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Wage theft: How employers steal millions from American workers every week
Ross Eisenbrey
Ross Eisenbrey is vice president of the Economic Policy Institute. - photo by Economic Policy Institute

There are thieves stealing billions of dollars in America who are not robbers targeting convenience stores or banks. They are not thugs pointing guns and grabbing cash at gas stations. The billions stolen are part of "wage theft," and the culprits in the workplace are employers, not employees.

According to analysis by the Economic Policy Institute, a left-leaning think tank based in Washington, D.C., bank, gas station and convenience store robberies tallied up to $139 million dollars in 2012. The latest figures from the U.S. Department of Labor show that in 2012, $280 million in illegally withheld back wages were recovered from companies in the United States.

But that $280 million is just the tip of wage theft. A 2009 study of three major metropolitan areas, New York, Chicago and Los Angeles, found that in just one week an estimated more than $56.4 million was illegally withheld from workers in those cities. Over a year, that would add up to about $3 billion in those same cities and from $40 billion to $60 billion nationally, according to estimates by Ross Eisenbrey, institute vice president, who made his calculations from that 2009 study, "Broken Laws, Unprotected Workers."

Wage theft overwhelmingly affects those who are financially vulnerable — those struggling in poverty, the study shows. But it doesn't stop there. Wage and hour violations are found in small companies and larger corporations, and it affects middle-class workers as well. And as large as the amount of lost wages is, solutions may be possible through employees taking action and improved government enforcement.

"If the government would go after wage theft the same way Los Angeles goes after jaywalking, at that level of enforcement, this problem would go away," said Ruth Milkman, a professor of sociology at the City University of New York Graduate Center and a co-author of the "Broken Laws" study.

How wage theft occurs
Minimum-wage violations are a common way for employers to steal from their employees. According to the "Broken Laws" survey, 26 percent of workers were paid less than the minimum wage. Sixty percent were underpaid by more than $1 per hour.
"Here you see the real life at the bottom of the labor market," Milkman says. "They are not even paid the minimum wage."

Another method employers use to eke out free labor is to have employees work before they clock in and after they clock out. According to the study, almost a quarter of workers reported coming in early or staying late without getting any pay at all for their work outside the clock.

Misclassification of an employee's status as an hourly worker is another big issue, says Chris Moody, an employment law attorney with Moody & Warner in Albuquerque, New Mexico. If an employee is classified incorrectly, they won't collect overtime pay when they work longer than 40 hours a week.

The common exemptions to overtime rules in the law are for workers classified as executive, administrative, professional and computer professional. These workers are not being paid on a hourly basis. An employer can save money if a worker is classified as exempt. More than a quarter of workers reported working more than 40 hours during the week the "Broken Laws" study took place. Of those, 76 percent were not paid the mandatory overtime rate.

Minimum-wage violations are less likely to be experienced by middle-class workers, but overtime violations are broader, Milkman says. The study found the average worker put in 11 hours of overtime a week and was either underpaid or not paid at all for that time.

Some insurance companies often classify claim examiners as exempt even though their jobs fall clearly under the hourly employee provisions of the law, Eisenbrey says.

Moody says classifying employees incorrectly isn't necessarily an attempt to cheat them out of money.

"The problem is there are very complex rules for determining if somebody is exempt," he said. "You can legitimately classify somebody as exempt, but it isn't always clear and it is complicated. You have to get a lawyer in a lot of close cases to read case law and that sort of thing. Many employers unwittingly misclassify employees as exempt."

An emerging trend, according to Moody, deals with classifying workers as independent contractors. They do this so they do not have to count them as employees under the Affordable Care Act and so they don't have to withhold taxes for them or pay minimum wage or overtime. Unlike real subcontractors, who control much of their own work, these workers are tightly controlled by their employers.

Workers who receive tips are also in danger of wage theft. An employer is supposed to make up the difference if an employee's tips don't rise to regular minimum wage standards. But Milkman says in the course of her study, she talked with a housekeeper for a major hotel chain whose supervisor would enter the rooms first and take all the tips.

"This is only one example," Milkman said. "But (as this situation with the major hotel chain shows) wage theft is not limited to fly-by-night employers."

Moody says sometimes the problem is not a rogue employer, but a rogue manager who just isn't following the rules.
"And the company won't know about it until it is brought to their attention," he said. "If an employee does, hopefully the company will jump on it and get it corrected."

The solutions
The U.S. Department of Labor told us in an email that victims can confidentially call the U.S. Department of Labor's Wage and Hour Division at 1-866-487-9243 or visit it on the Web at to make a complaint. Even undocumented immigrants have rights to be paid, Milkman says.

But practically speaking, many will not make the call.

Some may fear speaking out, worrying that employers will try to find out who reported them and then retaliate.
Even when complaints are filed, Moody says, state and federal authorities have limited resources to investigate. Eisenbrey and Milkman say a solution would be for the government to fund more agents to investigate violations.

Instead, understaffed agencies are increasingly unable to effectively patrol the workplace: "So part of the effort has been to disincentivize the employers by increasing the penalties, which makes it more attractive for private attorneys to take these cases and pick up the slack from the government," Moody says.

Eisenbrey says the punishments for violations should be even stiffer. He would like to see criminal punishments for repeat offenders.

"All of these labor standards are fragile," Eisenbrey says. "It requires vigilance to maintain a notion of a 40-hour workweek. ... If we are not vigilant, enforcement will just slip away and employers will go back to the chaos of anything goes, and we'll end up with seven-day workweeks. It isn't enough to have laws on the books; it needs to be enforced."

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