What Is Wage Theft? [+ 4 Practical Tips to Prevent It]

According to the Guardian, more than 40 employees who worked for the federal contractor Consultis collectively experienced a staggering $500,000 in wage theft. These workers have tried to recoup back wages since 2015 but to no avail—despite the US Department of Labor (DOL) ruling in their favor.

Unfortunately, wage theft, even at this magnitude, is not uncommon and can severely harm individual employees across all industries. Generally, wage theft hurts low-wage workers the most, increasing their likelihood of falling below the poverty line and relying on public assistance.

On the other hand, employers who unjustly underpay their workers to cut costs also expose themselves to serious risks. Besides opening up their business to costly legal repercussions, such as civil penalties and fines, they also damage their brand's reputation and undermine its long-term success.

Wage theft isn't always intentionally caused by corruption, but rather by siloed and inefficient systems. With BambooHR, everything works together in one platform to pay employees accurately and on time, every time. Learn how you can ensure fair compensation practices and compliance with labor laws to protect both your workforce and your business.

What Is Wage Theft?

Wage theft occurs when an employer fails to pay employees what they've legitimately earned. While a blatant example could be not paying employees for the total number of hours they've worked, there are several types of violations—and some go beyond dollar-value wages. Here are common forms of wage theft that cost employees millions every year:

• Off-the-clock violations: Asking employees to do tasks before or after their official shift (such as preparing coffee or answering emails)
• Overtime violations: Failing to pay nonexempt employees time-and-a-half when they work more than 40 hours a week
• Minimum wage violations: Paying employees less than the federal minimum wage or less than the state minimum wage, if applicable
• Tipped minimum wage violations: Confiscating tips from employees or not paying service industry workers the difference between their tips and the legal minimum wage
• Meal break violations: Denying employees their legal meal breaks altogether or making employees perform work tasks during an unpaid break
• Employee misclassification violations: Wrongfully classifying employees as independent contractors to deny them overtime wages and benefits, such as health insurance and paid holidays

Common Wage Theft-Related Terms

Here are a few of the most common terms employers and employees should know when discussing wage theft:

• Back wages: Also referred to as back pay, this is the difference between what an employee was paid and the amount they should have been paid by their employer.
• FLSA protections: Designed to prevent unfair work practices and standards, the Fair Labor Standards Act (FLSA) sets federal minimum wage, overtime pay, employer recordkeeping, and youth employment standards for non-exempt employees. The DOL's Wage and Hour Division (WHD) handles FLSA infractions.
• Disability complaint: The Americans with Disabilities Act (ADA) prohibits discrimination and requires employers to provide reasonable accommodations to applicants and employees with disabilities. If an employer violates the ADA, the individual can file a charge of discrimination with the US Equal Employment Opportunity Commission (EEOC).
• FMLA complaint: The Family and Medical Leave Act (FMLA) grants qualifying employees up to 12 weeks of unpaid, job-protected leave each year with continued access to their health benefits. If an employer engages in prohibited conduct, an employee can file a complaint with the DOL or file a private lawsuit.
• Statute of limitations: This is the time limit an employee has to file a complaint or lawsuit after an incident. Timeframes vary depending on jurisdiction and the claim type.

Wage Theft Statistics

Wage theft not only harms individual employees but also undermines labor standards and economic fairness at large. The following statistics detail how pervasive wage theft is nationwide:

How much money is tied up in wage theft?

The definitive total is unknown due to various factors. For instance, employees may not be aware they were victims of wage theft, or they do know and just haven't reported their employer. However, according to the DOL, the sum of back wages owed across 15 industries in 2022 was $114,677,814.

What industries are most affected by wage theft?

Low-wage and service industries are hit the hardest. The construction industry ranked the highest for back wages owed in 2022 at $32,913,795. On the other hand, the food services industry had the highest number of wage theft cases that same year at 3,840.

What was the largest wage theft case?

Wage theft cases can vary by jurisdiction and specific labor laws at local, state, and federal levels, making it difficult to pinpoint a single case. However, several high-profile cases have resulted in substantial settlements. For example, the Federal Trade Commission (FTC) filed a lawsuit against Amazon in 2021 for allegedly illegally withholding tips from drivers between 2016 and 2019. As a result, Amazon settled and paid the FTC $61.7 million to compensate over 140,000 drivers.

Do wage theft investigations generally result in employees’ favor?

Several employers have been found guilty of wage theft, but not many victims receive back wages. This is due to the WHD's lack of staff and resources to go after every claim submitted, among other reasons. To illustrate, in 2022, the WHD disbursed $9.1 million through the Workers Owed Wages (WOW) system—only 7.9% of the $114+ million employees were collectively owed.

4 Practical Ways to Prevent Wage Theft

As an employer or HR professional, you can take several steps to prevent people from falling victim to wage theft at your organization, such as:

1. Use All-in-One HRIS Software

Manually tracking payroll for multiple employees across disparate systems can make you vulnerable to errors that will harm both your employees and your business. Ditch the DIY spreadsheets and consider leveraging HR software to do the heavy lifting for you.

For instance, BambooHR combines time tracking, time-off requests, benefits, payroll, and more into a single platform to make payday easy and accurate for all. Payroll administrators no longer have to worry about double data entry and can have peace of mind with automated, compliant tax filing. Plus, employees can feel empowered with easy-to-read pay stubs that show itemized deductions and their total pay-to-date.

2. Know Your State's Laws

Staying informed and compliant with emerging state legislation can help you avoid fines, civil penalties, interest, employee attorney fees, and other costly consequences. While some states don't have wage notice requirements, other states enforce strict legislation.

Under New York’s Wage Theft Prevention Act, for example, employers are legally required to give new employees written, detailed notices of pay rates, provide accurate pay stubs, and refrain from retaliation. Employers who are guilty of wage theft face severe penalties, such as being held responsible for liquidated damages on up to 100% of unpaid wages.

Similar to New York, California’s Wage Theft Protection Act requires employers to provide wage notices at the time of hire. If they implement any changes, they must notify employees within seven days. Employers who fail to give notice must pay an employee for all of their losses, or a $50 penalty for the first violation and $100 for each subsequent payday in which there is a violation—whichever amount is greater.

3. Make Sure Your Employees Aren't Misclassified

While misclassifying employees as independent contractors is a common form of wage theft, interns and volunteers are especially vulnerable, as well. A legitimate unpaid internship must provide training similar to an educational environment, benefit the intern, not be used to displace regular employees, and follow other strict guidelines. Otherwise, the intern is actually an employee entitled to both minimum wage and overtime pay under the FLSA.

As for volunteers, these individuals can donate their time for public service, religious, or humanitarian objectives (e.g., driving vehicles for the American Red Cross). Simply put, individuals can volunteer to help public-sector employers and their community, but not for-profit, private-sector employers. As an exception to this FLSA rule, public-sector employers cannot allow their employees to volunteer to do the same work for which they're hired to do.

4. Educate Your Employees

Knowledge is power. Openly communicate with your employees to ensure they know how to track their time and what the submission cutoff date is to avoid payday delays. Plus, they should understand their benefits and how to interpret their pay stubs. When your employees are familiar with this information, they can quickly notice when something is off and report it to HR for corrections.

How to Report Wage Theft

If an employee believes they've been a victim of wage theft and their employer won't pay what's due, filing a complaint with the WHD is the best course of action. It's illegal for an employer to retaliate against an employee for exercising their rights. The complaint process typically involves three primary steps:

Step 1: Gather Information

To file a complaint with the WHD, the employee must provide:

• Their name, address, and phone number
• Company name, address, and phone number
• Manager or owner’s name
• Type of work they did
• How and when they were paid
• Information about the employer’s pay practices, if possible (e.g., copies of pay stubs, personal records of hours worked)

Step 2: File the Complaint

Employees may submit complaints online or by phone. If they prefer email correspondence with the WHD, employees can fill out this brief online form to provide their contact information and context about their situation. Otherwise, they can call the WHD at 1-866-487-9243 (1-866 4 US WAGE).

Step 3: Work with a Representative

The WHD representative assigned to the case addresses the complainant's questions or concerns and determines if the employer should be investigated. If so, and if violations are found, the investigator will request back wage payment from the employer.

Rest assured, the WHD doesn't charge for handling complaints or for conducting wage-theft investigations. Also, employees, whether they're documented or not, have the right to submit a complaint—the WHD enforces the law for all covered, non-exempt employees under the FLSA regardless of immigration status.

For more information, visit the WHD website.