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Penny Ledger
Wage Theft
Avoiding making payments to employees
Although there are regulations relating to providing fair treatment and compensations to employees, some employers engage in wage theft by either exploiting loopholes in the law or completely ignoring it. There are many ways wage thefts occur, and these unethical practices not only deprive workers from rightfully earned money, but also have an impact on the economy.
Why is it done?
Employers who engage in wage theft often take the risk of possibly receiving legal punishments to increase profits by cutting labor expenses. For some businesses, the increased profit gained by committing this act outweighs the potential legal consequences due to the inconsistent enforcement of wage laws.
Complexity of wage laws: Because the wage laws are very intricate and sometimes not enforced strictly, savvy managers find loopholes within the wage and hour laws to avoid paying proper salary to employees.
Pressure to meet financial goals: In certain industries where profit margins are thin, cutting expenses can lead to much accelerated profits, which is why managers may resort to wage theft to meet financial goals.
Low risk of detection: Because the targets of wage theft are often vulnerable employees, such as immigrants, hourly wage employees, or those with precarious jobs, those who face wage theft may be hesitant to report to the IRS due to fear of facing bigger issues.
What are the most common ways?
Wage theft can take many forms, and employers often use combinations of these to minimize the chances of detection. By using multiple forms of wage theft, employers can also significantly reduce labor costs
Failure to pay overtime: Although employees are legally required to be paid the overtime rate of 1.5x, some managers ignore the law and do not.
Stating employees as independent contractors: Managers may classify employees as independent contractors to avoid paying minimum wage, overtime fees, and even providing benefits.
Illegal deductions: Wages of the employees may be deducted due to "fees" for items such as uniforms, tools, or wear and tear, to below minimum wage. (Although it is legal to deduct parts of fees, it must not go below the minimum wage.)
Retaining tips: Within industries where tipping is a norm, employers may illegally withhold a portion of employees' tips. Managers may even distribute the tip unevenly without informing the workers.
What are its consequences?
Committing wage theft has vast consequences and impact the lives of many employees.
Financial strain: Because the targets of wage thefts are mainly vulnerable workers who already have financial struggles, receiving payments below the minimum wage can significantly increase their financial burden.
Legal consequences: If caught, managers who enforced wage thefts will face penalties, fines, or lawsuits. These penalties often require the employees to gain some financial justification.
How does it affect the economy?
The impacts of wage theft extends beyond individual employees/employers and create a snowball effect through the levels of local and state economies.
How can you prevent it?
Preventing wage theft can be beneficial to both employees and employers. The workers will be compensated fairly for their hard work, which will likely boost morals. For employers, following business ethics can enhance a company's reputations.
Decreased consumer spending power: Wage theft directly and significantly decreases workers' incomes, leaving them with less money to spend on essential products. This also hints that less money is circulated in the local economy and stunts economic growth,
Loss of tax revenue: Since wage thefts leave workers with less income, the governments also receive less revenue from tax. This can stunt growth to public services, such as education, healthcare, transportation, and more.
Increased reliance on social services: Workers affected by wage thefts often struggle to provide for necessities, forcing them to rely heavily on public assistance programs, such as food assistance or healthcare coverages.
Weakened economic stability: Wage theft can cause a mismatch between wages and productivity because workers get paid less than their values. Also, the economic growth is stunned due to lower aggregate demand.
Employees: Employees/workers can prevent falling victim to wage theft by meticulously keeping track of hours worked. Also, understanding workers' rights regarding overtime and minimum wage can help detect any errors.
Employers: Transparently sharing the pay system to workers and catalyzing a positive work environment can help payroll conversations to be had in the work environment.
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