Wage Theft: What You Need to Know to Protect Your Company

Wage Theft“Wage theft” has become a hot topic in state legislatures, amongst labor groups, and on talk shows.  Washington State has passed legislation to tighten regulations around wage theft, and legislation is popping up in states all over the country, and as well as in Washington D.C.

What is wage theft?  Wage theft occurs when workers do not receive their legally or contractually promised wages.  It can involve:

  • Non-payment of overtime
  • Failure to pay a worker their final paycheck in a timely fashion
  • Not paying for all hours worked
  • Failure to pay minimum wage
  • Misclassification of employees
  • Not paying an employee at all

Simply put, “wage theft” is a fancy new name for violating wage and hour laws.

Washington State makes it easy for employees to report wage theft:

The Department of Labor & Industries enforces Washington’s wage and hour laws.  They make it very easy for workers to file a complaint against an employer.  Employees can simply complete a form from L&I’s website and turn it in to any L&I office.

This means you must be careful to obey compensation laws, because mistakes can come back to bite you even years later!

You must pay employees for all time worked.  You cannot refuse to pay an employee because they’ve waited too long to turn in a time card, or didn’t notify you in a timely manner that they weren’t paid their agreed upon wage.  It doesn’t matter if it’s been two years since they worked for you, and you can’t remember now whether or not they actually worked the hours they’re claiming. 

In Washington, employees can file a wage claim complaint up to three years after the date that their wages were due.

Wage laws & unreturned company property:

Under Washington State law, you must pay a terminated employee at the next regularly scheduled pay day.  If you do fail to pay your terminated employee on time, they may sue you in civil court and be entitled to double damages.

While you do not have to give an employee a paycheck on their last day of work, you may not withhold their paycheck until they have returned company property.

If your employees are issued company property, such as safety equipment, laptop computers, cell phones, etc., you should have them sign an agreement containing:

  • Acknowledgement that the employee will return all company property upon termination of their employment
  • Information about the monetary value of the items
  • Acknowledgement that the employee will repay the company for any items not returned
  • Acknolwedgement that the cost of unreturned company property can be withheld from the employee’s final check

Be sure you have your company attorney review this agreement before you put it into use!

You should be aware that the Fair Labor Standards Act prohibits employers from making deductions from a non-exempt employee’s paycheck, to the extent that their wages fall below the minimum wage.  In these instances, recouping your losses in Small Claims Court may be your only option.

Wage theft and unpaid overtime:

Sometimes overtime pay becomes an issue for employers.  In Washington, overtime constitutes any hours worked over 40 within a defined work week.  Sometimes employers dispute whether their employee had pre-authorization to work more than 40 hours during the week.  Nevertheless, if overtime hours were worked, they must be compensated, regardless of if they were approved or not.

For more detailed information about this, see our guide to compensation laws in Washington State.

Wage theft caused by employee misclassification:

Wage theft can also occur if an employee is incorrectly classified as “exempt” from the Fair Labor Standards Act, resulting in their not being paid correctly for all hours worked.  The same could be applied to misclassifying a worker as an independent contractor in order for a business to avoid paying workers’ payroll taxes, workers compensation, and unemployment taxes.

For more information, check out our article about the dangers of employee misclassification.

The wrap-up:

The Department of Labor and the IRS are cracking down on businesses who practice wage theft by sharing information among state and federal entities.  Washington state is voluntarily participating in this program. In addition, the city of Seattle passed an ordinance making wage theft a gross misdemeanor for businesses within the city’s limits.

L&I collected more than $2 million in unpaid wages for employees in 2011!  Legislators across the board, local to national, are eager to protect workers’ rights to be paid the wages they deserve.  Watch for continuing dialogue on wage theft, and additional legislation likely to come our way.

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