’t keep payment receipts for each transaction can be the subject of a wage theft claim by a disgruntled worker. If that subcontractor doesn’t or can’t resolve the claim, that liability flows upward and stops at the general contractor. Regular reviews of subcontractor payroll reports are imperative to address issues early. General contractors should track their subcontractors’ employees and hours worked at their jobsite and compare these to the actual hours as well as their rates. It is important that general contractors ensure that they have the personnel to do so diligently, and project executives should make sure this is happening regularly.

Make Sure What’s Good for the Industry Is Good for You

There are, however, industry benefits to the WTPA as well. Contractors and subcontractors that are compliant and operate transparently will be able to level the playing field in the bidding process, and the law will ostensibly reduce the number of bad actors in the market. This will also allow for greater MWBE participation in projects.

The other side of this is that general contractors are largely responsible for carrying out these industry changes. It’s crucial that construction firms and project managers have the resources and expertise to carry out proper due diligence across all of their projects in New York state.

General contractors should consider utilizing experienced specialists to help ensure that the planning and execution of wage strategy on a project protects the top-tier construction manager and ensures a compliant, transparent construction project.

For more information on the WTPA and how it may affect your company, please contact Phillip Ross, Partner and Leader of the Architecture & Engineering and Construction Industry groups, Brian Sanvidge, Principal and Leader of the Regulatory Compliance and Investigations group, or your Anchin Relationship Partner.