Up to 19% of Construction Workers Paid Off the Books or Misclassified

Up to 19 percent of construction workers are paid off the books or illegally misclassified as independent contractors, with lawbreaking concentrated in the residential sector, according to a 2023 Century Foundation estimate cited in a new Center for American Progress report. The finding anchors a growing policy movement: state and local governments are attaching wage standards to affordable housing subsidies at a pace that changes compliance obligations for developers and their contractors.

The stakes are concrete. Illegally misclassified construction workers lose as much as $20,399 in annual income and benefits, according to Economic Policy Institute analysis. Misclassifying companies cost taxpayers up to $10 billion per year in unpaid workers' compensation contributions, unemployment insurance taxes and other public supports. For HR leaders in residential construction, the emerging laws bring certified payroll requirements, disclosure of past violations and, in some jurisdictions, debarment.

What does the pay data show?

The report pairs housing unaffordability with bad jobs. A 2025 market study found a construction worker in Raleigh, North Carolina, would need to work 76 hours per week to afford the mortgage on a median-priced home. In Salt Lake City the figure is 84 hours. In San Jose, California, it reaches 175 hours — a mathematical impossibility.

A study of Texas construction worksites found 72 percent of respondents earned below a living wage for a single adult. A 2022 UC Berkeley Labor Center analysis found nearly 40 percent of families of construction workers were enrolled in a safety net program such as Medicaid or nutrition assistance, and about 1 in 3 construction workers lacked health insurance. Misclassification denies workers overtime, minimum wage protections, Social Security contributions and coverage under workers' compensation and unemployment insurance.

Where have wage standards taken effect?

• New York City. The Construction Justice Act, passed in December 2025, requires workers on city-assisted projects with 150 or more units costing at least $3 million to be paid at least $40 per hour in combined wages and benefits, with at least $25 per hour from wages. Inflation indexing starts July 1, 2028. Contractors must make a "best faith effort" to ensure 30 percent of work is done by city residents. Enforcement includes certified payroll, damages, civil penalties, debarment and a private right of action.
• Minnesota. A 2024 law applies prevailing wage to multifamily projects with more than 10 units funded through Low-Income Housing Tax Credits, state grants of $200,000 or more, or loans of $500,000 or more. Applicants must disclose past wage theft violations; sponsors with violations of $50,000 or more are disqualified from new funding for three years.
• California. A 2025 budget package extended prevailing wage coverage to projects above 85 feet or 100 percent affordable that seek fast-track environmental review. In 2026, a residential electrician on a covered Orange County project earned up to $36.13 per hour plus $11.35 in benefits. In September 2026, Gov. Gavin Newsom signed legislation barring developers of large fast-tracked buildings from bypassing local labor standards. A proposed $28 per hour minimum wage for townhome projects stalled after union objections.
• St. Louis. Prevailing wage applies to multifamily projects with 20 or more units receiving tax abatements or other incentives, with labor-hour goals of 20 percent apprentices, 25 percent minorities, 7 percent women and 23 percent city residents.
• Philadelphia. The standard covers city-funded projects with more than eight units, including a 336-unit senior housing preservation project backed by a $50 million pension fund loan.
• Seattle and Washington state. Seattle requires prevailing wage in its Rental Housing Program with certified payroll software and random audits; a 2018 state law covers affordable housing, shelters and weatherization work.

What does it mean for costs and compliance?

Cost research is contested. A 2005 study of 205 California projects built between 1997 and 2002 found prevailing wage raised development costs 9 to 37 percent, though critics questioned the upper bound. A 2017 four-region California study found 15 to 16 percent. A 2022 Michigan State University study found a maximum of 6 percent, and a Berkeley Planning Journal article found 5 to 7 percent.

Compliance itself moves the numbers. Misclassification can cut labor costs by as much as 30 percent, and one Michigan investigation found 94 percent of drywall contractors misclassified at least one employee or paid cash. A 1983 HUD inspector general report found a "direct correlation between labor law violations and poor construction" on HUD projects.

Minnesota Rep. Mike Howard said: "There is no way, no how that public dollars should ever support the kind of worker exploitation that is detailed in that report." His bill followed a North Star Policy Action report finding contractors tied to proven or alleged exploitation had received more than $84 million in LIHTC or TIF funding.

New York City's experience also carries a warning for policy designers. Reporters found some developers building 99-unit buildings — sometimes side by side — to evade the state's 100-unit wage threshold. CAP argues future research on units built and compliance-driven cost shifts will shape whether more jurisdictions follow, and whether standards expand from single incentive programs to all government support.