Hidden wage loss and misclassifying employees to avoid workers’ compensation: two growing trends

August 5, 2015

Hidden wage loss and misclassifying employees to avoid workers compensation

 A recent study from Temple University’s Beasley School of Law has uncovered unsettling trends in employment that diminish workers’ rights to compensation and care when they suffer injuries on the job.  According to the study, nearly 1 million workers per week in Pennsylvania suffer from some sort of wage theft, and classification of workers as independent contractors is a growing phenomenon that limits important benefits such as workers’ compensation.

 

What is wage theft?

Wage theft is the illegal non-payment or under payment of wages.  It takes numerous forms and employers use various strategies to avoid being caught.  The victims of wage theft are working men and women of all races and ethnicities.  Some of the occupations that carry the highest risk are: construction workers, fast food workers, caregivers, factory workers, restaurant staff, cashiers and office clerks, as the chart below indicates.

 

wage loss graphicSource: http://www2.law.temple.edu/csj/files/wagetheft-report.pdf

 

Real-life examples of wage theft

David was a 15-year-veteran truck driver who began to see his paychecks decrease suddenly.  When he confronted his employer, he was given a repayment schedule and told he would be properly compensated.  He never was.  Instead, David fell behind on his bills, had to drop his health insurance, couldn’t afford groceries, and was forced to quit his job. 

 

As a home healthcare worker, Natasha traveled between multiple homes to complete her job.  Her employer refused to pay for her travel, and at times did not pay her at all for her work.  She struggled to feed her four children and was ultimately terminated from her job when she became ill and required a hospital visit. 

 

David and Natasha are just two victims of wage theft, which is clearly a quietly growing problem in Pennsylvania.   

 

Types of wage theft

 

There are six types of wage theft: minimum wage violations, overtime violations, illegal deductions, tip violations, shortage of hours, and missed or delayed payments of wages. 

 

Minimum wage violations: In Pennsylvania, workers must be paid a minimum of $7.25 per hour unless they perform one of the few occupations exempt from this law.  Employers paying less than $7.25 per hour are committing wage theft.

 

Overtime violations: Most hourly workers must be paid one and a half their regular rate if they exceed 40 hours per week.  If workers are paid only their normal hourly rate for any hours over 40 in a work week, they are victims of wage theft.

 

Illegal deductions: Employers cannot take unauthorized dedications from their employees’ paychecks. Deductions for cash register losses, damage to employer property, alleged theft, gas, equipment rental, uniforms, or other supplies necessary to perform the job are all illegal and constitute wage theft.

 

Tip violations: Tips cannot be taken from workers by the employer.  While some workers may be subject to a tip-pooling or sharing system, money from tips must be given to the employees.  If employers fail to do so, they commit wage theft.

 

Shortage of hours: Employers must compensate employees for all time they work.  Some employers commit wage theft by requiring employees to work before or after their shift without clocking in; others, do not pay workers for travel time or while they are on-call.  This is wage theft.

 

Delayed payments of wages: Employers may simply not pay their employees for their work. This occurs when a worker’s term is short and his or her final paycheck is not received, or if employers delay paying wages on a timely basis.  In Pennsylvania, employers must abide by scheduled paydays or pay workers for their time worked within a standard time period that is customary for the industry.

 

Nearly 400,000 Pennsylvania workers per week experience minimum wage violations; over 300,000 experience overtime violations; and more than 250,000 are not paid for their work before or after their shift, as the chart below shows.

 

wage loss graphic

Source: http://www2.law.temple.edu/csj/files/wagetheft-report.pdf

 

Misclassifying workers

Approximately 9 percent of Pennsylvania workers are misclassified as independent contractors. Deeming a worker to be an independent contractor is a wage theft tactic.  It allows employers to avoid paying Social Security taxes and does not require them to carry workers’ compensation and unemployment insurance for those employees.  Many Pennsylvania laws that protect workers do not protect independent contractors.

 

Wage theft hurts the economy

Temple’s study found that workers who experienced pay-based violations lost about 15 percent of their pay.  Every dollar not paid to workers who have earned it is a loss of potential spending power in the Commonwealth’s economy.  When employers avoid paying wages, Pennsylvania ultimately misses out on millions of dollars of income and sales tax revenue – revenue that could fund schools, road work, and other crucial services to the state.

 

What can you do about wage theft?

Workers need to understand their rights to compensation, especially if they are paid on an hourly basis. Wage theft and misclassification of workers are despicable tactics used by employers to bypass the law and force their workers into poverty or unemployment.  These actions should not be tolerated.  Understand your rights and don’t stay silent if you or someone you know has been the victim of wage theft or misclassification.  Report wage theft to the Pennsylvania Department of Labor and Industry's Bureau of Labor Law Compliance at 800-932-0665, or online here

 

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