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Not So Fast: Wage Theft in Fast Food, Other Industries in the Spotlight

Payroll
Article
01/09/2017

Over the last eight years, scrutiny of fast-food franchises and their wage payment practices has exposed a proliferation of wage theft. This can include:

  • Not paying employees for time spent working before and after their shifts or during lunch breaks;
  • Deducting uniform costs or cash register shortages from workers’ minimum-wage earnings; and
  • Appropriating employees’ tips.

Prosecutions of such illegal practices have forced some fast-food defendants to pay millions of dollars in back wages.

Nearly 9 in 10 Fast-Food Workers Victimized

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

Some common forms of wage theft include:

  • Nonpayment of overtime;
  • Failing to give workers their last paycheck after leaving a job;
  • Not paying an employee for all hours worked;
  • Paying less than minimum wage; and
  • Not paying a worker at all.


Wage theft can affect any industry and workers at every pay level, although lower-wage employees are most vulnerable. Industries with the highest incidence of wage theft include agriculture, janitorial services, restaurants, garment manufacturing, home health care, and retail.

Wage-Theft Cases in the News

Wage theft in fast-food franchises and other industries made headlines in 2016. For example:

  • In October 2016, McDonald's agreed to pay $1.75 million in back wages and damages and $2 million in legal fees to about 800 employees at five restaurants. The settlement came from a lawsuit filed in 2014 against McDonald's and its franchisee, Smith Family LP, for failing to pay overtime, keep precise pay records, and reimburse employees for the time they had to spend cleaning their uniforms.
  • In August 2016, almost 10,000 Chipotle workers filed a class action lawsuit against their employer, claiming they were made to work extra hours without getting paid. Plaintiff-employees say they were routinely ordered to punch out, technically ending their shifts, but then managers kept them working until granted permission to leave.

Calling the prevalence of wage theft an epidemic in this country, the Economic Policy Institute (EPI) in 2014 found nearly $1 billion was collected from wage-and-hour violators:

  • $280 million by the U.S. Department of Labor;
  • $172 million from 44 state departments of labor;
  • $14 million by state attorneys general in 45 states; and
  • $467 million by private attorneys in class-action lawsuits.

The EPI believes the $1 billion in 2014 represents "only the tip of the wage-theft iceberg," because the majority of victims don't report the violation(s). Even so, the number of wage-and-hour cases in federal courts is surging—up 358 percent between 2000, when the number of cases filed was 1,935, and 2015, when filings stood at 8,871 for the year ending Sept. 30. By contrast, the federal judiciary’s volume of cases rose only about 7 percent over the same period.

Wage Theft Breaks Numerous Laws

Wage theft can violate the following laws:

  • The Fair Labor Standards Act, 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, nonexempt workers who work more than 40 hours in a workweek. Businesses must accurately track non-exempt employees' hours worked. Automated time and attendance solutions can help employers control costs, comply with employment laws, and verify accurate pay.
  • Tax laws, if employers misclassify employees as independent contractors. Employers do not have to pay federal taxes for independent contractors. As the DOL notes, businesses that misclassify workers as independent contractors can deny them access to key benefits and protections, such as minimum wage, overtime pay, family and medical leave, and unemployment insurance.

The so-called "fissuring" of the traditional workplace opens more opportunity for wage theft. Many companies — particularly in the hospitality industry — hire out various job functions, rather than doing everything themselves. Fierce competition among subcontractors, temporary agencies, labor brokers, franchisors, and other third-party management can drive low wages.

How to Prevent Wage Theft

Outsourcing HR functions is one way to help an employer avoid committing wage and hour violations, which can result in penalties. Turning over HR duties and oversight to a third party who specializes in this area can help relieve some of the burden of keeping up with legislative and regulatory changes. HR contractors can also help clients increase the productivity of their businesses by assisting with more administrative items such as personnel management.

Some of the key reasons an employer may outsource HR functions include:

  • Saving money and reducing operating expenses;
  • Minimizing risk and improving compliance via oversight;
  • Gaining HR expertise;
  • Streamlining HR functions;
  • Improving service delivery;
  • Making up for a lack of in-house expertise;
  • Improved efficiency in operations;
  • Assistance with HR administration and;
  • Increased confidence that HR practices comply with state and federal requirements.

If you believe your company would benefit from outsourcing some or all of its HR functions, look for a firm with expertise in your industry. You want a partner that will tailor its services and products to fit your organization's needs and 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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