"Wage Theft." While it sounds like a back-alley hold-up or seedy business transaction, it’s actually a rather common, but frequently overlooked, issue among U.S. employers.
In general, wage theft is when a business doesn’t pay its employees what they’re rightfully owed. This can happen in a few different ways: failure to pay minimum wage or overtime, misclassifying salaried employees as “exempt,” illegal deductions, expecting employees to work off the clock, taking workers’ tips or denying pay altogether. Most of these actions are clear violations of the Fair Labor Standards Act (FLSA), the “wage and hour” law designed to protect workers.
So just how pervasive is wage theft? In a landmark, 2009 study by the National Employment Law Project of low-wage workers in Los Angeles, Chicago and New York City, a staggering $3 billion in stolen wages was identified. More than 25 percent of the low-paid workers surveyed were cheated out of minimum wage in the previous work week, more than 75 percent did not receive overtime pay for working 40+ hours in a week and nearly seven in 10 workers experienced other pay-related violations, like not being paid for “off the clock” work.
Not surprisingly, wage theft violations are more prevalent in certain industries, such as construction, agriculture, child care, home health care, retail, garment manufacturing, food service, and janitorial services.
In fact, the U.S. Department of Labor (DOL) found violations in 71 percent of the West Coast restaurants it audited in the six years prior to 2012. A separate, five-year investigation of California garment manufacturers revealed violations in 93 percent of them.
The flood of recent court cases – on both a state and national level – further underscores the severity of wage theft in America. The number of FLSA cases filed in federal court each year is on the rise, from 5,302 in 2008 to 7,764 in 2013. Involving big-name companies like FedEx, McDonald's, Papa John’s, Chipotle, Walmart and Farmers, more employers are finding themselves in the legal hot seat and being forced to pay back wages to deserving employees.
A crisis requiring awareness and action
To bring more light to this growing problem and help protect the legal rights of employees, more worker advocacy groups, states and cities are getting involved. Among their outreach is giving investigators greater resources, easing the process for workers to issue complaints, enacting stricter laws and penalizing companies that break the rules.
For example, in April 2014, the California Labor Commissioner introduced a new website, WageTheftIsACrime.com, to assist the “underserved population of low-wage workers.” It provides clear examples of wage theft, along with instructions on filing a wage claim against an employer. In New York, the Wage Theft Prevention Act (WTPA) requires employers to give written notice of wage rates to each new hire, including overtime rate of pay, if applicable, and minimum wage allowances (such as tips and meals).
Nearly $17 million dollars in lost wages have been recovered over the past three years in New York City alone.
At the federal level, President Obama issued an executive order in mid-2014 taking aim at federal contractors involved in wage theft, discrimination, and other labor violations. The “Fair Pay and Safe Workplace” measure require contractors to reveal labor law violations from the past three years before getting a contract with the federal government. It also entitles contract workers – one in five workers in the U.S. today -- to written details about their pay to verify its accuracy.
Don’t let FLSA violations turn into wage theft
What about your company? Are you in strict compliance with the FLSA and state laws and avoiding the more common pay violations? To prevent the accusation of wage theft and any legal complications, be certain to:
- Pay at least the minimum wage for all hours worked, with overtime pay of time-and-a-half for 40+ hours in a workweek.
- Check your state (and sometimes city) minimum wage and overtime rules. When they vary from federal law, always follow the coverage most beneficial to the employee.
- Pay non-exempt (hourly) workers for all the time they put on the job, whether the work is done at the office, during a commute or in the employee’s home.
- Recognize the differences between independent contractors and employees, and do not misclassify them to avoid overtime pay (and other benefits).
- Make sure your “exempt” workers who are paid on a salary basis are properly classified as exempt. Look beyond the job title and carefully consider the actual work functions to determine FLSA classification.
- Completely relieve employees of all duties during 30-minute meal breaks so they can take them uninterrupted.
- Have a process for overriding automatic deductions for any situations where non-exempt employees skip breaks or are forced to cut their breaks short.