"Wage theft" has a really scary sound to it. It sounds like some sleazy scheme concocted in smokey back rooms, or perhaps, street thugs hanging out in dark alleys, and stealing paychecks at gun point. What it really is, is underpaying people. For instance, not paying overtime when it's legally owed.

As a business owner, you should cringe when you hear the term wage theft and you should fight against it. Why? Because, while some people are honestly stealing money from employees by falsifying time cards and such, most people who commit "wage theft" do so accidentally.

How do you accidentally steal wages from your employees? Extremely easily. The law that governs how employees are paid is called the Fair Labor Standards Act (FLSA). It divides people into two classes: exempt employees who are paid the same amount each week, regardless of how many hours they work, and non-exempt employees who are paid for each hour and must be paid overtime when they hit 40 hours in a single week. When that law was written, 76 years ago, it was really, really obvious who was a "worker" and who was a "manager."

If you're working the factory line, you're non-exempt and need to be paid overtime. If you're managing the factory, you're exempt and can be paid a straight salary regardless of work. Easy, peasy, right? Well, the economy changed and congress hasn't kept up with the changes. (There have been some changes, but not the overhaul it needs.)

Now, it's not quite so clear where people fall. It's a huge mess. In fact, Employment Attorney Jon Hyman says, "I would bet any employer in this country a free wage and hour audit that I can find an FLSA violation in your pay practices. A regulatory scheme that is impossible to meet does not make sense to keep alive. Instead, what employers and employees need is a more streamlined system to ensure that workers are paid a fair wage."

The laws don't make sense in many, many cases. Take, for instance, Pharmaceutical Sales Reps. They've been considered exempt employees, because the FLSA clearly makes outside sales people exempt from overtime. They go out, they meet with doctors and pharmacies, and they receive commissions. Sounds like a sales job, right? Every person that took such a job did so with a full understanding of how they were to be paid. They agreed to receive this pay when they accepted the job. There was not fraud involved. There were not claims of falsified time cards and bogus pay checks.

Even with all that, lawsuits* went forward anyway when a group of salespeople pointed out that they didn't actually sell anything. This is true. Ultimately, the patients buy the prescription drugs, not the doctors. Pharma sales reps don't meet with patients; they meet with doctors. The courts were sharply divided on whether Pharma sale reps met the qualifications for exemption. Some companies won their lawsuits, others lost.

Think about that for a minute--the law is so complicated that federal courts split on this. The cases eventually wound their way to the US Supreme Court, which ruled in favor of the pharma companies, but in a 5-4 split. Let's be clear: When Supreme Court justices can't agree how your employees should be paid, what are the chances that you are making the correct classification on each and every one of your employees?

And this is why activists who use the term wage theft should frighten you. It lumps legitimate complaints of sleazy employer behavior with companies who are genuinely trying their best to pay their employees correctly. It's not fraud and it's not intentional.

As employment attorney Daniel Schwartz says, "It's time for employers to beware this phrase and fight its usage because, in my view, it's really an attempt to turn something often unintentional, into something nefarious and intentional."

The fact that the law no longer reflects today's workforce and should be changed doesn't negate your need to comply to the best of your ability. This means, you'll probably need to hire specialists like Hyman or Schwartz to evaluate your pay practices. This is expensive, no doubt. This is, however, cheaper than fighting a lawsuit and less damaging than your reputation.

When you are in doubt, pay the employee hourly and give overtime. It's always legal to pay someone by the hour with overtime. But, many people will take this as an insult to their level of expertise. Many people want to be classified as exempt. But, here's the thing--even if the employee agrees to it, even if the employee is the one that brings it up, even if the employee signs a document affirming that he agrees with how he is being paid, if the job doesn't fit the FLSA requirements, you can be sued later and lose.

Now, if you are making people work off the clock, or doctoring time cards, I'm happy to say you're a wage thief. But, if you're making a genuine mistake about how someone is classified? You don't deserve that label and should fight against it.

*(It should be noted that I worked for Wyeth Pharmaceuticals Human Resources during these lawsuits, but I was not directly involved with these cases.)

Published on: Sep 4, 2014