Wage Theft in the US: How to stay compliant with labor laws

Rosie Ramirez

28 February 2019    |   

In 2009, a study of New York, Chicago, and Los Angeles found that in just one week, employers failed to pay their workers an estimated $56.4 million. In 2015 and 2016, the Department of Labor recovered a total of $2 billion in stolen wages, an amount they say represents only a fraction of the amount not paid to employees. Workers, especially from low-income households, lose more than $50 billion annually to wage theft. It has also resulted in huge lawsuits: by the summer of 2019, a New York car wash franchise, J.V. Car Wash, has been ordered to finish paying $8.5 million to its former employees. The said car wash and its sister locations have allegedly underpaid workers for decades. Employees of the highly successful franchise toiled 24/7, 365 days a year. But while the minimum wage in New York is $7.25 an hour, employees were paid only half that amount. They also relied on a “tipped wage” scale. However, they did not know how much they made in tips or how it was split. Employees eventually won the lawsuit and the franchise closed down. Now, all over the country, there is a movement to ensure that such lawsuits become a thing of the past. Staying compliant with labor laws Complying with labor laws in the US is a matter of knowing the changes and investing in technology that can help you manage your workforce. Check out the seven ways you can remain compliant below. Keeping these in mind can save you millions in lawsuits and ensure your business success. Classify employees correctly. Classifying employees as exempt or nonexempt can be a complex matter. Under the Fair Labor Standards Act (FLSA), an exempt employee is not paid overtime when they log in more than 40 hours in a given workweek. Exemption depends on duties and commonly applies to executives, administrators, and commissioned salespersons. Misclassifying an employee can result in severe penalties. Stay updated with changes on minimum wage. Under the FLSA, the current federal minimum wage has been $7.25 per hour since July 2009. But some states, cities, and even counties have a higher minimum wage rate, and it’s important to pay attention to any changes. Recently, a campaign has been launched to increase the minimum wage to $15 per hour. By July 2019, the highest minimum wage in the country will be that of Emeryville, California, at $16 per hour. Ensure employees are paid for all worked hours. Hours spent on training and preparation are not “free” and should be paid accordingly. Many employers fail to do so when they keep erroneous records. Still, others ask their workers to clock in hours after work began or clock out when operations are not busy. All these scenarios can be brought up in a lawsuit, costing thousands, even millions, of dollars in penalties. Compute for overtime and holidays. Generally, the FLSA requires covered employers to pay overtime that is at least one and one-half times their regular rate of pay, for all hours worked in excess of 40 in a workweek. But there can still be variations from state to state. Holiday pay, on the other hand, is not required by the FLSA and largely depends on the agreement between employer and employee. Manage tipped employees properly. An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. Some states require a higher direct wage. However, if the tips don’t amount to at least the minimum wage, the employer must make up the difference. Apply other relevant laws, like Predictive Scheduling. Predictive scheduling laws require advanced notice when posting employees’ schedules. This ranges from 48 hours to two weeks, depending on state law. They also restrict or ban employers from scheduling on-call shifts and adding pay incentives for these shifts. As of 2018, four cities and one state have enacted these laws, but more are expected to adopt it in some form. Invest in workforce management software. The easiest way to comply with everything mentioned above is to invest in software that automates scheduling and attendance and integrates with payroll. Nothing slips through the cracks when these administrative tasks are automated. They can even identify labor compliance issues in your schedules, breaks, and timesheets to give you more oversight and reduce your labor costs instantly. Mutually beneficial compliance Following all the labor laws and regulations can seem daunting, especially when they regularly roll out changes, but it is mutually beneficial for employers and employees. When the employer is fair and transparent with how wages are handled, employees become invested in the success of the business. They become more driven, productive, and loyal. They are also more likely to provide great customer service and improve the employer’s business reputation. Thankfully, total labor compliance is within reach through workforce management software like Tanda. Once an employer invests in workforce management software, they gain access to a suite of features. They don’t just ensure labor compliance, they also optimize operations and help grow the business. More importantly, they eliminate the possibility of paying millions in penalties due to wage theft and other labor violations. Everything from payroll to tip pooling will be taken cared of, at a fraction of the administrative time. Getting ahead of the competition by choosing the right software today can make a difference in the years to come.

In 2009, a study of New York, Chicago, and Los Angeles found that in just one week, employers failed to pay their workers an estimated $56.4 million. In 2015 and 2016, the Department of Labor recovered a total of $2 billion in stolen wages, an amount they say represents only a fraction of the amount not paid to employees. Workers, especially from low-income households, lose more than $50 billion annually to wage theft. It has also resulted in huge lawsuits: by the summer of 2019, a New York car wash franchise, J.V. Car Wash, has been ordered to finish paying $8.5 million to its former employees.

The said car wash and its sister locations have allegedly underpaid workers for decades. Employees of the highly successful franchise toiled 24/7, 365 days a year. But while the minimum wage in New York is $7.25 an hour, employees were paid only half that amount. They also relied on a “tipped wage” scale. However, they did not know how much they made in tips or how it was split. Employees eventually won the lawsuit and the franchise closed down. Now, all over the country, there is a movement to ensure that such lawsuits become a thing of the past.

Staying compliant with labor laws

Complying with labor laws in the US is a matter of knowing the changes and investing in technology that can help you manage your workforce. Check out the seven ways you can remain compliant below. Keeping these in mind can save you millions in lawsuits and ensure your business success.

Classify employees correctly.

Classifying employees as exempt or nonexempt can be a complex matter. Under the Fair Labor Standards Act (FLSA), an exempt employee is not paid overtime when they log in more than 40 hours in a given workweek. Exemption depends on duties and commonly applies to executives, administrators, and commissioned salespersons. Misclassifying an employee can result in severe penalties.

Stay updated with changes on minimum wage.

Under the FLSA, the current federal minimum wage has been $7.25 per hour since July 2009. But some states, cities, and even counties have a higher minimum wage rate, and it’s important to pay attention to any changes. Recently, a campaign has been launched to increase the minimum wage to $15 per hour. By July 2019, the highest minimum wage in the country will be that of Emeryville, California, at $16 per hour.

Ensure employees are paid for all worked hours.

Hours spent on training and preparation are not “free” and should be paid accordingly. Many employers fail to do so when they keep erroneous records. Still, others ask their workers to clock in hours after work began or clock out when operations are not busy. All these scenarios can be brought up in a lawsuit, costing thousands, even millions, of dollars in penalties.

Compute for overtime and holidays.

Generally, the FLSA requires covered employers to pay overtime that is at least one and one-half times their regular rate of pay, for all hours worked in excess of 40 in a workweek. But there can still be variations from state to state. Holiday pay, on the other hand, is not required by the FLSA and largely depends on the agreement between employer and employee.

Manage tipped employees properly.

An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. Some states require a higher direct wage. However, if the tips don’t amount to at least the minimum wage, the employer must make up the difference.

Apply other relevant laws, like Predictive Scheduling.

Predictive scheduling laws require advanced notice when posting employees’ schedules. This ranges from 48 hours to two weeks, depending on state law. They also restrict or ban employers from scheduling on-call shifts and adding pay incentives for these shifts. As of 2018, four cities and one state have enacted these laws, but more are expected to adopt it in some form.

Invest in workforce management software.

The easiest way to comply with everything mentioned above is to invest in software that automates scheduling and attendance and integrates with payroll. Nothing slips through the cracks when these administrative tasks are automated. They can even identify labor compliance issues in your schedules, breaks, and timesheets to give you more oversight and reduce your labor costs instantly.

Mutually beneficial compliance

Following all the labor laws and regulations can seem daunting, especially when they regularly roll out changes, but it is mutually beneficial for employers and employees. When the employer is fair and transparent with how wages are handled, employees become invested in the success of the business. They become more driven, productive, and loyal. They are also more likely to provide great customer service and improve the employer’s business reputation. Thankfully, total labor compliance is within reach through workforce management software like Tanda.

Once an employer invests in workforce management software, they gain access to a suite of features. They don’t just ensure labor compliance, they also optimize operations and help grow the business. More importantly, they eliminate the possibility of paying millions in penalties due to wage theft and other labor violations. Everything from payroll to tip pooling will be taken cared of, at a fraction of the administrative time. Getting ahead of the competition by choosing the right software today can make a difference in the years to come.

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Rosie Ramirez

Our team's goal is to provide practical advice for business owners and managers across industries.

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