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Do You Want Fair Wages with Those Fries?

  • Wage theft continues to plague the fast-food industry, illustrated by recent lawsuits against Carl’s Jr., Taco Bell, and Chipotle.
  • The Economic Policy Institute found that annually in the 10 most populous U.S. states, 2.4 million workers covered by state or federal minimum wage laws report being paid less than the applicable minimum wage.
  • Wage theft affects nearly nine in 10 fast-food workers, according to one study.
  • Wage theft violates the Fair Labor Standards Act (FLSA), state wage and hour laws, and various tax laws.
  • Outsourcing human resource functions may help minimize the risk of wage and hour violations for franchisors and franchisees.


Franchises hit with fines, lawsuits for failing to pay employees wages owed

Wage theft in the fast-food industry is an ugly issue that just won’t go away.

As recently as June 2017, the city of Los Angeles slapped burger chain Carl’s Jr. with $1.45 million in fines and restitution for alleging that it didn’t pay workers minimum wage at various locations for six months in 2016. In February 2017, a lawsuit brought against a company that owns numerous Taco Bell franchises in Michigan and five other states claims willful violations of the Fair Labor Standards Act (FLSA) regarding misclassification of employees, overtime, and wage theft. And in summer 2016, nearly 10,000 workers sued Chipotle for making them work off the clock without pay.

In its efforts to protect the nation’s workforce, the Wage and Hour Division of the U.S. Department of Labor (DOL) recovered more than $77.2 million in low-wage industries for 106,000 employees in fiscal year 2016. That same year, the agency determined there was more than $266 million in back wages owed to over 280,000 workers.

Yet despite costly fines and bad publicity, wage theft persists amid drive-up windows and deep-fat fryers. The complexity of wage and hour laws often can be challenging for businesses to manage.

wage theft costs

Wage theft takes many forms

Wage theft may arise when employers fail to understand complex wage and hour laws, at both the federal, state and local level. Although there may be times when violations are deliberate, they often occur from confusion or not understanding the applicable laws. Wage theft can include:

  • Not paying employees for all time worked, including time spent working before and after their scheduled shifts or during lunch breaks;
  • Deducting uniform costs or cash register shortages from workers’ wages;
  • Appropriating employees’ tips;
  • Not paying appropriate minimum wage and overtime rates; and
  • Withholding an employee’s last paycheck.

A May 2017 study by the Economic Policy Institute (EPI) found that in the 10 most populous U.S. states — California, Florida, Georgia, Illinois, Michigan, New York, North Carolina, Ohio, Pennsylvania, and Texas — 2.4 million workers lose $8 billion annually (an average of $3,300 per year for year-round workers) to minimum wage violations. That’s almost a quarter of their earned wages. Seventeen percent of low-wage workers lose earnings from minimum-wage violations.

A 2014 Hart Research survey of 1,088 fast-food workers in the top 10 U.S. metro areas found that 89 percent — nearly nine in 10 — reported that they had been victims of wage theft on the job.

wage theft examples

Fast-food workers can least afford to lose pay

Low-wage workers are, of course, hit hardest by any loss of income. The EPI study notes that “Minimum wage violations, by definition, affect the lowest-wage workers — those who can least afford to lose earnings. This form of wage theft causes many families to fall below the poverty line, and it increases workers’ reliance on public assistance, costing taxpayers money. Lost wages can hurt state and local economies, and it hurts other workers in affected industries by putting downward pressure on wages.”

Wage theft occurs in many other industries besides fast food, but low-wage employees are especially vulnerable, according to wagetheft.org. The nonprofit organization calls this crime “endemic”; even well-paid employees can be affected. The organization notes that agriculture, poultry processing, janitorial services, restaurant work, garment manufacturing, long-term care, home health care, and retail are listed among the industries with the highest reports of wage theft.

Employers committing wage theft break numerous laws

Businesses that fail to pay all wages due often run afoul of several laws:

  • The Fair Labor Standards Act (FLSA), most commonly. It mandates a federal minimum wage and requires businesses to pay overtime pay at a rate no less than time-and-one-half the employee’s regular rate of pay to all covered, non-exempt workers who work more than 40 hours in a workweek. Businesses must accurately track non-exempt employees' hours worked.
  • Tax laws and wage and hour laws, if employers misclassify employees as independent contractors. Employers do not have to pay federal taxes for independent contractors. As the Department of Labor (DOL) notes, businesses that misclassify workers as independent contractors may be denying them access to key benefits and protections, such as minimum wage, overtime pay, family and medical leave, unemployment insurance, and safe workplaces.

How to fight wage theft

Outsourcing HR functions is one way to help protect both franchisors and franchisees from making wage and hour mistakes. Turning over HR duties to a third party that specializes in this area may help relieve franchisors of some of the burden of keeping up with legislative and regulatory changes. Doing so can also help educate clients on the requirements and increase business productivity by assisting with personnel management. Automated time and attendance solutions can help employers control costs, comply with employment laws, and verify accurate pay.

Key reasons an employer or franchisor may consider outsourcing HR functions include:

  • Helping to minimizing risk and improving compliance oversight;
  • Access to HR expertise; and
  • Streamlining HR functions.

If you believe your company could benefit from outsourcing some or all of its HR functions, look for a firm with expertise in your industry. The right partner can tailor its services and products to your organization’s needs, and develop pricing and contract terms that fit your budget.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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