What Is Wage Theft: Common Types and How to Protect Yourself
October 29, 2025
Wage theft is an illegal practice where employers fail to pay employees the entirety of what they are owed for their work. There are many versions of wage theft, ranging from unpaid overtime to illegal deductions and delayed paychecks.
In this article, we’ll look at the most common examples of wage theft. We’ll also discuss its impact on employers and employees, give you ways to protect yourself from it, and tell you what steps to take if you suspect that you’ve been a victim of wage theft.
What Is Wage Theft?
Wage theft is the unlawful withholding of compensation from an employee. This does not just relate to salaries, but encompasses legally mandated benefits, bonuses, tips, overtime pay, and other promised earnings.
While the term insinuates a deliberate and malicious act of payroll fraud, wage theft isn’t always intentional. In many cases, employers make mistakes that stem from errors in paperwork, a misunderstanding of labor laws, and similar issues.
Still, even if an employer fails to pay their employees their owed wages by accident, that is considered wage theft by the Department of Labor. As a result, the employer may face the same harsh consequences as if they were breaking the law deliberately.
The main reason for this is that wage theft severely undermines the rights and financial security of workers. It violates some of their basic labor laws established by the Fair Labor Standards Act (FLSA) and similar laws.
7 Common Types of Wage Theft
Let’s take a look at the seven most common types of wage theft employees can experience in the workplace.
#1. Unpaid Overtime
Unpaid overtime occurs when an employer fails to compensate an employee at a premium rate for working more than 40 hours in a week. A federally mandated minimum rate for overtime pay is 1.5 times the regular rate for every hour beyond 40 in a week. Some states have stricter laws than this (e.g., mandating higher rates than time-and-a-half, or having daily thresholds).
This can happen when an employer wrongly classifies a non-exempt employee as exempt, when they don’t track employees’ work hours, or when they pressure them not to report extra hours. Regardless of whether these actions are deliberate or unintentional, they can lead to significant underpayment.
#2. Misclassification of Employees
Misclassification of workers is the act of wrongly categorizing employees, which typically results in denying them some of their earnings. The most common example of worker misclassification includes categorizing employees as independent contractors. The opposite can also occur, but that happens much less frequently.
An employer may misclassify an employee to avoid paying minimum wage or overtime, or to deny them legally mandated benefits for W-2 employees, such as unemployment insurance.
Another common example of worker misclassification is the one mentioned previously, where employers misclassify non-exempt workers as exempt, thus not paying them overtime.
#3. Minimum Wage Violation
Minimum wage is mandated by federal law, but there are many state and even city laws that govern it further. The current federal minimum wage was established on July 24, 2009, and it’s $7.25 per hour. If employers pay employees less than this, they are committing wage theft.
However, since there can be state and local laws (which are often stricter than the federal law), employees are entitled to the highest of the mandated rates.
For instance, the minimum wage in Washington is $16.66. As a result, even if an employer follows the federal law and pays their employees $7.25, they are violating a state law and committing wage theft.
#4. Off-the-Clock Work
“Off-the-clock” work refers to any amount of labor by an employee that wasn’t recorded, and therefore not paid. This issue is more prevalent in certain industries, like retail and food service. Employers may ask workers to come in early or stay up late to do some preparation tasks or to clean up, or require employees to attend meetings that don’t get tracked and compensated.
Any amount of work that an employee does needs to be tracked and adequately compensated. This includes not just work from an office or on premises, but also any job-related tasks that employees get asked to do from their homes (e.g., checking emails or responding to messages).
#5. Illegal Pay Deductions
Employers often need to make deductions from an employee’s paycheck. There are cases when payroll deductions are legal, such as for taxes or health insurance.
However, some employers may conduct illegal deductions, such as charging their employees for work-related tools and resources that they are obligated to provide (e.g., demanding that they pay for uniforms).
Another common example of illegal pay deductions is if it brings an employee’s salary below minimum wage. To avoid this and ensure payroll transparency, most states require employees to transparently document deductions on employee pay stubs. This allows workers to verify that they’ve been paid what they owe without illegal deductions.
#6. Delayed Paychecks
While federal law doesn’t specify exact pay periods, it requires that employees be paid promptly on a regular payday. It’s typically up to the employer to set up a payment schedule (e.g., biweekly payroll or monthly payroll). However, once they do, and that is put in an employee’s contract, employers have to uphold their end of the deal.
Employers aren’t allowed to delay paychecks even if they are struggling financially or encountering administrative difficulties. Frequent or prolonged delays are considered wage theft, and affected employees can file complaints to recover liquidated damages.
Furthermore, employers may be subjected to audits and, if found in violation of the FLSA, face additional penalties.
#7. Not Receiving Tips
Tips that employees receive belong to them. If a manager or business owner takes even a portion of their employees’ tips, that is considered wage theft. There are several different ways for this to happen, including:
- Employers taking tips for themselves.
- Employers sharing tips with non-tipped employees (e.g., managers or cooks).
- Employers not distributing tips from the tip pool appropriately among the workforce.
Another tip-related form of wage theft involves forcing employees to do non-tipped work while they are being paid at the lower tipped minimum wage rate.
How Wage Theft Affects Employers
Wage theft affects employers by causing significant negative consequences for them. Employers and businesses that are found to have engaged in wage theft, whether deliberately or unintentionally, may face severe financial penalties. At a minimum, this encompasses all unpaid wages and liquidated damages.
Depending on the severity of the violation, employers can also be subject to lawsuits and fines, which can end up costing a lot of time and money.
Following that, wage theft can also indirectly harm the business, as it may erode its reputation. This can make it difficult for companies to retain talent or hire new professionals. Plus, employees’ morale will drop, resulting in reduced productivity, increased turnover rates, and a toxic work environment.
The effects of a bad reputation can extend to clients and customers, causing further damage to the company’s finances and prestige.
How Wage Theft Affects Employees
Wage theft affects employees by making a direct impact on their finances. Depending on the severity of wage theft, employees may find themselves struggling to pay rent, buy food, or afford healthcare.
Financial instability can be particularly challenging for individuals who have low income or live paycheck to paycheck. These financial difficulties can cause additional, indirect problems by leading to stress, anxiety, and other health issues.
Moreover, even a single negative experience can give the worker a sense of powerlessness and distrust in their employer. This can spread among the workforce, influencing even those employees who haven’t been affected by wage theft.
Depending on the situation, workers may not even attempt wage recovery due to the fear of retaliation. Sometimes, employees are afraid of being fired, demoted, or having their hours cut, allowing malicious employers to continue with deliberate illegal practices.
Lastly, the negative impact of wage theft extends from employees to their families and the community. Even more, it influences the broader economy, resulting in lost revenue from unpaid taxes and reduced purchasing power of workers.
How to Prevent Wage Theft: 3 Simple Ways
There are several things you can do to prevent accidental wage theft as an employer or spot it and protect yourself as an employee. Let’s see what they are.
#1. Maintain Detailed Records
The fundamental thing you should do to prevent wage theft, both as an employer and an employee, is to keep detailed payroll records. This includes meticulously tracking all hours worked, along with start and end times, as well as break periods.
Employers must also maintain accurate records of pay rates, deductions, and overtime calculations for each employee. Disclosing all that information on a pay stub is essential to maintaining payroll transparency, preventing accidental wage theft, and building trust with employees. Detailed records also protect employers from false accusations of wage theft.
On the other hand, employees should keep the same records independently, which allows them to compare the information and verify their earnings.
#2. Ensure Accurate Employee Classification
Misclassifying employees is one of the biggest and most common mistakes that can result in a cascade of legal violations and multiple financial penalties. That’s why it’s critical for employers to thoroughly understand the legal definition of an employee and an independent contractor, and to know under which circumstances a worker can be classified as exempt.
While these aspects are governed by federal laws, it’s important to note that state laws may provide additional stipulations that businesses need to be aware of. On the other hand, employees need to understand these laws to avoid being taken advantage of.
Finally, employers should regularly audit their workforce classification to ensure that they are categorized properly, as there can be changes that warrant reclassification.
#3. Use Modern Payroll Software Like Paystub.org
Modern payroll software takes out most of the guesswork from the equation, reduces the administrative work required to manage payroll, and ensures accuracy. This helps business owners avoid making the most common mistakes that result in wage theft.
Paystub.org offers several software generators that can help employers manage wages, record payments to contractors, and more. Here are the generators that you can use:
What to Do If You Suspect Wage Theft
There are a few steps you can take if you suspect that you’ve been a victim of wage theft:
- First, you need to gather all relevant documentation that supports your case and proves that you haven’t been paid what you’re owed. This includes your pay stubs, timecards, and contract, as well as any recorded communication relevant to the occurrence. Carefully review the materials to ensure their accuracy and be certain that you’re in the right.
- Next, you should consider reaching out to your employer or the company’s HR department. As we’ve already mentioned, in some cases, wage theft is simply a result of an honest mistake. If that is the case, you may resolve the issue quickly without the need for escalation.
- If your employer or HR team remains unresponsive or you have a firm reason to believe that wage theft was deliberate, you can file a wage claim. You can report wage theft to the Department of Labor’s Wage and Hour Division (WHD) or your state’s labor office. These agencies will investigate the issue and recover your wages.
Final Thoughts
Wage theft can be a serious issue, even when it’s not deliberate or malicious. It can cause significant monetary instability in employees, negatively impact their morale, and lead to stress and anxiety. On the other hand, employers can face penalties, fines, lawsuits, and even reputational damage.
That’s why it’s essential to ensure accurate worker classification, maintain payroll transparency, and keep meticulous records. If you want to streamline record-keeping and the process of documenting salaries, payments, taxes, and so on, don’t forget to give our generators at Paystub.org a go!
Wage Theft FAQ
#1. What is the most common form of wage theft?
The most common forms of wage theft are unpaid overtime and minimum wage violations. Unpaid overtime occurs when employers don’t pay premium rates to employees who work more than 40 hours in a week. Minimum wage violations stem from employers paying their workers less than the legally required amount.
#2. Can contractors experience wage theft, too?
Yes, independent contractors can also experience wage theft. This can happen when clients don’t pay for some or all services provided by the contractor, or pay them late. However, it’s more common for employers to misclassify traditional employees as contractors to avoid paying minimum wage, overtime, and required benefits.
#3. How do I report wage theft?
To report wage theft, you should contact the U.S. Department of Labor’s Wage and Hour Division (WHD) and file a complaint. This can be done online or by calling their phone number at 1-866-487-9243. You can also contact your state’s department of labor.
