The $22 Billion Cost of Wage Theft

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Wage theft happens more than you think — could automated timesheets be the solution for fair compensation?

The employee-employer relationship is founded on a delicate balance of mutual trust. The employer trusts the employee to work when they’re supposed to work, and the employee trusts the employer to pay them fairly for the work they do. Unfortunately, that trust can be broken in a variety of ways, and it happens more often than you think.

In the case of workplace misconduct, the door swings both ways. Employees can commit (both intentionally and unintentionally) what’s known as time theft, where they either pad their clocked time to increase their hourly wages or spend time on non-work things while on the clock.

Then there’s the flip side of this, known as wage theft. Here at TSheets, we recently surveyed 500 employers, asking the question “Does your company adjust employee timesheets after they’re submitted?” The results were startling.

 

But first, what is wage theft?

The University of California Los Angeles Labor Center defines wage theft as “the illegal practice of not paying workers for all of their work including; violating minimum wage laws, not paying overtime, forcing workers to work off the clock, and much more.”

The Economic Policy Institute (EPI) lists all kinds of articles on their site under the search term “wage theft.” Everything from tip stealing to unpaid back wages to the pay gap between men and women falls under the broad umbrella of wage theft.

Often, victims of wage theft are the most marginalized individuals in society. They don’t fight back, either because they don’t make enough to cover the costs of hiring representation or they fear retaliation for coming forward. According to the EPI, the food and drink service industry has the highest percentage of violations, followed by retail. What may be surprising was the third category of industries most plagued by wage theft: education and health.

Source: Economic Policy Institute

Minimum wage violations are the most studied form of wage theft, with workers missing out on an estimated $8 billion in lost wages in the 10 most populous states alone. Other forms of wage theft are more difficult to track, given the lack of reporting — but we gave it a shot.

 

Survey reveals the cost of timesheet wage theft

Our survey of 500 employers found just under 10 percent admit to taking time off employees’ timesheets every day, with over 60 percent of those taking off 30 minutes per day or more.

These are back-of-the-envelope calculations, but if you apply this to the broader, hourly workforce across the US, 7.4 million workers are missing out on 62–250 hours’ worth of pay each year. Using the national average for hourly pay ($23.86/hour), that would equal between $1,400 and almost $6,000 in lost wages per employee over the course of the year, due to timesheet wage theft. Nationally, that adds up to $22 billion.*

Employers using automated time tracking and payroll systems are some of the best equipped to fight wage theft. Automated timesheets can reduce the chances of accidentally underpaying workers by giving employers more accurate time data. And when that time tracking software integrates with a payroll provider like QuickBooks, the employer is saved from having to manually enter data into a spreadsheet or calculator to figure out payroll. Automation from the time a worker clocks in to the time the check is cut means fewer chances for error.

 

TSheets introduces new default settings

Like any time tracking software, TSheets gives employers the ability to edit employee time. This feature comes in handy when a worker forgets to clock out at the end of a shift and comes in the next day to find they’ve been “working” for the last 24 hours. It’s also helpful when someone forgets to clock in and needs to add time to their timesheet.

However, edits made to an employee timesheet — not made by the employee themselves — are notated with a paper and pencil icon. Up until recently, most employees weren’t able to see this section of their dashboard because, by default, only admins could view time logs.

Recently, though, our team introduced a new default setting. This setting, which enables “Manage My Timesheet” permissions for all new customers and their employees, has two main parts.

  1. It allows employees to edit their time. This is a feature many managers appreciate because it saves them the trouble of correcting every “I forgot to clock in/out”. Plus, since managers have to approve time anyway prior to running payroll, they’ll still have the chance to go back and change an employee’s time (preferably after consulting with the employee), should something look incorrect.
  2. It allows employees to check their own time logs for accuracy. Remember that pencil and paper icon? Now employees can see it too. Knowing this record exists and is visible to employees should dissuade employers from editing employee time, except when necessary or at the request of the employee.

Because TSheets is fully customizable, this setting can be disabled by the employer, though most of our clients have responded in favor of the setting. In fact, out of our 2,880 beta testers whose accounts had been activated using the new default setting, 2,800 kept the default as-is. Only 80 disabled it so employees did not have “Manage My Timesheet” permissions.

In these cases, employees have other options for checking that timesheets are correct. One is to ask their manager or company bookkeeper to show them their past timesheets online. If an employer refuses to allow the employee to view past timesheets and the employee decides to make a claim against the employer, TSheets can release the employee’s timesheet records to a court or attorney with a subpoena.

Another option is to run a payroll report. Even if an employee doesn’t have “Manage My Timesheets” permissions, there’s a good chance they can check out their past times by running a payroll report. This report can be found in the left-hand menu on the web dashboard.

Unlike time logs, payroll reports do not show if a timesheet has been edited. They’re more like a detailed pay stub, in the sense they show employees when they clocked in and out and how many hours they worked over a certain period.

If an employee feels their times are being altered, the best course of action is to keep track of their clock-in/clock-out times on a separate sheet of paper and then compare those times to what’s in the payroll report.

What’s legal, and is it a best business practice?

It’s important to note that timesheet rounding can affect times slightly, but this shouldn’t be much of a problem, provided time is being rounded in the same direction. For instance, the employer may have timesheet rounding set to the nearest five minutes, going up. So if you clocked in at 8:28, that time would be rounded to 8:30, but when you clock out at 5:22, that time would be rounded up to 5:25. Essentially, it all evens out.

For more information on timesheet rounding and when it’s most commonly used, check out this blog post.

 

Is there a solution to wage theft?

We sure hope so! Hardworking employees deserve to be paid fairly. That said, if there is a solution, it likely isn’t an easy one. Many employers who commit wage theft don’t even know they’re doing it.

The first step, then, is awareness and transparency. Employees and employers alike can work together to fight wage theft by researching the wage laws of their state and asking questions that prompt inquiry, discussion, and, if necessary, change. For more information on potential payroll pitfalls as well as labor laws in your state, visit the TSheets resource center or your state’s labor department website.

Questions regarding TSheets functionality? Give our customer experience team a call at 888-836-2720, or visit the TSheets website or your TSheets dashboard to live chat an expert.

 


*In 2015, the US Bureau of Labor Statistics (BLS) estimated there were 78.2 million hourly workers in the US (source). Our survey found that 2.4% of employers admitted to removing 15 minutes from employee timesheets every day, another 5.9% admitted to removing 30 minutes per day, and 1.2% admitted to removing 60 minutes per day. According to the latest BLS wage data, the average hourly rate of pay is currently $23.86/hour (source). Assuming these employees each work 250 days per year:
  • 2.4% of 78,200,000 hourly employees (i.e. 1,876,800 people) lose 15 minutes (or $5.97) per day — equivalent to 62.5 hours or $1,491.25 per year.
  • 5.9% of 78,200,000 hourly employees (i.e. 4,613,800 people) lose 30 minutes (or $11.93) per day — equivalent to 125 hours or $2,982.50 per year
  • 1.2% of 78,200,000 hourly employees (i.e. 938,400 people) lose 60 minutes (or $23.86) per day — equivalent to 250 hours or $5,965 per year
Using these assumptions, the total cost to US hourly workers is (1,876,800 x $1,491.25) + (4,613,800 x $2,982.50) + (938,400 x $5,965) = $22,156,992,500

7 Comments

  1. Forest says:

    My research at Stanford includes wage theft. Great article. Great courage in the survey and publishing it. I’d like to know more. Please contact me granite@stanford.edu

  2. […] accidents aside, the harsh reality is some employers (around 10 percent, according to a recent TSheets survey) actually do commit wage theft on purpose. These individuals admitted to shaving time off their […]

  3. Greg says:

    Thanks so much for covering this very important topic and working to do what you can to prevent wage theft!

    One suggestion that I have that I think would help on this front would be to improve the time sheet approval workflow so that both managers and employees both approve timecards at the end of the pay period. For example: once I finish entering my time as an employee, I should be able to “approve” my card to indicate that it is ready to be reviewed and approved by my supervisor. If, during the review process, my supervisor makes any changes to my time, TSheets would notify me to let me know that I need to re-approve my timecard to confirm that my supervisor’s alterations are correct. Payroll would then be run once both the employee and the supervisor agree that the timecard is correct.

    Thanks again,
    Greg

  4. […] Psst! TSheets also helps offset the $22 billion cost of employee wage theft. […]

  5. […] tracking software company, we at TSheets are particularly interested in this subject. We recently surveyed 500 employers to learn more about the role timesheets play in wage theft. We also interviewed David […]

  6. […] tracking software company, we at TSheets are particularly interested in this subject. We recently surveyed 500 employers to learn more about the role timesheets play in wage theft. We also interviewed David […]

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