What Is Wage Theft? - IE3: Indoor Environment & Energy Efficiency

What Is Wage Theft?

Unscrupulous employers regularly engage in it. Several states and local municipalities have enacted laws and regulations specifically targeting it. “It” is wage theft, a topic that has been prominent in recent news reports, and is frequently associated with the nationwide “Fight for 15” ($15 per hour minimum wage) among low-wage workers.

Wage Theft Defined

Wage theft takes many forms, but the bottom line is that workers do not receive wages to which they are rightfully entitled for work they have performed. Examples are listed below.

  • Withholding of overtime pay
  • Failure to pay shift differentials
  • Forcing workers to clock out during “down” times
  • Refusing to issue final paychecks for departing workers
  • Paying less than minimum wage
  • Payment for less than the total number of hours worked

If the above practices give the impression of being illegal, that’s because they are. However, many employees are forced to endure these and similar practices in order to keep their jobs, especially during periods of economic downturn. Wage theft is especially prevalent among undocumented workers and ex-offenders. However, according to a 2014 article in the New York Times, other low-wage and even mid-wage workers are subject to wage theft as well.

Because they are paid hourly, non-exempt workers are more likely to be subject to wage theft than exempt workers, who receive a salary. However, employees are frequently misclassified as exempt specifically to allow employers to avoid paying overtime and shift differentials to which they would otherwise be entitled. This also counts as wage theft. In addition, both exempt and non-exempt workers may be denied their final paychecks.

Wage Theft Laws and Regulation

Many of the above practices are covered by federal legislation. Specifically, the U.S. Department of Labor Wage and Hour Division regulates labor and wage practices nationwide, and handles complaints by workers who have been subject to unfair labor practices, including misclassification and wage theft.

However, a number of jurisdictions have taken matters even further, enacting ordinances and laws specifically targeting wage theft. These laws require employers to provide clear information to workers about wage rates. This information allows workers to document whether they receive all the wages to which they are legally entitled.

For example, the Wage Theft Prevention Act, which went into effect in New York State in April 2011, requires private sector employers to provide workers with written or electronic notices at the time of hiring and whenever wage changes are made. Notices must be provided in a worker’s primary language if templates for that language are available from the Department of Labor – or otherwise in English. The notices must contain the following information.

  • Employee pay rate(s) and basis (e.g. by the hour, shift, day, week, salary, piece, commission, or other)
  • Allowances claimed as part of the minimum wage, including tip, meal, or lodging allowances, and allowance amounts
  • Employee’s regular pay day in accordance with Labor Law frequency requirements
  • Employer’s name, including any “doing business as” names used
  • Employer’s main physical address and mailing address if different
  • Employer’s main telephone number
  • Any “such other information as the commissioner deems material and necessary.”

Wage Theft Penalties

Penalties for violating the New York State Wage Theft Prevention Act are stiff: a fine of $250 per day for failure to provide proper notices to workers and up to $20,000 for retaliation, with an additional $20,000 for liquidated damages. Individual workers can collect up to $5,000 for improperly withheld wages.

The Illinois Wage Payment and Collection Act, which went into effect in January 2011 “establishes when, where and how often wages must be paid and prohibits deductions from wages or final compensation without the employee’s consent,” according to the Illinois Department of Labor website. Although state and federal employees are exempt from the Act, local government workers are covered, along with private sector workers. As in New York State, penalties for violation of the act are steep, as illustrated by the list below.

  • Damage of 2% of wage underpayment, per month, without limitation until back wages are paid
  • Penalties of $250 for employers ordered to pay wages or compensation – increasing to $500 if the payment amount ordered is between $3000 and $10,000 and $1,000 if the payment amount ordered is more than $10,000
  • Failure to comply in a timely manner with an IDOL order triggers an additional penalty of 20% of the underpayment to IDOL and 1% per day of the underpayment to the employee until the underpayment is paid in full
  • Officers of a corporation or agents of an employer who knowingly violate the Act will be held personally liable for unpaid wages, fees and penalties.

Wage Theft Damages

Damages resulting from legal action relating to wage theft can be substantial. For example, Schneider, a national trucking company, reached a settlement of $21 million in back pay to hundreds of workers in California. One trucker in particular stood to collect more than $20,000. He regularly worked 70 hours or more each week, but never received overtime pay, according to the Times article. In another example, a janitorial company in Fremont, California was ordered by the state labor commission to pay $332,676 in wages and penalties for 41 workers. The workers had been forced to sign blank time sheets which were inaccurately completed by the company, resulting in blatant underpayment, according to the Times article.

Disclaimer: This article describes general circumstances relating to wage theft. It is not intended to provide legal advice. Please consult with an attorney specializing in labor law in your jurisdiction with specific questions relating wage theft and wage theft laws or regulations.

Melissa Broadus

Editor at IE3
Melissa Broadus is editor of IE3 Magazine and its associated websites. She also serves as Director of Communications for ACCA.

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