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How Wage Theft Steals Billions from Workers and Taxpayers

Wage theft is the costliest crime in America and accounts for more than 100x the cost of all robberies in the United States. This egregious crime is an illegal tactic employers use to pocket money from employees’ hard-earned paychecks, resulting in approximately 50 billion dollars stolen from workers and taxpayers annually.

Unlike high profile robberies, grand theft, and petty theft, wage theft mainly affects low-income workers and employees living paycheck-to-paycheck. When a low-wage employee has their funds stolen, it can become difficult to make necessary payments for rent, groceries, and other bills. Working Now and Then reports that low-income employees who are victims of wage theft lose approximately 10% of their annual income, and many fall below the poverty line. This then affects taxpayers, whose taxes fund social welfare programs to help supplement the income of victims of wage theft.

However, wage theft is not a straightforward crime and is often complicated by various forms of payroll fraud, illegal retaliation, poorly enforced laws, and a general unawareness of the severity of the crime. Many employers are well-aware of the government's historical lack of enforcing wage theft laws and penalties laws thus leading employers to egregiously abuse of the system and steal from employers.

For a complete overview of the dangers of wage theft, Intelligent Partnerships, Inc. put together a highly researched eBook on payroll fraud detailing how it costs American’s billions of dollars annually. Download the free eBook here: The Wage Theft Epidemic: How Wage Theft Affects the Construction Industry

What is Wage Theft?

Leading research experts from Economic Policy Institute define wage theft as the practice of employers failing to pay workers the full wages to which they are legally entitled. Wage theft, which is also referred to as payroll fraud, takes place in multiple ways, including:

  • Minimum Wage Violations: Employers pay less than the legal minimum wage.

  • Overtime Violations: Failure to pay qualifying employees time-and-a-half for hours worked more than 40 hours per week.

  • Employee Misclassification Violation: Wrongly classifying an employee’s status to avoid paying taxes and benefits.

  • Off-the-Clock Violations: Asking employees to work off-the-clock before or after their shift.

  • Illegal Paycheck Deductions: Deducting wages from an employee’s paycheck to make up for company shortages.

  • Uncompensated Travel Expenses: Failing to pay an employee for travel done during work hours.

The culmination of all forms of wage theft results in billions of dollars stolen out of employees’ paychecks each year, thus highlighting deeply rooted cracks in the foundation of the United States’ workforce and its detrimental effects on the local, state, and national economies.

Why is Wage Theft so Prevalent?

Wage theft is a crime that is historically underreported and under-punished. Although this crime has persisted for decades, laws such as the Fair Labor Standards act of 1938, the Fair Labor Standards Minimum Wage Act of 2009, and the Wage Theft Protection Act of 2011 have still failed to protect American employees from losing billions of hard-earned dollars each year.

A revealing study done by the Center for Urban Economic Development, in partnership with the UCLA Institute for Research on Labor and Employment, discovered that the low-wage workforce in Chicago, Los Angeles, and New York regularly encountered wage violations, as observed by the following statistics:

  • 26% of the workers sampled were paid less than the required minimum wage in the previous work week, with 60% of workers being underpaid by more than $1 per hour.

  • 76% of workers surveyed worked overtime and were not paid the legally required overtime rate, with the average violation costing workers 11 hours of overtime.

  • 70% of workers experienced off-the-clock violations and were unpaid for work completed before or after their scheduled shift.

  • 47% of workers were subjected to pay stub violations or illegal deductions.

  • 43% of workers who made a complaint to their employer over the past year experienced one or more forms of retaliation.

Additionally, employees who do report wage theft are often subject to retaliation. Many workers choose not to report retaliation for fear of job loss or expensive lawsuits. Most states do not have solid laws in place to protect employees from retaliation in the wage and hour context. Retaliation is just another layer of the wage theft problem as it further deters employees from standing up for their rights and enables workers to stay in illegal work environments.

Who Does Wage Theft Affect?

All employees are susceptible to wage theft, however, women, people of color, and foreign-born workers are primarily affected, whereas White workers reportedly experience a much lower incidence of wage theft. The National Employment Law Project reports that in a sample of 4,000 workers, 30% of women experience minimum wage violations compared with 20% of men. Almost one in three Hispanic workers were paid less than minimum wage compared to fewer than one and ten White workers. African Americans experienced wage theft at three times the rate of White workers, and low-income workers experienced the highest minimum wage violations across all categories.

Wage theft is a growing epidemic in industries such as fast food, restaurant, retail, and construction. With a specific focus on the construction industry, research from the Midwest Economic Policy Institute found that of the billions of dollars stolen from employees, close to $1 billion a year is stolen within the construction industry. These pay violations frequently happen when employers incorrectly classify workers as independent contractors to avoid paying benefits. This happens with up to 22% of employers within the construction industry.

Employees aren’t the only ones affected by the crime of wage theft. Taxpayers are also affected by wage theft because when low-income households are illegally underpaid, the government collects less in tax revenue, and taxpayers need to provide additional funding for social support programs to make up for losses.

Learn More About How to Fight Wage Theft

Our team at Intelligent Partnerships, Inc. put together a highly researched eBook on the Wage Theft Epidemic with a particular focus on the construction industry. This eBook addresses the different types of wage theft, wage theft complaints, payroll fraud statistics, and more. Download the eBook for free: The Wage Theft Epidemic: How Wage Theft Affects the Construction Industry

Key Takeaways Regarding the Wage Theft

The root of workplace violations is a result of employers knowingly stealing wages from workers and retaliating against complaints. This wage theft epidemic is a costly crime that affects hardworking employees and taxpayers across the nation. The only way to fix the 8 billion dollar stain on the nation is for state governments and city officials to hold employers accountable through pro-active compliance, increased penalties for violators, and loss of licenses or similar measures. The expansion of compliance through low-to-no-cost partnerships could save millions of dollars in income losses while generating local economic power for communities that focus on this effort.

For more information on this topic, contact Intelligent Partnerships, Inc.

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