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Study Finds Widespread Wage Theft

January 12, 2010
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Related Topics: Compensation Design and Communication, Motivating Employees, Wages and Hours, Featured Article, Benefits
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Anew landmark pay records investigation documents rampant wage-and-hour law violations that translate into wage theft of 15 percent of earnings, or a labor cost advantage of 15 percent for employers that violate the law—more than enough to undercut competitor companies. A team of leading academics and researchers studying 4,387 low-wage workers in Chicago, Los Angeles and New York found that 68 percent of the workers experienced at least one pay-related violation in the workweek studied. The violations involved the most basic provisions of the Fair Labor Standards Act and occurred at both large and small companies across all industries.

The monetary consequences documented are significant and provide a potentially decisive cost advantage for employers that illegally pocket wages owed to workers. The average worker studied lost $51 out of average weekly earnings of $339. Assuming a full-time, full-year work schedule, the average worker lost $2,634 annually because of workplace violations, out of total earnings of $17,616.

Most of the wage theft stemmed from minimum-wage violations, but the study found that 76.3 percent of the workers who were entitled to overtime pay did not receive the legally required rate, 69.5 percent of those entitled to a meal break did not receive the legally required time, 56.8 percent did not receive mandatory documentation of their earnings and deductions, 40.5 percent of those with pay deductions were subjected to illegal deductions, and 29.6 percent of tipped workers were not paid the tipped-worker minimum wage.

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Although small employers were more likely to violate the law, one in six of the workers investigated at large firms had a minimum-wage violation in the workweek studied, and of those who worked overtime, 53 percent were not paid the legally required rate. “At large companies, managers of establishments are under enormous pressure from headquarters to cut labor costs,” says Annette Bernhardt, policy co-director of the National Employment Law Project and one of the study’s authors. “It is inevitable that these managers will try to cut corners.”

Too often, managers simply receive a cost-cutting target with no counsel on how to achieve it. “HR needs to give guidance about how to make the numbers and which strategies are good or bad,” Bernhardt says. “Companies must be clear about what kind of messages they are sending to their field managers.”

At large companies with sophisticated payroll systems and strong human resources departments, tampering with minimum-wage rates is difficult and managers typically look elsewhere to cut costs.

“Working off the clock and meal-break violations are easier because you don’t have to mess around with payroll records or paperwork,” Bernhardt notes. “For large companies, the question is how well they monitor the discretionary actions taken by their managers and their subcontractors and franchisees. HR should monitor them and get out in the field and ask them to talk honestly about their practices.”

The study, “Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities,” was funded by a number of major foundations and can be downloaded at www.nelp.org.

Law-abiding employers have a direct interest in ensuring that all employers pay legally required minimum wages. Employers can expect increased FLSA enforcement actions in the coming months. The U.S. Department of Labor announced in March 2009 that it is adding 250 new wage-and-hour field investigators to beef up enforcement.

Workforce Management, November 16, 2009, p. 29 -- Subscribe Now!

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