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Wage Theft
We are all aware of the legal and moral implications of not paying employees for the work they have done—yet it still occurs. Understanding the dynamics and impact of wage theft is essential for protecting workers' rights. Let’s look at how HR professionals can support the prevention of wage theft.

What Is Wage Theft?

Wage theft is the illegal practice of failing to pay workers the wages, benefits, or overtime compensation they are owed under the law.

Types of Wage Theft

Wage theft can take many different forms, including:
  • Paying workers less than the minimum wage
  • Denying workers overtime pay
  • Misclassifying employees as contractors
  • Illegally withholding tips
  • Requiring workers to work off the clock without compensation
Let's look at several of these in more detail.

Misclassification of Employees

Misclassification of employees is a type of wage theft where employers intentionally or mistakenly classify workers as independent contractors instead of employees. Independent contractors are self-employed individuals who work for themselves and are responsible for their own taxes, benefits, and expenses. In contrast, employees are entitled to certain legal protections, such as minimum wage and overtime pay, workers' compensation, unemployment insurance, and other benefits. By misclassifying workers as independent contractors, employers can avoid paying payroll taxes, providing benefits, and complying with labor laws that protect employees. This can result in significant financial losses for workers who may not realize that they are not entitled to these protections. It can also create an unfair competitive advantage for employers who engage in this practice.

Failure to Pay Overtime

Failure to pay overtime is a common form of wage theft in which employers violate the law by failing to pay eligible workers for hours worked beyond the standard 40-hour workweek. The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees at least one and a half times their regular hourly rate for any hours worked over 40 hours in a week. However, some employers attempt to avoid paying overtime by misclassifying employees as exempt from overtime pay, failing to record all hours worked, or pressuring employees not to report overtime hours.

Tip Theft

Tip theft is a form of wage theft that occurs when employers illegally withhold or misappropriate tips that are earned by workers. In the United States, tipped employees such as servers, bartenders, and other service industry workers are generally paid a lower minimum wage with the expectation that tips will make up the difference in their earnings. However, some employers engage in tip theft by taking a portion of employees' tips, requiring employees to share their tips with non-tipped workers, or pooling tips without distributing them fairly.

Off-the-Clock Work

Off-the-clock work is a form of wage theft that occurs when employers require or allow employees to work without pay outside of their scheduled work hours. This can include tasks such as preparing for work, setting up equipment, closing after hours, and attending meetings or training sessions. Off-the-clock work is illegal and can result in significant financial losses for workers who don't receive the compensation they are entitled to. Employers may engage in off-the-clock work by pressuring employees to work without pay, failing to record all hours worked, or misclassifying employees as exempt from overtime pay.

The Legal Consequences of Wage Theft

The economic, legal and social consequences of wage theft can be severe. Here are some of the main consequences companies may face if they engage in wage theft.

Financial Penalties and Fines

Employers who engage in wage theft may be subject to financial penalties, which can include back pay, interest on unpaid wages, and additional damages. In some cases, the penalties are substantial and significantly impact the financial health of the business. Employers who engage in wage theft may also be subject to fines from government agencies such as the Department of Labor or state labor departments. These fines may be imposed in addition to any penalties awarded in a lawsuit.

Lawsuits

Employees who experience wage theft may file a lawsuit against their employer. If successful, the employee recovers their unpaid wages as well as damages for any harm caused by the wage theft, such as emotional distress or financial hardship.

Criminal Charges

In some cases, wage theft may rise to the level of a criminal offense. Employers who engage in wage theft may be charged with criminal offenses such as theft, fraud, or embezzlement. If convicted, they may face fines, jail time, or both.

Reputation Damage

Employers who engage in wage theft may suffer negative publicity and damage to their reputation. This can make it more difficult to attract and retain employees and customers. It takes time to rebuild a reputation after a scandal. When companies lose investors, customers, clients and employees, it affects their ability to make a profit and maintain competitive advantage.

How to Prevent Wage Theft

HR professionals must ensure that the organizations they support aren’t only aware of the consequences associated with wage theft but also the best ways to prevent them. Here are five ways to prevent wage theft.
  • Clearly communicate pay rates and policies. Employers should provide clearly written documentation of employee pay rates, including any overtime or bonus pay policies, and regularly review and update this information as necessary. This helps prevent misunderstandings and ensures that employees are aware of their rights.
  • Keep accurate records. Employers should keep detailed and accurate records of employee hours worked, wages paid, and any deductions made from pay. This helps prevent mistakes or intentional wage theft. It is always helpful should employees file a lawsuit and records are subpoenaed.
  • Monitor compliance with labor laws. Employers should regularly review and monitor compliance with labor laws and regulations to ensure they are following all applicable wage and hour laws. Best resources for this are the US Department of Labor for federal wage and hour information and state labor departments for specific state wage laws.
  • Train managers and supervisors. Managers and supervisors should receive training on wage and hour laws and regulations, as well as the company's policies and procedures for paying employees. This helps ensure that they are aware of their responsibilities and can help prevent unintentional violations.
  • Encourage employees to report any issues. Employers should have a clear policy in place for employees to report any issues related to wage theft or other labor law violations. Employers should take all reports seriously and investigate any concerns promptly to ensure that they are resolved in a timely and appropriate manner.

Best Practices for Responding to Wage Theft Claims

Despite best efforts to remain compliant with wage and hour laws, there may still be claims of wage theft. It’s important to remember that claims may not always be accurate, but it's important for employers to respond quickly and thoroughly. Here are a few best practices for responding to wage theft claims.

Investigate the Claim

The first step is to investigate wage-theft claims thoroughly. Collect all relevant documents, including pay stubs, timesheets, and any other evidence related to the claim. Talk to the employee making the claim and get their side of the story. Sometimes not all hours worked by employees are accurately recorded. Confirm this isn’t the case before dismissing the employee’s case. If the employee’s hours weren’t recorded and there is other proof that the employee worked the hours in question, they should be paid.

Respond Promptly

It's essential to respond promptly to wage theft claims to avoid legal action and further damage to your reputation. Acknowledge the claims and let the employee know that you take the matter seriously. Claims may not always be true, but delaying a response may be perceived as having something to hide.

Cooperate With Authorities

If the employee has filed a complaint with the authorities, cooperate fully with the investigation. Provide all the necessary documentation and information and comply with any requests from the authorities.

Address the Issue

If the wage theft claims are found to be true, take corrective action immediately. Pay the employee any owed wages and take steps to ensure that similar issues don't happen in the future.
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Remone Robinson

Remone Robinson

Remone Robinson is a high-achieving Human Resources professional with extensive experience and success in talent management, strategic communication, and regulatory compliance across several industries. He is a motivated self-starter who draws on strategic planning and change management skills to enhance HR policies and operations. He has an extensive background in performance management, training & development, and diversity, equity, inclusion & belonging. Remone earned a Master of Science (MS) degree in Management and Leadership from Western Governors University. His passion and vision for HR led him to become a SHRM Certified Professional (SHRM-CP) from SHRM and a Certified Professional in Human Resources® (PHR®) from HRCI.
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