Wage Theft
Definition, rules and examples

Common forms of wage theft

• Unpaid overtime. Paying straight time for hours over 40 in a workweek, or misclassifying a worker as exempt.
• Off-the-clock work. Requiring setup, cleanup, or calls before clock-in or after clock-out.
• Paying below minimum wage. Including when a tipped employee's cash wage plus tips falls short.
• Auto-deducted breaks. Subtracting a meal period the employee worked through.
• Keeping tips. The FLSA prohibits employers from keeping any portion of employees' tips.
• Misclassification. Treating an employee as an independent contractor.
• Late or missing final pay and unauthorized deductions, which are often governed by state law.

Not all wage theft is deliberate. Many cases start as payroll errors, poor timekeeping, or misunderstandings about what counts as hours worked. The legal exposure can be similar either way.

How it adds up: a worked example

A hypothetical cook earns $16.00 per hour and works 45 hours every week, but the employer pays straight time for all 45 hours.

That is one employee and one year. Across a kitchen staff and several years, a single payroll setting can become a significant liability.

Federal rules and enforcement

The Fair Labor Standards Act (FLSA) sets the federal floor. The DOL's FLSA page says the federal minimum wage is $7.25 per hour and that nonexempt workers must receive at least one and one-half times the regular rate for hours over 40 in a workweek. When state and federal minimum wage laws both apply, the employee gets the higher rate.

The DOL's Handy Reference Guide to the FLSA describes the consequences of violations:

• Back wages and liquidated damages. The DOL or employees can recover back wages and an equal amount in liquidated damages for minimum wage or overtime violations.
• Look-back period. Generally, a 2-year statute of limitations applies; a 3-year statute applies to willful violations.
• Civil money penalties. Employers who willfully or repeatedly violate minimum wage or overtime requirements may face penalties for each violation.
• Retaliation. Employees who file complaints or provide information cannot be discriminated against or discharged for that activity.

Enforcement is active. The DOL Wage and Hour Division's data page reports that it recovered more than $259 million in back wages for 176,957 employees nationwide in fiscal year 2025, averaging $1,465 per worker.

Many states and cities have their own wage payment and wage theft laws, which can add penalties or requirements beyond federal law. Check the rules where you operate.

Prevention checklist

• Record actual hours worked each day and workweek, as the DOL's recordkeeping rules require for nonexempt workers.
• Review exempt classifications against the duties and salary tests.
• Pay overtime on the regular payday for the period in which it was earned.
• Stop auto-deducting meal breaks unless you verify they were taken.
• Count pre-shift and post-shift work as hours worked.
• Audit tip handling and tip pool membership.
• Correct errors quickly and pay back wages when you find them.
• Give employees a clear way to report pay problems without fear of retaliation.

Common mistakes

• Averaging hours across two weeks to avoid overtime; the DOL says averaging is not permitted.
• Assuming a salary automatically makes someone exempt.
• Editing timecards to remove time without a documented reason.
• Paying a "flat day rate" without checking overtime.
• Ignoring small, repeated errors because each one looks minor.

What to do if you find an underpayment

Most employers who discover a wage problem found it themselves, through an audit, a new payroll system, or an employee question. Acting quickly limits the damage:

1. Stop the cause. Fix the payroll setting, classification, or timekeeping practice so the problem does not continue.
2. Define the scope. Identify which employees, which pay periods, and which locations were affected.
3. Calculate what is owed for each employee using actual hours worked. Accurate time records make this possible; missing records make it guesswork.
4. Get advice. An employment attorney can help with how far back to look, whether damages apply, and how to document the payment.
5. Pay employees and explain it clearly. Show what the correction covers and how it was calculated.
6. Document everything. Keep the analysis, payments, and the fix you put in place.
7. Prevent a repeat. Schedule a regular payroll and timekeeping review, for example every quarter.

Throughout, avoid any action that could look like retaliation against the employee who raised the issue. The Handy Reference Guide notes that employees who file complaints or provide information cannot be discriminated against or discharged for doing so.

Wage theft and recordkeeping

In any wage dispute, the first question is usually what the records show. The DOL's recordkeeping fact sheet requires employers to keep, for nonexempt workers, hours worked each day, total hours each workweek, the regular hourly rate, straight-time and overtime earnings, and additions to and deductions from wages. It says payroll records must be kept for at least three years and time cards for two years. When an employer cannot produce accurate records, it becomes much harder to show that employees were paid correctly. Good records do not just help you comply; they help you prove it.

How EZTime helps

Accurate time records are the best defense against accidental wage theft. EZTime captures hours on a GPS mobile time clock with geofencing, NFC tags, a tablet kiosk, or biometric clocks, and sends overtime and break alerts so managers can act before the week closes. Every timecard correction is saved with an audit trail, and payroll-ready Excel and PDF exports go to any payroll software (EZTime does not run payroll). Plans start from $2 per employee per month with a 14-day trial. Read the FLSA overtime rules guide, see how the attendance clock works, or compare pricing.

This is general information, not legal advice.