Minnesotans lose millions through wage theft

Working people have millions of dollars stolen from them every day. If it were done at gunpoint, the thefts would make headlines. But because the losses occur at work – and are not regarded as criminal – few people know what is happening to them.

An investigation by Workday Minnesota has found wage theft in Minnesota is larger and more widespread than most people realize – and the problem is growing. Over the past several months, we interviewed scores of workers, community activists, union representatives, public officials and more. We pored over five years of data on wage theft cases from the state Department of Labor and Industry. We searched the academic literature and examined numerous studies.

Our investigation was spurred in part by ideas raised by some state and local officials to improve enforcement of current laws against wage theft. Despite these discussions, few people are aware of wage theft or understand its impact.

“It’s very widespread, but it’s not very well-understood,” notes Aaron Sojourner, a labor economist and assistant professor in the University of Minnesota’s Carlson School of Management. “A lot of people don’t even know that it’s happening to them, because it’s done in a sneaky way or it’s done in a way that they don’t recognize it as a violation.”

What is wage theft?
The classic case of wage theft is when a worker simply is not paid for the work that he or she has performed. Sometimes it occurs when a business goes bankrupt or a worker leaves and is not given a final paycheck.

Wage theft is much broader than that, however.

“Wage theft takes a lot of forms,” said Assistant Professor Alan Benson, a colleague of Sojourner at the University.

“Wage theft can take the form of keeping inaccurate records. It can take the form of not paying for time that was worked, not paying for break time. It could be that you’re misclassified as a salaried worker when you should be paid hourly and that means you should be eligible for overtime pay but you don’t make overtime pay.”

Workers paid below the minimum wage are victims of wage theft. In Minnesota, hospitality industry workers who have tips counted toward their wages are being cheated.

On public construction projects, workers can be the victims of wage theft if they do not receive the government-required prevailing wage.

Advocates and researchers say the problem is larger than the categories that currently exist under state and federal law. Is being required to stand in line without pay before clocking into work a wage theft violation? Are the many workers not covered by overtime laws being cheated? When is someone an independent contractor – and when is their employer assigning them that designation in order to avoid wage and hour laws or payroll taxes?

Who is having their wages stolen?
The wage theft problem crosses all boundaries of income, race and gender, but the incidence of violations is higher among low-wage workers and people of color. It’s also more prevalent in certain industries; residential construction, home health care and agriculture are all areas where some employers have made wage theft part of the way they do business.

A 2008 survey of 4,387 low-wage workers in Chicago, Los Angeles and New York found that more than two-thirds of workers experienced at least one pay-related violation in their previous workweek. Each worker was losing, on average, $2,634 out of their $17,616 annual earnings.

In 2014, the Economic Policy Institute generalized the 2008 survey data, estimating that wage theft is costing American workers more than $50 billion a year. That’s more than three times the $14 billion lost annually to robberies, burglaries, larcenies and motor vehicle thefts, EPI noted.

A Twin Cities worker center, CTUL, Centro de Trabajadores Unidos en Lucha/Center of Workers United in Struggle, recently published preliminary findings of a survey of 173 low-wage workers.

“Half (49 percent) of the workers in the WRD survey reported that they had faced wage theft in their workplace here in the Twin Cities,” CTUL reported. Sixty-six percent of respondents from the janitorial industry experienced wage theft, the report added.

Just this week, members of CTUL won a $425,000 settlement after suing a cleaning contractor for wage theft.

Community groups see the effect on people of color.

Mike Griffin, field director at Neighborhoods Organizing for Change, said wage theft is one reason that Minnesota’s economy is split along racial lines.

“People who have a salary or high wages, the ability to spend time with their family when they get sick . . . a set schedule – those people tend to be white,” he said. “People with a low salary or a low hourly [wage], people who don’t have sick time, people who have a random schedule where they don’t know how much money they’re making – those people tend to be black.”

While wage theft is definitely a low-wage worker problem, it is spreading among people in many kinds of jobs, such as the online workers studied by Sojourner and Benson.

“We’ve had complaints from lawyers,” said Ken Peterson, commissioner of the Minnesota Department of Labor and Industry. “We’ve had complaints from medical personnel who say they have not received their proper pay either.”

Investigators rely on complaints from the public and don’t have the time or resources to seek out wage theft violations, Peterson said. “Theoretically, we could be hearing about every one of them or we could be hearing about less than one percent of them. We just don’t know.”

How is the law enforced?
The most commonly reported cases in Minnesota involve the classic example of someone not receiving a final paycheck when leaving a job, according to the state Department of Labor and Industry.

In fiscal year 2015, the department handled 1,229 of these “wage claims,” which amounted to about $553,000 for 623 workers, according to Jessica Looman, deputy commissioner of the department.

“About 50 percent of the time, we are successful in getting those workers their money back quickly,” said Looman. “The rest of the time, we refer those workers to small claims court.”

Most other cases handled by the labor standards unit are categorized as “wage complaints.” These scenarios include when employers fail to pay the prevailing wage, the minimum wage or overtime wages; when employers make illegal deductions from employees’ paychecks (i.e. charging for uniforms or job-related equipment); or when employers do not pay their employees for their work within 31 days.

Wage complaints often warrant intensive investigations by the department, Looman said. In fiscal year 2015, the department handled 435 complaints, which amounted to $309,000 recovered for 356 workers.

Investigators must prove that there has been a violation of Minnesota law.

“Sometimes that’s very difficult to show with the records or with the information that’s available, either from the worker and/or the employer,” Looman added.

At the federal level, the U.S. Department of Labor Wage and Hour Division investigates similar complaints in Minnesota. However, it can only investigate complaints that apply to federal law. Depending on a worker’s complaint, he or she may be more protected under federal wage laws or state wage laws.

Major differences between Minnesota and federal law include:

  • The Minnesota minimum wage is $9 an hour, compared to the federal minimum wage of $7.25 an hour. Minnesota employers with gross annual revenue below $500,000 are allowed to pay $7.25 an hour.
  • Minnesota law mandates overtime pay (1.5 times base pay) after employees work more than 48 hours in one week. Federal law requires overtime pay after 40 hours in one week. Both Minnesota and federal overtime laws include a long list of detailed exceptions.
  • Minnesota law allows for certain break time for nursing mothers, while federal law only protects mothers who work overtime.
  • Agricultural workers who hold H-2A visas are often entitled to a higher wage under federal law.
  • If work is contracted by the state of Minnesota, workers may receive the prevailing wage. If work is contracted by the federal government, workers may be entitled to a higher wage through the Davis-Bacon Act or a number of other laws.

Workers are not always able to navigate these complex sets of laws and enforcement agencies, notes Madeline Lohman, senior researcher for The Advocates for Human Rights, a Minneapolis-based nonprofit that will soon be issuing a report on wage theft and labor trafficking in the Twin Cities.

“Workers are confronting this really fragmented system, on their own, basically, and having to make phone call after phone call to try to get in touch with someone who might be able to know what is going on,” she said.

The problem is compounded by a lack of resources. The Minnesota Department of Labor and Industry has six investigators assigned to the wage and hour division; in addition, two more investigators deal with misclassification of construction workers.

In the late 1980s, the Department of Labor and Industry had 8 or 9 inspectors for a workforce of 1.9 million, Commissioner Peterson said. Today, the workforce has grown by a million but the number of inspectors has been cut by a third.

The U.S. Department of Labor has 8 or 9 wage-and-hour officers in the state and two trainees.

“The number of cops on the beat is very small relative to the scale of the problem,” said Professor Sojourner.

And there are virtually no penalties. If found to have violated wage and hour laws, employers must pay back workers what they are owed. Sometimes they are fined when an employee can prove that the employer intentionally violated the law. In a handful of cases there has been criminal prosecution.

Workday is interested in your comments about our wage theft series. Contact us here or through our Facebook page or Twitter account.

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