One year after New York State took a major step to simultaneously plug its budget deficit and improve millions of families’ economic security by enacting the Wage Theft Prevention Act, a new report  by Progressive States Network is naming New York state as a leader in wage theft prevention among the 50 states.
The report, Cracking Down on Wage Theft: State Strategies for Protecting Workers and Recovering Revenues, highlights New York’s law which went into effect April 9, 2011 and should help the state recover up to $427 million each year in lost revenue from underpayment of wages – amounting to $1.5 billion per year for workers in New York City alone. The report argues that the revenue so recovered would more than make up for the state’s projected $350 million budget gap, an important signal to other states that have not begun to address this problem.
Wage theft is the nonpayment or underpayment by employers of wages legally owed to employees. In recent years it has become nearly ubiquitous in certain industries, particularly those where low-wage work is most prevalent. In 2008, a survey of over 4,000 low-wage workers in three of the nation’s largest cities shocking found that:
- Nearly two-thirds of low-wage workers experience wage theft each week.
- Over one-quarter are paid less than the legal minimum wage.
- Over three-quarters of workers owed overtime are unpaid or underpaid for those hours.
- On average, low-wage workers lose over $50 per week to wage theft – totaling more than $2600 each year.
Wage theft has a devastating impact on these working people, for whom this amounts to losing 15% of their annual earnings through employers shorting them on their paychecks. This happens is all too many ways: hours are shorted, tips are stolen, minimum wage and overtime laws are broken, people are forced to work off the clock. Many employers miscategorize employees as independent contractors, simultaneously dodging wage laws, Social Security, and employment taxes. And sometimes workers are simply not paid at all.
The prevalence of wage theft has far-reaching effects, undermining communities where low-wage workers live and where they would spend those wages. Honest businesses are hurt too, when they have to compete with employers who cheat their workers and dodge taxes. And it’s important to highlight, especially as taxpayers file their state taxes this week, that states lose millions of dollars in revenue due to wage theft, through unpaid income and sales taxes. Important safety net programs like unemployment insurance and workers compensation are shorted, as well.
New York State provides one of the best examples. The 2008 survey found that over 500,000 workers in New York City alone experience wage theft, to the tune of $1.5 billion each year in unpaid wages. Statewide, it is estimated that those rise to nearly 1 million workers and close to $3 billion each year. The state loses over $400 million in revenue each year thanks to wage theft – more than the $350 million state budget gap for 2012.
And this is happening in a state which already had relatively strong wage payment laws compared to other states.
The problem may much worse nationwide. Excellent research has already been done showing that, where wage laws are concerned, there are essentially no cops on the beat. Federal enforcement capacity is down over 90% from where it was decades ago; state enforcement is similarly inadequate to the scope of the problem -- uneven at best, and declining along with state revenues in many states.
In recent years, states have begun to modernize their wage theft laws to crack down on the problem. In our survey, we have evaluated state’s existing laws against a set of model policies, standards and best practices that worker advocates, legislators, and policy groups are promoting. These best practives include:
- Expanding protections of the law to more employees, so workers can recover lost wages and states can clean up industries where wage theft has become a common business practice.
- Increasing transparency and accountability through paystubs, wage rate and payday notices, record-keeping requirements, and workplace inspections.
- Prohibiting retaliation against workers for trying to recover their wages, and enabling workers to press claims in court, rather than requiring them to rely solely on state agencies that are increasingly under-resourced.
- Enabling workers to recover damages and court costs, and increasing penalties for wage theft to raise the cost to employers and root out the problem through incentivizing ethical behavior.
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