How to know if your business is ‘stealing’ wages

The legalities of businesses that have been sued for breaking wage theft laws

(This column originally appeared in The Inquirer)

Philadelphia’s Office of Worker Protections announced last month that it had recovered more than $300,000 from businesses that violated the city’s Sick Leave, Fair Workweek, and Wage Theft laws in 2023.

“In the last two years alone, the Labor Policy and Compliance team have recovered nearly a million dollars for Philadelphia workers,” said Candace Chewning, director of the Office of Worker Protections. “These labor laws make Philadelphia a good place to work and the Office of Worker Protections in the Philadelphia Department of Labor strives to increase compliance across the city.”

A few well-known businesses in Philadelphia — like Chickie’s and Pete’s and Tony Luke’s — have been found to have either shorted employees of their earnings or engaged in improper payment practices in order to avoid employment taxes. A number of lesser known businesses have been sued for breaking wage theft laws over unpaid tips or overtime wages, fined by the U.S. Department of Labor for underpaying their workers, or included on the city’s annual list of “bad actors.” The problem has become so serious that the governors of New Jersey and Pennsylvania recently launched a joint task force to “crack down” on wage theft violations.

Wage theft occurs when an employer — knowingly or not — pays a worker less than what they’re legally entitled. It may be a simple shorting of hours worked or willfully pocketing tips, as was the case with Chickie’s and Pete’s. It can also involve misclassifying employees in order to avoid paying overtime wages.

Under the current provisions of the Fair Labor Standards Act, any salaried workers with certain job titles and duties and that earn less than $684 per week ($35,568 per year) are entitled to be paid overtime for any hours worked past 40 in a week. These exempt employees are usually in administrative, professional, or executive positions.

“Employers can also miscalculate paid time off, health insurance, or retirement contributions,” said Brian Leinhauser, an employment attorney based in West Chester. “If anything that’s been promised contractually to an employee isn’t delivered, it can be considered to be some form of theft.”

Deirdre Aaron, an attorney in Dresher who represents employees in wage theft claims and other workplace issues, says that these incidents can come in a lot of different forms and are not just in the food service or retail industries.

“A manufacturer may not be classifying employees who deserve overtime properly or they don’t fully pay workers while they’re on premise and putting on their gear for a shift,” she said. “Or an employer may incorrectly pay workers a straight time rate for overtime instead of time-and-a-half as required by the state.”

Not all employers are bad actors. Some inadvertently make mistakes that can result in the underpayment of wages. In order to stay out of trouble, what can a small business owner do to make sure they’re in compliance? For Leinhauser, it first starts with documentation

“Under the Fair Labor Standards Act, an employer has to maintain records of their hourly employees’ time, which mean time sheets or time cards or online time reporting,” he said. “If just one disgruntled employee thinks they’re owed overtime or other wages and they file a claim with either the state or Federal Department of Labor you’re going to be asked to provide documentation. Without it, you have little defense.”

Leinhauser tells his clients to make sure that their employees fill out and sign a time sheet and are paid based on the hours that are on the time sheet.

“If there’s ever an audit, then you have documented response,” he said.

Oftentimes wage theft incidents occur when an employer is not fully versed in the rules. The Federal, Pennsylvania, New Jersey and Delaware Departments of Labor all publish guidance for employers. But given the complexity of these rules it’s important to consult an expert.

“Every business, regardless of their size should have an employment lawyer come in and review all their policies and pay practices on a regular basis,” said Aaron. “Mistakes happen and oftentimes employees aren’t paying enough attention to their pay stubs to bring any problem to the attention of the employer right away.”

Leinhauser agrees.

“Have an attorney come in and look at your job descriptions and look at how your employees are working and determine their titles and responsibilities,” he said. “Some are exempt from the overtime rules, for example, but many others are not.”

Whether a compensation mistake is intentional or not, an employer can face steep fines if they’re found to be underpaying employees. Under Pennsylvania law, for example, it’s a 25% liquidated damages penalty which means that, if found guilty, an employer would have to pay $125 for every $100 of underpaid wages, Leinhauser said. The penalties under Federal laws are even higher.

But what’s even worse than paying the fines? It’s being publicly singled out as a “bad actor.”

“Employees are far more sophisticated now about their remedies under the law,” Leinhauser said. “And once more employees find out about an infraction, it can lead to a class action suit, and what you’ll wind up paying a lawyer or an accounting firm…can be astronomical.”

Originally published at https://www.inquirer.com on February 14, 2024.