Wage theft and its impact: Workers and taxpayers suffer

Wage theft is any practice that denies workers the total wages to which they are legally entitled.

Have you recently enjoyed dinner in a nice restaurant? You might be shocked to discover that you could have been spending your money in a business that's practicing wage theft. What is wage theft? In this situation it could be a restaurant that requires workers to work overtime but doesn't pay them for it, as mandated by law. Or, it could be that the tip you added to your credit card payment was never passed on to the server. Perhaps the prep cooks in the kitchen are being paid a flat weekly salary, no matter how many hours they work. Wage theft is any practice that denies workers the total wages to which they are legally entitled.

Kim Bobo, CEW's current Twink Frey Visiting Social Activist, literally wrote the book on wage theft: Wage Theft in America: Why Millions of Working Americans Are Not Getting Paid–And What We Can Do About It and she is spending the month of March at CEW updating it. The first edition proposed many changes to U.S. Department of Labor enforcement practices, some of which have now been incorporated into the Labor Department's practices. And since the original publication of the book, local and state activists have achieved passage of wage theft laws in municipalities and in states.

Ms. Bobo notes that wage theft takes many forms , is more common in certain business sectors , and is most likely to affect vulnerable workers. Given the current economic downturn, virtually all workers feel “ vulnerable.” Even victims of wage theft may state “At least I have a job.” However, low income and unskilled workers tend to be most vulnerable, as they are more easily replaceable.

Although wage theft has the greatest impact on the workers themselves, Bobo points out that it also hurts ethical businesses (who may be underbid), the public (because taxpayers face the burden of supporting workers whose employers have not paid into social security taxes and other funds), and the overall economy. The average low-wage worker loses $2500/year in unpaid wage s , money that is not reinvested in the economy. Another common form of wage theft is the illegal use of independent contractors–a practice often seen in the construction industry. Paying workers as independent contractors instead of employees means the business will not pay:

  • overtime
  • employer contributions to FICA or social security
  • unemployment insurance

Consider the implications of this practice in these situations: When a contracted painter is laid off a construction job, she receives no unemployment because the employer has not made contributions. When a roofer falls, he isn't entitled to worker's compensation for the extended medical expenses. Meanwhile, the businesses who do hire their workers as employees find it hard to compete in the market with their additional employee-related expenses. Paying workers as independent contractors when they should be paid as employees is pay roll fraud.

Kim Bobo is the founder and Executive Director of Interfaith Worker Justice (www. iwj. org). During her stay at CEW, Ms. Bobo presented a community forum where she discussed working across faith communities to develop local awareness and campaigns regarding wage theft. The event was co-sponsored by several interfaith organizations, U-M units, and labor organizations.

Each year, the Twink Frey Visiting Social Activist (VSA) Program brings to CEW a social justice activist whose work affects women and recognizes gender equity issues. The program is made possible through a generous gift from U-M alumna Twink Frey and her husband James McKay.