The Fraud Examiner

Employer Payroll Fraud Adds Up: The Staggering Cost of Wage Theft
 

Jordan Underhill, J.D. 
Research Specialist, Association of Certified Fraud Examiners                                 


 A recent study of the 10 most populous states in the U.S. by the Economic Policy Institute (EPI) found that 2.4 million workers lose approximately $8 billion annually to minimum wage violations. This amounts to nearly a quarter of the total wages of the affected workers (or about $3,300 annually for year-round employees). Extrapolated to cover the entire U.S., this suggests that workers lose more than $15 billion per year to minimum wage violations alone. Minimum wage violations occur when employers fail to pay their employees the legally-mandated wage. An employer might flout minimum wage laws by paying employees under the table or by requiring them to clock out at a particular time but to continue working without pay.

 

While the EPI’s study focused specifically on minimum wage violations, they are just one example of what is commonly called wage theft. Wage theft is a type of payroll fraud perpetrated by an employer, rather than an employee. It involves the intentional denial of wages or employment benefits to which employees are legally entitled. Low-wage workers are frequently the target of wage theft because they have little bargaining power in the employer-employee relationship and often have little recourse if they suspect their employer is stealing from them.

 

Additionally, employees are often uninformed about their rights under applicable labor laws and, like whistleblowers, frequently fear retaliation if they report suspected misconduct. In the United States, these issues are compounded by the decades-long decline in membership and influence of labor unions intended to protect low-wage workers.


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