Experts Weigh in: Wage Theft Versus Time Theft

When the damage has already been done, and what employers and employees can do about these billion-dollar issues

Read David’s take on wage theft

Read Karen’s take on time theft

What’s more important, more damaging, more impactful:

Wage theft or time theft?

There’s no right answer to a question like that. Time theft is the act of taking payment for hours not worked. Wage theft, on the other hand, occurs when employers underpay workers and violate Fair Labor Standards Act (FLSA) regulations. Neither one of these infractions is conducive to fostering a healthy, trusting work environment, however unintentional the acts might be.

Here at QuickBooks Time by QuickBooks, we’ve been looking into both topics, given time tracking has a role to play in the prevention and the cure. We’ve asked experts to speak on each subject to shed some light on their views and bring some perspective to our recent survey numbers.

A 2017 survey found around half of US employees admit to adding between 15 minutes and an hour to their timesheets. Looking at half of America’s weekly timesheets, then, adding just 15 minutes a day could result in $11 billion of unworked time.

That total cost doesn’t take into account time spent during the workday on non-work tasks — another form of time theft. Previously, a 2015 Forbes article found 89 percent of employees admit to wasting time at work, with 57 percent wasting at least one hour a day, costing employers additional billions of dollars.

QuickBooks Time also put the question to accountants and bookkeepers and found 92 percent of accountants believe their clients have a time theft problem, adding 5 percent to gross payroll costs.

On the flip side of this, QuickBooks Time recently ran a short, one-question survey, asking “Does your company adjust employee timesheets after they’re submitted?” In fact, 10 percent of employers admit to shaving time off worker timesheets, taking around $22 billion out of the hands of hourly employees each year.

The Economic Policy Institute has also taken a look into wage theft, zeroing in on minimum wage violations. Their study, which looked at the Current Population Survey data of the 10 most populous states, found “2.4 million workers lose $8 billion annually from being paid at an effective hourly rate lower than the states’ minimum wage.”

Taking these calculations and extending them to the greater United States, the EPI estimates employees lose out on around $15 billion in wages each year, from minimum wage violations alone.

“Too often, workers are not being paid all that they’ve earned.”

» QuickBooks Time: What is wage theft?

David Cooper: Wage theft is, very simply, failure to pay workers the full wages they have earned for all the hours they have worked. Workers should be concerned because, unfortunately, too often, workers are not being paid all that they’ve earned.

We often say that wage theft can take many forms. It can be workers being paid below the minimum wage that they’re covered by under law. It could be not getting paid time and a half when someone works more than 40 hours in one week. It could be when someone is asked to work additional hours they’re not paid for. This could be as seemingly benign as someone being asked to stick around to do some task, even though they’ve already clocked out. If that person is not clocking back in, then they’re not being paid for that work.

Then it can be more explicit, bad behavior by employers. Things like not paying workers at all, which happens sometimes with contractors in particular. It could be taking illegal deductions from paychecks or misclassifying workers — listing workers as independent contractors, who actually should be regular W-2 employees.

» What is the most typical and/or harmful form of wage theft? What industries seem to struggle with this the most?

That’s a tough question to answer because we have such a hard time measuring wage theft. What I mean by that is we’re able to do some calculations to determine the amount of wages that are stolen as a result of minimum wage violations, but other forms of wage theft are really hard to measure.

Things like workers not getting all the overtime they’re entitled to (not getting time and a half if they’re working more than 40 hours a week). Or employers taking illegal deductions for paychecks or not paying workers for all the hours they’ve worked. There’s just no record of that anywhere, so it’s really hard to quantify which one is the most significant.

That being said, I think minimum wage violations, in particular, are really pernicious because they are wages stolen from literally the lowest paid workers in the economy. So if there’s a group of folks struggling to make ends meet more than any other group, it’s probably these workers. The fact that they are being subject to this sort of behavior is just sort of doubly damaging for them.

Minimum wage violations, in particular, are most prevalent in the industries that employ a lot of low-wage workers like service industries. When we analyzed which industries had the most instances of wage theft (of workers being paid less than the minimum wage, specifically), the industry that occurred the most was food and drink service, which, in some ways, is not surprising.

That industry employs a lot of low-wage workers, but it also employs groups of workers who are often the most vulnerable to wage theft: women, people of color, immigrants, and young workers. These are folks for whom it may be harder to speak up if their rights are violated.

We also find relatively high rates of wage theft or minimum wage violations in the retail sector. Again, I think this is partly because retail tends to employ a lot of low-wage workers. And then, we also find it in education and health care, which may strike some folks as odd. We tend to think of health care as highly paid, highly educated professionals to some extent, but there are folks in those industries still making low wages. I’m thinking of hospital attendants, security guards, etc.

And in the education space, you have some teachers and teaching assistants who may be making not much more than minimum wage but are having to work a lot of extra hours. It’s possible that some of them are working so many hours, their salaries are actually dropping below minimum wage.

» What should a worker do when faced with a wage theft situation?

The worker should try to obtain or collect documentation of their situation. They should try to get documentation of the hours that they worked, the amount they were paid, what they should have been paid, and who was paying them. I specify those things because, in a lot of cases, one of the primary obstacles to workers getting their back wages is that they just don’t have sufficient documentation.

And unfortunately, this is a larger problem because most states don’t actually even specify what has to be included in pay stubs. Some states don’t even require pay stubs. And so, without that documentation, it’s hard for a worker to pursue a claim.

In terms of who they should go to: Obviously, if they feel comfortable, they should confront their employer, but I think a lot of workers are going to feel uncomfortable doing that. If they can’t confront their employer, or if they do and their employer doesn’t work with them to arrive at a solution, they should reach out to any state labor agency in states that have them that do pursue wage theft claims, and if they’re in a state that doesn’t, they can reach out to the US Department of Labor’s Wage and Hour Division, which pursues wage theft claims.

Unfortunately, a lot of states don’t have wage theft offices. They don’t have investigators or those that do have very few investigators, and the Department of Labor doesn’t pursue every single claim that’s filed. They tend to only go after the claims where they think they can actually win — ones that have large dollar amounts and are big cases.

So, if neither of those options works for someone who has been wronged, the last option is they can try is to get an attorney who can file a suit against their employer. Most workers won’t pursue claims [because the amount they’re owed is less than the attorney’s fees]. That’s why it’s all the more important that workers be allowed to pursue those claims through a class action.

» How would you respond to a worker who says, “My employer has shaved a few minutes off my timesheet, but I’ve forgotten to clock out for lunch before, so doesn’t it all even out?”

The question is, does that worker feel that their rights have been violated? It sounds like in that situation, the sort of flexibility is going both ways, so I don’t know that person would really feel like they’re being harmed. Now, if their employer was shaving a lot of time off their timesheet, that person may want to pursue something, but again, they’d have to make sure they were following the rules. If they were taking liberty with their own time record, that’s going to put them in a weaker position if they try to pursue a claim.

» What preventative actions (if any) can employees take to protect themselves from wage theft?

Document everything. Make sure to document hours and what they should be paid for those hours. Most states require employers to provide employees with a written record of what they’re going to be paid when they first take the job, but oftentimes that’s not enough.

As I said, some states don’t require employers to provide pay stubs, so if going into a job, they’re not going to be getting a pay stub, they may want to ask about that and try to get one. It’s really their only recourse. They need that piece of paper saying what they were supposed to be paid and the number of hours they worked. That’s the only way to prevent the employer from cheating them.

» Should salaried employees be concerned about wage theft?

Salaried workers are still covered under the FLSA, the act that establishes rules for minimum wage and overtime. Now, there are some groups of salaried workers that are exempt, but being salaried does not automatically exempt you from the minimum wage or from the overtime protections of the FLSA. If you make less than a certain salary amount or if your job duties are not managerial, supervisory, or have certain other qualities, you should still be entitled to the minimum wage and overtime.

A lot of low-paid salary employees — say, folks who are making a little more than minimum wage if you calculate their salary on a 40-hour workweek basis — are still legally entitled to overtime and the minimum wage. So if they’re being asked to work more than 40 hours a week, they may have legitimate claims to additional pay.

» In your report on wage theft, you bring up the point that “young workers, women, people of color, and immigrant workers are more likely than other workers to report being paid less than the minimum wage.” Pro-business groups often push for deregulation, on the grounds that employers can address these problems on their own. What steps can employers take to address this problem? And if those steps aren’t taken, what regulations should be put in place to help?

I think most business owners want to do the right thing and want to make sure that their competitors are doing the right thing: complying with the law. I suspect that most businesses would be in favor of laws protecting against wage theft because they don’t want to be undercut by the guy down the street who’s not paying his workers fairly.

I think regulations can be made in a way that is not onerous for businesses, and businesses should be able to work with regulators to ensure that those regulations aren’t too onerous but they’re going to stop bad actors from cheating the system.

If there’s one regulation that should be made, it should be first and foremost for greater transparency. Simply require that every employee has to be issued a pay stub and that pay stub has to specify the hours that person worked, the rate at which they were paid, and any and all deductions from that worker’s paycheck. If you do that, that creates a paper trail so bad actors can be identified and claims can be followed through on.

» Is wage theft always deliberate?

Wage theft is not always deliberate. I think, probably a good share of the time, there may not be any bad intention. There are going to be circumstances sometimes where an employer may ask someone to do work off the clock, and they may not even realize that worker is off the clock. In those cases, I think employers need to be prepared to say, “I’m actually already clocked out” or “I’ve worked my hours for this week. Maybe someone else can do whatever it is you’re asking me to do.”

Or they can come up with an arrangement with their employer to have some flexibility, to say “Alright, if I work this extra hour now, you’re going to give me an hour off tomorrow.” Something like that. I think that sort of workplace flexibility is totally fine as long as folks’ rights are being protected.

If someone thinks there have been times where they haven’t been paid for all the hours they’ve worked, they should talk to their employer and see if it was just a misunderstanding or if there is something worse going on there.

» What is one aspect of wage theft we haven’t yet discussed that needs to be addressed?

The last thing I would say is it’s not enough to establish laws protecting against wage theft. You have to actually enforce those laws. And part of the problem right now is there are so few resources being dedicated to enforcement that unscrupulous employers know they can get away with bad behavior, so they go ahead and engage in it.

They know that if they do get caught, which is rare, the cost of back wages and possible penalties as well is going to pale in comparison to the savings of cheating their workers if they’re able to do it over a long period of time.

We need to not only have laws that protect workers, but we need to have cops on the beat, so to speak, who can actually make sure that employers are complying with the law.

» What are some recommended resources for employees interested in learning more about wage theft?

Go to the US Department of Labor’s Wage and Hour Division website. There’s all kinds of information there. If your state has a Department of Labor or similar regulatory agency, they should check those websites. Certainly, our website — EPI.org — has resources describing the nature of the problem. And if they know if any worker centers or unions in their industry, those can also be resources for folks who are facing this problem.

“For a small business owner, theft is theft.”

» QuickBooks Time: What is time theft?

Karen Harned: Time theft happens when an employee gets paid for work he or she didn’t do. Time theft can happen through deliberate fraud, like asking someone else to clock you in before you show up to work, or through laziness, like surfing the internet or watching a movie, when you should be working.

We occasionally receive questions from small business owners asking what to do when employees take excessive breaks or are on their phones when they should be working. We encourage small business owners to focus on creating a positive work environment through policies that are well-communicated to staff.

» In the past, you’ve written articles on employee theft. Do you consider employee time theft to be as big of a deal?

For a small business owner, theft is theft; all theft impacts a business’s bottom line. Time theft can be as costly for small businesses as stealing money from petty cash or stealing merchandise from the stockroom.

» Should employers have a time theft threshold?

It depends on the kind of time theft that the employer is addressing. What’s acceptable for one employer may not be for another. For example, clocking in early for another employee may never be permitted, so there is zero acceptance of this kind of time theft. In comparison, an employer might be fine with limited personal use of a cell phone or office computer during business hours, which is another kind of time theft.

» Say you know an employee is committing time theft. How do you start that conversation or address the issue?

Positive reinforcement is always a winning strategy; however, there will be situations when a stricter approach is needed. For instance, suppose you learn that a nonexempt employee has been taking 90 minutes for lunch each day, yet his timesheets show 60 minutes.

This means that the employee is being paid for roughly 10 hours each month in which he doesn’t perform work. This adds up, and the employee should be held accountable for violating the company’s time reporting policy, which probably requires nonexempt employees to specify their hours in and out each day as well as their absences accurately.

The manager should be involved in these conversations and should have evidence (like timesheets misrepresenting actual hours worked) to present to the employee. As a best practice, employers should require weekly timesheets from employees. Any inaccuracies should be addressed immediately.

» Our research has found that 16 percent of employees admit to clocking in for co-workers — a practice known as buddy punching. What can employers do to address this?

Employers should adopt and enforce a time reporting policy consistently that requires nonexempt employees to specify their hours in and out each day, including lunch periods, as well as their absences, such as vacation or sick time, accurately.

If an employee or employer sees or suspects an employee of buddy punching, the employer should investigate immediately and stop the behavior. Disciplinary action up to, and including, termination may be in order as well.

Remember that time policies must be enforced consistently. An employer should never punish one employee selectively and let another (perhaps more-favored) employee get away with the violation. Uneven enforcement of company policies is a surefire way to get sued for discrimination.

» Can salaried employees commit time theft?

Absolutely. Salaried employees can waste time just as easily surfing the net, abusing telework options, or failing to record PTO. Employers should ensure that salaried workers are held accountable for acceptable job performance and enforce all work-related policies consistently.

» You were recently quoted, saying “Over-regulation has been a constant problem for small business owners … The Trump administration has already exceeded the commitment of the two-for-one executive order … providing small businesses much-needed relief from unnecessary and outdated regulations.” Are there any regulations you’d like to see rolled back related to time theft or wage theft? On the flip side, is this an area where there should be more regulation?

Flexibility is key for small business owners when it comes to developing workable employee/HR policies. More red tape from the government will not reduce time theft. Employers need to develop internal policies, enforce those policies consistently, and be permitted to take appropriate disciplinary measures when policies on time management, security, and communication systems are violated.

It is important to remember that one size doesn’t fit all. Regulations impact small businesses disproportionately since they often do not have compliance officers, attorneys, or even human resource professionals on staff.

» Is time theft always deliberate? Is there ever a time when time theft could be justified?

Time theft comes in many forms and may not be deliberate. That’s why it’s so important for employers to develop and distribute written policies on matters like the business’ communication systems, including internet and phones, and personal cell phone use. For instance, many employers won’t mind if an employee checks in with their child after school each day, so long as they keep personal calls or texting to a minimum.

Similarly, when it comes to internet usage or personal cell phone usage, banning all non-work-related use is likely impractical. Instead, an employer should make sure that everyone understands the business’s policy regarding those practices. For instance, an employer may want to include a policy that stipulates no cell phone use in front of customers or in the front of their restaurant.

» Is wage theft as important an issue as time theft? And if so, what is your advice to employers?

Employers should be familiar with all applicable wage and hour laws, including federal, state, and local laws. They should ensure that all employees are classified appropriately — exempt versus nonexempt — and maintain solid wage and hour records. Employers should develop time management policies and make sure that all managers are familiar with overtime rules. Employers should consult with an employment law attorney licensed in their state and not be afraid to conduct a wage and hour audit to ensure that their business is compliant.

» What is one aspect of time and attendance we haven’t talked about that you think needs to be addressed?

Open communication with employees is key to creating a happy and productive workforce. Employers should develop sound HR policies and make sure that employees are aware of the policies and understand why there are such policies on time management.

[For example] the employer could share with employees that the United States Department of Labor requires that accurate timesheets are kept for all nonexempt employees, or that satisfactory customer service depends on the full attention of employees, which is why cell phone use by employees is not permitted in the store. These policies should be communicated clearly and be enforced consistently and fairly.

» What are some recommended resources for employers interested in learning more about time theft? Where can they go to get more general tips and advice?

The NFIB Small Business Legal Center has a Model Employee Handbook, which is a great resource for small business owners interested in developing an employee handbook. In addition, NFIB has a Wage and Hour Handbook, which is a great primer on the Fair Labor Standards Act, the federal wage and hour law. Both documents are available free of charge at www.nfib.com/legal.