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Wage Theft: What It Is, Why It’s On the Rise and How to Avoid It

What is wage theft, and why do you need to take it seriously? It comes down to prevalence and penalties.

Wage theft — or failing to pay employees what they’re rightfully owed — is on the rise. And while the issue is problematic anytime, two dynamics are putting it at the forefront: 1) The U.S. Department of Labor is taking a more worker-friendly stance under the current administration and prioritizing enforcement of wage theft, and 2) The unique conditions with work-from-home arrangements during the pandemic are driving wage-related employee lawsuits.

Plus, the threat of penalties looms large. An employer convicted of wage theft could pay fines up to $100,000, and, in some areas, serve a prison sentence up to 20 years. This is on top of any civil penalties that apply.

Fortunately, with greater awareness of the rules and a careful approach to critical time and pay matters, you can avoid legal complication and potential wage theft penalties.

A Closer Look at Types of Wage Theft

The most common types of wage theft that get employers in trouble are:

  • Failure to pay minimum wage or overtime
  • Non-payment for all hours worked
  • Allowing off-the-clock work by nonexempt employees
  • Misclassifying employees as independent contractors
  • Unlawful pay deductions, such as withdrawals for job-required uniforms or to “cover” cash or inventory shortages
  • Non-payment for paid holidays
  • Withholding final pay after an employee leaves a job

Most of these actions are clear violations of the Fair Labor Standards Act (FLSA), the “wage and hour” law governing minimum wage requirements, overtime, timekeeping practices, child labor laws and other pay-related issues. State and local laws that protect workers may come into play, as well.

The pandemic has caused a jump in wage and hour issues due to more nonexempt employees working from home. Now, more than ever, employers should audit their payroll practices and make necessary changes to eliminate risk.

Best Practices to Avoid Wage Theft

Don’t put your business at risk of the most common, but completely preventable, FLSA violations. To avoid accusations of wage theft and possible penalties, be certain to implement and enforce clear workplace policies and procedures, comply with mandatory FLSA postings and handouts, and maintain accurate employee records. Specifically, you should:

    1. Pay at least the minimum wage, as well as overtime pay for 40+ hours in a workweek — As a general rule, nonexempt employees must receive at least the minimum wage (as dictated by federal, state and/or local law) for all hours of work. They’re also entitled to overtime pay at the rate of 1.5 times their regularly hourly rate for each hour worked over 40 in a workweek.
    2. Check your state and local minimum wages —The federal minimum wage remains at $7.25/hr., but more than 20 states and 30+ cities raised their minimum wages as of March 2021, with several states planning increases throughout the year. Whenever the minimum wage varies between the federal, state or local levels, you must pay the amount most beneficial to the employee.
    3. Pay nonexempt workers for all hours worked — Whether the work is done at the office, during a commute or at home, nonexempt employees must be paid for their time. And they should never be asked to work “off the clock,” which includes answering emails and using other communication platforms outside of working hours.
    4. Completely relieve employees of all duties during 30-minute meal breaks so they can take them uninterrupted — In addition, have a process for overriding automatic deductions for any situations where nonexempt employees skip breaks or are forced to cut their breaks short.
    5. Verify that “exempt” workers who are paid on a salary basis are classified appropriately — A minimum salary ($684/week or $35,568/year) is only one requirement for employees to be exempt from overtime under the FLSA. These employees must also meet specific criteria with job duties tests, typically for executive, administrative and professional employees.
    6. Know the difference between independent contractors and employees for proper legal classification — Based on various DOL and IRS tests, an independent contractor (such as a freelancer or consultant) is responsible for delivering a certain result, and has control over what and how to do it. Don’t attempt to avoid paying payroll taxes, workers compensation or unemployment taxes by misclassifying an employee as an independent contractor.
    7. Display the latest FLSA workplace posting and distribute any state-specific employee handouts covering wage theft — Beyond the mandatory labor law postings, be mindful that certain states have passed wage theft laws that require specific notifications for employees, including California and Minnesota.
    8. Maintain proper employee payroll records — Employers are responsible for maintaining accurate records of payroll status and hours worked by nonexempt employees to ensure compliance with minimum wage and overtime requirements. Regardless of the timekeeping method utilized, be sure records reflect dates and times of work performed.

Complete Essential Time & Attendance Records Electronically

With more businesses shifting from traditional paper forms to electronic forms, the Fill-and-Save™ Time & Attendance Form Library is an ideal solution. The easy-to-use and always accessible collection of fillable PDF documents includes several forms to help you maintain accurate records for nonexempt employees, such as the Weekly Time Tracker, Overtime Request & Approval Form and Payroll Status Change Notice. Plus, forms are monitored and updated regularly to guarantee compliance with all legal changes.

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