You read that right! That is $50 Billion, with a “B”, that American workers are losing on an annual basis. A study by the Economic Policy Institute shows that American employers fail to pay their workers properly, with the resulting loss of this magnitude.
In some circles these pay violations are considered to be “wage theft”. Indeed former Secretary of Labor Hilda Solis said so in a speech early in her term as the Secretary. As a result of this type of loss the Wage and Hour division has stepped up its activity to search out and correct poor pay practices by employers. In some cases these cases are indeed actual theft of wages with employers refusing to pay overtime, and specifically instructing workers to work off the clock or risk being terminated. (See here for an example.)
It is my belief that in these situations employers need to have the book thrown at them. I have no sympathy for someone who is so unethical that they knowingly steal from their employees.
Unwittingly committing violations
It is my belief that employers do not knowingly commit wage violations. In my consulting practice the most frequent problem I encounter in small business is a misunderstanding of the Fair Labor Standards Act. Small business owners generally have an office manager or operations manager who is not well trained in the FLSA and all of its many intricacies. They don’t knowingly violate the law they just don’t know the law. Here are some of the violations that occur that generally are not intentional:
- Misclassification of employees, generally as an exempt employee, when in reality they should be nonexempt and thus earning overtime.
- Not realizing you have to pay someone for lunch if they are not fully relieved of their duties. A common violation comes from someone eating at their desk and answering an email or phone call during that time. Doing so makes that a compensable activity.
- Not adjusting and automatic time clock system that makes automatic deductions for lunch periods, without actually checking to see if the employee took lunch.
- Trying to control abuse of breaks by making someone clock out for the break. The law says that if you give someone a break and it is less than 20 minutes that is compensable time.
- Not paying for “doffing and donning” time. Preparatory time that is integral to the performance of the job is compensable time.
- Not calculating overtime correctly when performance bonuses are involved.
- Travel time for nonexempt employees.
- Improper deductions from exempt employees’ paychecks. The law says that if an exempt employee works any portion of a week they are due a full paycheck for that week. (See here for the 7 exceptions to that rule.)
- In the restaurant business improperly applying the tip credit for wait staff.
- Paying someone as an independent contractor when in reality they are not. There are both Department of Labor and IRS rules, as well as individual state rules, that govern this.
These are just some of the areas that end up adding up to that $50 billion a year.
No right and wrong, just wrong
In discrimination cases there is generally some question of intent. In wage and hour situations intent is not important. You either do it right or you do it wrong. Well actually intent does enter into it in that the penalties you pay may be higher if you are intentionally violating the law, but even if you are not intentionally doing it wrong you are still violating the law and you have to make it right.
This means you have to pay at least two years back wages, sometimes three. Penalties and fines may get added. You have to change your processes to make sure this does not happen again and you become the object of future increased scrutiny.
If you are unsure if you are following the FLSA correctly you need to consult a consultant or attorney or even both. It may save you a lot of time and money.
Thanks to Christopher McKinney of the Texas Employment Law Blog for the inspiration.