RICHMOND, Va. (WRIC) — Virginia should require firms vying for state contracts to certify compliance with labor laws, make it easier for workers to file complaints and consider creating an interagency council to combat misclassification and wage theft, according to a report sent to lawmakers earlier this month.

A work group led by Virginia Secretary of Labor Megan Healy was created through a budget amendment to look into whether payroll fraud, misclassification and other forms of wage theft are prevalent issues on projects managed by the state.

“We need to spread awareness of what the labor laws are in Virginia,” Healy said in an interview. “Find those bad actors who violate them.”

Finding that widespread problems exist, the group recommended policies in its report to address the prevention and enforcement of labor law violations — several of which would require the General Assembly’s approval.

The Labor Law Compliance on Virginia Public Works Contracts report was shared with the chairs of the Virginia House Appropriations and Senate Finance and Appropriations Committees on Dec. 9, more than two months after it was originally expected to be released.

“The negative effects of labor law violations such as worker misclassification and wage theft reverberate across the economy,” the work group writes in the report. “While hard-working Virginians are defrauded of the pay and benefits that they rely on to provide for their families, employers playing by the rules are left at a disadvantage. This results in less tax revenue for the state while non-compliant businesses enjoy significant payroll cost savings.”

The report was made public the day after a subcontractor on the new General Assembly office building pleaded guilty to five counts of felony embezzlement for misclassifying workers on the project to avoid paying state income taxes.

Another subcontractor on the project faces similar charges and the drywall company that outsourced the work to both is the lead plaintiff in a federal class-action lawsuit alleging wage theft on the General Assembly building project and others across the commonwealth.

Here’s an overview of the recommendations laid out in the report:

Virginia should take full advantage of debarment Under a law that went into effect this year, workers are considered employees unless designated as an independent contractor. If the Virginia Department of Taxation determines a company has misclassified their employees, they are barred from being awarded a state contract for up to one year for a second offense and up to three years for any subsequent offenses.

The work group suggests that Virginia expand its grounds for debarment beyond the existing law on worker misclassification, establish a statute preventing contractors debarred by the federal government from receiving state contracts and codifying agencies’ ability to extend “its debarment to other entities that have a common ownership relationship with the debarred contractor in order to limit a business owner’s ability to hide under another entity.”

Virginia should develop more strategic enforcement of labor law violations on state projects – The work group proposes that Virginia establish a permanent interagency council responsible for monitoring data on labor law compliance on state contracts, analyzing enforcement strategies and developing additional policies for the General Assembly to consider.

The report also suggests that lawmakers create a legislative mandate that relevant contracting and regulatory agencies share information on confirmed labor law violations and auditing of contractor data.

“We need better data sharing among the agencies,” Healy said, noting that officials from Virginia’s Department of Labor and Industry (DOLI) can’t walk on a state construction site to investigate unless a complaint is made.

Virginia should also consider developing a process where contractors, agencies and institutions enter information in a centralized reporting system for capital outlay contracts above $3 million.

“This would provide the state with greater visibility into the presence and activity of subcontractors on state public works projects,” the report states.

Virginia should set a minimum standard for contracting with the state – In its report, the work group proposes creating a monthly payroll certification requirement to ensure that contractors “are meeting their prevailing wage obligations” throughout the length of the contract with the state.

DOLI, which would administer the monthly program, would need an online system to receive the submissions. The department believes the start-up costs will be $1.1 million in fiscal year 2023 and that ongoing operational costs would be a little more than $542,000 annually, according to the report.

Virginia should ensure workers know their rights and can easily submit a complaint – The report recommends that Virginia require DOLI to establish a central online form for workers to file complaints of misclassification and wage theft electronically. DOLI, which would be tasked with responding to any complaints, anticipates that costs will be $472,202 per year beginning in fiscal year 2023.

The work group also proposes that DOLI and the Department of Tax launch a joint education and outreach initiative in multiple languages to educate workers on state contracts on their rights and their employers’ obligations. The group also suggests that any state employee who oversees a capital outlay construction contract should be required to take a course by 2023 on new labor laws.

Virginia should develop standards for the use of independent contractors on state job sites – The report proposes that subcontractors receive approval before outsourcing work on state projects and that independent contractors register through the Department of Professional and Occupational Regulation by 2023.

“This process would support independent contractors in knowing their employment rights, ensure that they have accurate information about misclassification, payroll fraud, and wage theft, and help employers identify independent contractors on the job,” the report states.

The work group acknowledges that a potential pitfall to the approach is the possibility that employers coerce workers, particularly those who may be undocumented, into registering as independent contractors instead of employees.

“In this case, a worker’s registration would not have legal standing but could serve as a disincentive to speak up about misclassification if they are not aware of their rights,” the group writes in the report.

The work group, which met four times, was made up of representatives from the House Appropriations and Senate Finance and Appropriations Committees, labor organizations, the general contractor and subcontractor business community, Virginia public colleges and universities and state regulatory and enforcement agencies.

Healy commissioned a study from George Mason University reviewing relevant labor laws across 11 states and considered public comments through an online survey to inform the recommendations in the report.

While pointing to the recent legislative changes made to address forms of wage theft, Healy said that work group’s recommendations would help bolster worker protections even further.

“Treating our workers fairly and ensuring they are making the money they deserve is vital,” she said. “I think this work has been great because we are making sure our workers are better treated. We need them.”