Don’t Leave Your Business Open To Wage Theft And Time Theft Violations

How HR and payroll managers can identify and combat intentional and unintentional payroll violations

As an HR professional, you wear a lot of different hats — one of which may be payroll administrator. This includes processing payroll, tracking vacation or sick time, answering payroll-related questions, and finding and solving payroll errors.

 

 
That being the case, it’s also your job to make sure everyone is being fairly compensated: the worker for their time and contribution, and the employer for the money they’re paying. To perform your job well, you need to understand wage theft and time theft — and be able to recognize when they’re taking place. 

David Cooper, Senior Economic Analyst at the Economic Policy Institute (EPI), was recently featured in an online Q&A, saying, “Wage theft is, very simply, failure to pay workers the full wages they have earned for all the hours they have worked.”
 
The flip side of that is time theft. Karen Harned, Executive Director for the National Federation of Independent Business’s (NFIB) Small Business Legal Center, says in that same Q&A, “Time theft happens when an employee gets paid for work he or she didn’t do.”
 
But how do you know when a worker isn’t doing the work they say they did? Or if they are, how can you make sure their paycheck is an accurate representation of their work?

Time theft takes a variety of forms and is unfortunately extremely common. A recent survey of 1,000 employees found half admit to committing time theft, adding 15 minutes or more to their time cards.
 
The most obvious example of time theft is when a worker pads their time card, reporting they came in earlier or left later than they did. They might also take a long lunch or break and choose not to clock out. Worst yet is the worker who asks another employee to clock them in or out, so it looks like they’re working, even when they’re not.
 
Less obvious is time theft committed in short, unplanned spurts throughout the day. Ten minutes spent on social media here, a five-minute personal phone call there. It’s fine if a worker is on break or if your company encourages this kind of flexible environment, but if the employee manual has a different set of rules, it’s important employees respect those policies and employers enforce them regularly. Failing to do so may open you up for a wage and hour suit later, should an employee report they’ve been unfairly targeted or punished for a widely practiced behavior.
 
Salaried employees can also be guilty of time theft — something that may come as a surprise, considering most salaried employees are not required to track their time. The most typical form of time theft for salaried employees is not reporting vacation or sick time. While this may not be a problem for employers who grant their workers unlimited PTO, for those who give a finite number of PTO hours, it’s important salaried workers be held to the same PTO policies as everyone else.

If an employer is committing wage theft, they’re likely in violation of the Fair Labor Standards Act (FLSA), which can generate some expensive lawsuits. As your company’s HR and payroll administrator, it’s important you know the warning signs of wage theft so you can rectify the situation and protect your company from any unnecessary litigation.
 
First, regardless of whether your employees are hourly or salary, their hourly rate must be at or above minimum wage. That sounds fairly basic, but studies from the EPI suggest 4 percent of workers are not being paid at least the minimum wage in their state, equating to billions of dollars in lost income each year.
 
Keep an eye on this by regularly auditing payroll to make sure each employee’s hourly rate is what they were promised. If your company rounds timesheets, take care to round in the same direction or give your employees the benefit of rounding down when they clock in and up when they clock out. Make sure people managers are aware that asking employees to work through their breaks or after they’ve clocked out is also a form of wage theft.
 
Another area you’ll want to look at is overtime. Because overtime pay is calculated based on an employee’s regular rate of pay and not their straight time pay, it’s not unusual for employers to make errors, forgetting to add in things like non-discretionary bonuses. These calculations become even more complicated when employers align their pay periods with certain days of the month, so the 40-hour workweek is split between calendar weeks. To get a rough idea of what a worker’s overtime should be, check out this FLSA overtime calculator.
 
Finally, if you’re still not feeling confident about your overtime or payroll calculations, contact an experienced accountant. It’s better to be safe than sorry.

What’s important to remember is wage theft and time theft can happen both intentionally and unintentionally, so when in doubt, talk it out. If it’s a time theft violation, make sure your workers know the why behind your company policies. What might initially feel like a petty concern to them (for instance, taking personal calls at their desk on company time), may be better understood after a conversation about respecting others’ right to a quiet workspace or the need for professionalism when clients are present.
 
Wage theft violations can be a bit more complicated, depending on the intention behind the infractions. Best case scenario, you can talk to the boss about these honest mistakes, then work with an accountant to pay out any owed back wages. With less scrupulous employers, it may be necessary to involve your state’s wage and hour division or, if such a department doesn’t exist, the U.S. Department of Labor. At the very least, it can help to consult an employment attorney who can help you better understand the laws at play and how to navigate your situation.

Amy Bailey oversees business operations at TSheets by QuickBooks. Connect Amy Bailey