The Complex Face of Wage Theft in New York

Methodology

This report is based on analysis of the following primary and secondary sources: expert interviews, worker complaints and affidavits, reports of investigative findings, fact sheets produced by labor unions, and press releases. The profiled companies are based in New York City and throughout the state.

Findings:

1) Available indicators suggest that rampant wage theft continues in New York City and State

The case studies conducted as part of this study (described in detail later in this report) suggest that wage theft occurs in the form of major wage nonpayment or nonpayment of overtime, but also accumulates in many ways particular to a sector or job classification. Often, wage theft occurs in ways that are difficult to detect, prove, and eradicate. Thus “by a thousand cuts” to their paychecks—a few minutes worked off-the-clock each day; a five-percent “deduction” that employers take out of each tip; a wage that falls below the legal minimum; a uniform that employees must pay to launder each week— many employers are systematically robbing their workers. Advocates report that the same workers may experience multiple violations, all of which may go undetected, and many of which are unreported.

The incremental nature of the way that some wage theft occurs belies a profound and widespread impact not only on the affected workers, but on the state’s economy as a whole. Each year, employers cheat an estimated 2.1 million New Yorkers out of a cumulative $3.2 billion in wages and benefits they are owed. Remarkably, this theft goes largely unchecked, hurting the lowest-paid workers the most.10 According to a December 2014 U.S. Department of Labor (USDOL) analysis of Survey of Income and Program Participation (SIPP) data, minimum wage violations alone amount to more than $1 billion per year stolen from New York’s workers.11 Yet in 2013, only 12,700 workers received back pay for all types of wage theft combined, and the total amount of money returned was only $23 million for the full year—or roughly 2 percent of the total $1 billion stolen per year—through the settlement of more than 6,700 cases.

2) Wage theft comes in many forms

In addition to the primary and secondary source research conducted to inform the above over view analysis, the authors studied 11 cases of wage theft that worker advocates identified as representative of the forms that wage theft takes in particular New York industries. Following is a list of several typical scenarios, culled from the detailed case studies that follow:

Violating minimum wage laws

The most direct form of wage theft arises when employers do not pay the appropriate wage rate for “straight time,” or the number of hours employees actually work. Many low-wage jobs pay daily or weekly rates without regard for the hours workers work in a week. As a result, wages end up well below the minimum hourly rate. Based on SIPP data, the USDOL estimates that workers in New York State lose up to $20 million a week in minimum wage violations alone—money that low-road employers keep for themselves.

Violating prevailing wage provisions

Wage theft also occurs in industries where standards have traditionally been high, thanks to hard-fought victories by union members over the last 80 years. Projects that the public subsidizes over a certain dollar amount are often required to pay a higher, family-sustaining prevailing wage to workers in order to ensure that public spending creates good jobs that help bolster communities. However, there is inadequate enforcement of prevailing wage law and many employers that receive taxpayer money illegally cheat their workers and pocket the difference.

Violating tipped-wage laws

Workers in several service-sector industries earn a baseline “tipped” minimum wage rate that presumes that the amount of tips they actually receive makes up the difference towards reaching the minimum wage. When workers’ tips do not make up the difference to the full minimum hourly rate, employers are legally required to pay the remainder. Low-road employers routinely break this law by paying only tips or commissions, or by stealing tips. As a result, workers earn below the legally required minimum wage.

In other situations, employers outright steal a share of workers’ tips or pool tips across workers and supervisors, which is illegal.

Some workers, particularly in sales, are paid on the basis of commission. Laws dictate what percentage of such an employee’s time can be assigned to duties in which they would not be able to earn commission and require that their wages reach the legal minimum wage rates. Low-road employers easily break such laws without consequence.

Violating overtime rules

Workers who work long hours are also frequently cheated out of overtime pay. Eligible workers must be paid at 1.5 times their usual rate after they have already worked 40 hours in a single workweek. But employers routinely do not pay the premium wage rate for those hours; too often, they do not compensate their workers for extra time worked at all. According to a 2010 National Employment Law Project (NELP) study, in New York City, 77 percent of surveyed low-wage workers who worked overtime in the previous week reported that they had not been paid the correct amount.

Requiring work off the clock

Commonly, workers are asked to engage in work-related activities before or after their official shift. If they are working off the clock (that is, their work is not recorded as work time), they are not getting paid for that time worked.

Violating meal-break requirements

Workers are eligible for meal breaks if they work a minimum number of consecutive hours in a shift. Employers often require employees to work through their meal break or cut into break time, but do not compensate them for this additional time worked. This, too, is wage theft.

3) Unscrupulous employers use numerous tactics to steal workers’ wages

Unscrupulous employers often resort to numerous illegal practices in order to perpetuate wage theft and avoid discovery.

Engaging in intimidation, retaliation, and other worker harassment

Not only do workers face huge losses on their pay, but advocates report that employers often threaten them, retaliate against them, or actually fire them for trying to enforce their rights. Undocumented immigrants face heightened threats that their employer will retaliate by alerting immigration authorities about their status.

Falsifying records

Record-keeping often plays a significant role in pursuing and proving wage theft violations. Advocates report that law-breaking companies regularly create fake payroll records in order to cover up their wage theft practices.16 These can range in scale from simply rounding down workers’ hours to the nearest hour to paying workers in cash and leaving them off the books entirely. Such practices also mean employers are not paying their share of required federal payroll and state taxes.

Under New York State law, employers must provide their workers with a notice of their wage rate at the time of hiring and any time their wage rate changes, as well as paystubs that delineate their wage rates and any deductions taken from their pay. Case studies indicate that some workers do not receive appropriate (or any) documentation when they are hired or paid.

Taking illegal deductions

Many unscrupulous employers actually make illegal deductions to workers’ wages, such as taking money out of a paycheck for breakage or uniform cleaning. These costs are the responsibility of employers under the law.

Misclassifying employees

Not all employees are protected under various labor law standards—certain types of workers, including most higher-income salaried workers and those workers classified as having sufficiently administrative, professional, or managerial responsibilities—are not covered by minimum wage and overtime laws. In order to avoid paying them the wages they are owed, employers frequently misclassify their workers as exempt from these laws, when in fact they are entitled to these basic protections.

Employers also often misclassify their employees as independent contractors in order to avoid paying payroll taxes on their workforce. The IRS estimates that employers misclassify millions of employees each year, avoiding on average nearly $4,000 in federal employment taxes per misclassified worker.

Wagering on inadequate enforcement resources

Employers who steal wages are gambling that inadequate resources will be dedicated to detecting the theft and enforcing the law. When violators are found, they sometimes double-down on this wager. According to advocates, in some cases, employers that have already been found in violation of wage and hour laws by government agencies or courts have changed the name of their business, hidden or fraudulently transferred assets, or taken other steps in order to avoid paying workers their due wages—even once a court or the Department of Labor has ordered them to do so.

Some of the worst wage theft violators are repeat offenders who knowingly continue to break the law even after they have been caught. In the past five years alone, the USDOL has found nearly 400 cases of wage theft in New York State where the employer is a repeat violator.

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