Wage theft is a big-time crime in which billions of dollars are taken out of working people's pockets every year. Rather than armed thugs or slick pickpockets committing the crime, it's employers who fail to pay the wages and benefits their employees are guaranteed by law.
In the 10 most populous states, 2.4 million workers lose $8 billion to the crime every year, according to a recent study by the Economic Policy Institute (EPI). And wage theft is growing, said Robert Ottinger, an employment attorney at The Ottinger Firm, which has offices in San Francisco and New York.
"There are three reasons for this," Ottinger explained. "First, a lack of government resources to enforce the wage laws. Second, class actions were the primary way to enforce the law and the U.S. Supreme Court has made those harder to bring. Third, the advent of mandatory arbitration by employers now keeps aggrieved employees out of court."
Many people who are victims of wage theft aren't even aware that what is happening to them is illegal. Keep reading to see 10 of the ways that employers steal money from your paycheck, plus an expert's suggestions on what you can do about it.
10 sneaky ways employers steal from your paycheck
10 sneaky ways employers steal from your paycheck
1. Failure to Pay Minimum Wage
Employers’ failure to pay minimum wage is one of the most common forms of wage theft, said Ottinger. Federal, state and local laws set out the minimum amount per hour an employer must pay its employees. In 2017, minimum wage ranged from $7.25 per hour, the federal minimum, to $14 per hour in San Francisco. You can find out what your minimum wage is here.
This type of wage theft obviously hits the poorest of working Americans, those who can afford it least. “The EPI study reports that low-wage workers will lose up to 30 percent of their pay per year to wage theft,” Ottinger said.
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2. Failure to Pay Mandated Overtime
Ottinger ranked failure to pay overtime right up there with failure to pay minimum wage as the most common type of wage theft. Overtime provisions in the Fair Labor Standards Act (FLSA) require that employers pay time and a half wages for any hours over 40 in a workweek. State law can expand overtime and some states, like California, do. California mandates time and a half pay for all hours over eight in a day, and double pay for any hours over 12 in a day.
Say an employee is eligible for overtime pay, but the employer continues to pay them at their usual hourly rate for hours over 40. That's illegal, because the employer should be paying the worker time and a half, according to the recent EPI report.
3. Misclassifying Employees as Managers to Avoid Overtime
In order to flout the overtime rules, employers often simply ignore the issue of overtime or tell employees that they don’t pay overtime. A sneakier way to steal overtime pay from employees is to declare that they are managers. For people who are living paycheck to paycheck, this kind of wage theft can have a particularly big impact on their quality of life.
“Exempt” employees are not entitled to overtime. Managers are one category of exempt employees. This makes sense, since managers are higher-level employees with higher wages, and paid a salary, not by the hour. They also must perform management functions.
When an employer classifies an employee as a manager simply to get out of paying for overtime, but the employee doesn't actually perform managerial duties, the employer is violating the overtime rule. Just giving an employee a title change and salary isn't sufficient enough to exempt an otherwise nonexempt employee from overtime pay, according to the U.S. Department of Labor.
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4. Illegal Deductions for Meal and Break Time
Wage theft isn’t limited to minimum wage and overtime violations. If employers don’t allow workers to take breaks and meal breaks, which they are entitled to under employment law, it is also wage theft. Employers might take illegal deductions from their workers’ paychecks for break time or otherwise illegally adjust paid work hours, reported the EPI.
These actions can also result in minimum wage violations. If an employer changed the billable work hours so that workers don’t get paid for all hours of work, it can reduce the effective hourly rate below the minimum wage. However, the simple fact of refusing to allow mandatory paid breaks is, in and of itself, wage theft, according to the EPI.
Different minimum wage rules apply to “tipped workers,” those who get tips in addition to wages. These rules are so complex that many employees aren’t sure what they are entitled to. In most states and under federal law, employers of tipped workers have the option of crediting tips against the employers’ minimum wages, according to the EPI.
Take the federal example. Under federal law, an employer can pay tipped employees as little as $2.13 per hour if, when the tips are folded in, the employees get at least the actual minimum wage. However, employers have to pony up the difference if the tips are not sufficient to equal minimum wage.
Employers who do not pay up commit wage theft, but employees would need to regularly detail their exact work hours, tips and wages to know if that was happening. It’s often too complex for most workers to track.
6. Taking Tips From Employees
As an employment attorney, Ottinger has seen many different types of wage theft. Among the less common ones he’d seen was an employer who took tips away from employees. This is not just technical wage theft, it is actual theft of money belonging to employees.
In another example, sometimes when customers include tips in their credit card charge, an employer deducts the credit card processing fees from the tip amount. This is considered wage theft in many states, including California. Under California Labor Code Section 351, an employer must pay the employee the full amount of the tip indicated on the credit card, without any deductions for fees or costs.
More than a few employers require workers to perform certain tasks without including the time they take in their work hours. These are called “off-the-clock” hours and are often illegal. If you're being asked to do these things, it's probably time to change jobs. Typically off-the-clock hours are for things like:
Unpaid preparation, like setting up a worksite before a shift
Unpaid work after a shift, like cleaning up or dropping off equipment at another site
Unpaid paperwork, meetings with management or undergoing training
Unpaid work correcting errors
Unpaid time waiting when no work is immediately available
(Sam Edwards via Getty Images)
8. Failure to Pay for Mandated Days Off
The federal government pays its workers for 10 holidays each year. But the law doesn't require private employers to match these holidays or pay overtime for employees who work on them.
However, many private companies offer benefits like allowing for paid time off for certain holidays. If a work contract or company policy guarantees employees certain paid holidays and the employer doesn’t allow them to take the days off, it is essentially wage theft. Likewise, it is wage theft if the employer gives an employee the agreed "paid" day off but docks pay because of it.
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9. Treating Employees Like Independent Contractors
Under federal law, an independent contractor is a worker who provides services to an employer in a relationship where the employer does not control where or when the worker performs tasks, according to the IRS. An independent contractor is distinguished from an employee by the degree of control and independence she exercises.
Employers might classify employees as independent contractors in order to avoid paying Social Security and Medicare taxes for that person. In addition, independent contractors are not entitled to minimum wage, overtime or workers' compensation coverage, according to staffing agency Peak Technical Staffing USA. An employer who misclassifies an employee as an independent contractor to save money is effectively stealing wages and benefits from that worker.
10. Docking Employee Hours
The worst case of wage theft Ottinger has seen involved docking employee hours. He described a case his firm is handling against a company owning about 40 Applebee’s restaurants in New York City.
“The managers had labor targets, and they met these goals by reducing reported employee work time," he said. "This was a large-scale, intentional pattern of wage theft that impacted 15,000 employees. The losses are in the hundreds of millions. The case, filed six years ago, is currently pending in federal court.”