117: Employer Wage Theft

Employer wage theft
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Several states have enacted wage theft prevention laws over the past few years.

Wage theft can occur when employees are not paid according to existing wage and hour laws. There are many examples out there of wage theft by employers who may fail to pay at least the minimum wage, or fail to pay overtime or a myriad of other types of compensation that may be owed to employees.

Kickback scheme:

One recent story, a Parsippany, NJ company was fined $3.2 million dollars by the New York City Comptrollers office for allegedly cheating dozens of workers out of millions of dollars in wages for work performed on New York City projects. According to an article posted on NJ.com, K.S. Contracting was awarded more than $21 million in contracts between 2007 and 2010. In May of 2010 an unnamed employee filed a complaint against K.S. Contracting which began a multi-year investigation by the New York Comptrollers office.

It took the Comptrollers office until May of 2016 to discover that K.S. Contracting had been running a “kickback scheme” with their immigrant employees. According to the Comptrollers office, checks were regularly issued to only half of the workers, who were then ordered to cash the checks and return the money to their supervisor. Once all of the cash was returned, the workers were then paid at a rate significantly below the prevailing wage called for in the contract with the city. The contract called for workers to be paid a combined wage plus benefit package of $50 per hour. Instead, K.S. Contracting only paid each worker $90 per day.

This story is pretty surprising on multiple levels. One, it is a pretty extreme example of wage theft. Very brazen by the business owners, and not to mention it is just wrong. Two, it took the New York Comptrollers office nearly 7 years to complete the investigation.

Timekeeping system rounding:

Another example, and this one is a hypothetical situation, but nonetheless something you’ll want to pay attention to as I know this can happen quite easily and without malice.

According to a recent study by the Yale Journal of Law and Technology, your timekeeping system settings may be creating a “wage theft” situation for you right under your nose, and you may not be aware of it. You may have set your time keeping system to automatically round a clock-in or clock-out time to the nearest 5, 10 or 15 minutes. Again, you may have set this with the best intentions or, maybe you didn’t even know it was set up this way.

The problem for the employer occurs when a clock in time is is rounded up, meaning the employee clocked in at 8:08, but the system settings rounded the clock in time to 8:15, essentially shorting the employee 7 minutes of time. Also, this can happen when an employee clocks out at 5:07 and the time system rounds down to 5:00 effectively shorting the employee another 7 minutes. This sort of timekeeping can result in “wage theft” even though there was no intent by the business.

Some times the business will benefit by the rounding and sometimes the employees will benefit. The best practice however is that you set your time system to track actual time instead of rounding. Most modern time systems should do this.

Wage theft prevention laws:

Several states over the past few years have enacted wage theft prevention laws. They may be referred to with slightly different names from one state to the next. For example, California has what is known as the Wage Theft Protection Act, New York calls theirs the Wage Theft Prevention Act, and Colorado just passed their Wage Theft Transparency Act. As with most state level employment laws, once a regulation is passed in one state, it quickly spreads to other states. A quick google search for your state will reveal whether or not a wage theft act has been passed yet or not.

Even the federal government has such an act. Or I should say “had” such an act. In 2016, President Obama signed the Fair Pay and Safe Workplaces executive order. This order was designed to prevent companies with a history of safety and/or wage and hour violations from getting government contracts. Sounds fair, right? Why should unscrupulous employers be rewarded with government contracts?

Critics of the order claimed that it was too stringent and would penalize well meaning employers who may have unintentionally committed violations and that they would be “blacklisted” from future contracts. Well, you need not fear any longer about being blacklisted as President Trump repealed the regulation in March 2017.

More laws is always the answer:

Are these wage theft prevention acts necessary? In my opinion, no. There are already wage and hour laws on the books that can be used to punish the offenders of wage theft. The obvious bad businesses like K.S. Contracting from our example. These same laws protect employees from the good employers out there who simply made clerical errors or oversights. Even if there was not intent to underpay employees, you still need to make it right once it’s discovered. These acts basically are a supplement to the existing wage and hour laws adding more hoops to jump through.

The issue I have with the wage theft prevention acts is that it gives the lawyers and regulators more ammunition to ensnare any business caught not complying with additional provisions that in my mind seem rather petty. Your employee could be paid correctly, meaning that they received the correct amount of compensation, but the employer could still be fined for failing to provide all of the necessary information on the pay stub as outlined in the Act. For example, a missing business address or phone number. These fines are not small either.

As always, because these acts are passed on individual state levels, and even though the may be very similar in their content, they may also have some variations from state to state so it is always a good idea to review your specific states law to make sure you stay compliant.

Whether or not you think these acts are a good thing, one thing is certain, it is more regulation that business owners need to pay attention to in order to make sure that they are compliant.  Again, it’s good to get the bad, unscrupulous business owners out there who are truly taking advantage of situations, but there are already labor laws on the books to deal with them, as well as the occasional mistake or oversight by the well intended businesses.

About the author, Thomas

I have 20 of years insurance industry experience in C-level management, focusing on all aspects of workers compensation, risk management, loss control, employee benefits, HR, payroll and professional employer organization (“PEO”) operations. Currently, I am the owner and CEO of Humanly HR, and founder and host of SmallBiz Brainiac; a podcast providing employer intelligence to small business owners.

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