Some people call it “wage theft,” some call it “time theft.” What’s important isn’t the name, but the act: companies not paying employees for all the time they’ve worked.
This problem has been in the news a lot lately. The Economic Policy Institute (EPI) and Elizabeth Tippett of the University of Oregon both released studies on the subject this year, which were notably covered on NPR and in The Wall Street Journal.
While EPI’s research focused heavily on minimum wage violations and how those violations affect the country’s most marginalized workers, Tippett’s study focused on lawsuits based on how employers had set up their automated timekeeping systems.
Being a time tracking software company, we at TSheets are particularly interested in this subject. We recently surveyed 500 employers to learn more about the role timesheets play in wage theft. We also interviewed David Cooper, a senior economic analyst from the EPI and one of the authors of EPI’s report on minimum wage violations.
Our goal wasn’t to dispel facts, but rather to shed more light on an issue that impacts employees across the country. In the end, our research led us to the same conclusion as Tippett and the EPI: Workers are losing out on billions of dollars each year due to various iterations of wage theft.
A Summary of Wage Theft Statistics
According to our survey, just under 10 percent of employers admit to taking time off employee timesheets every day. Over 60 percent of those employers take off 30 minutes per day or more. Applying these numbers to the broader hourly workforce across the US, we estimate workers are losing out on $22 billion in earnings due to wage theft each year.
EPI took a specific look at minimum wage violations — instances where workers were paid an hourly rate below the minimum wage. This can happen when employers ask their employees to work through their lunch breaks or stay late after they’ve already clocked out. It also occurs when illegal deductions are taken from the employee’s paycheck or when the employer fails to make up the difference between a tipped worker’s tips and the legal minimum wage. EPI concludes that workers across the US are missing out on around $15 billion in wages every year.
Finally, Tippett looked at 330 cases litigated in federal and state court, with a focus on “digital wage theft” — e.g., automatic break deductions, timesheet rounding, and time shaving.
Give Your Employees a Break — a Real One
Under the Fair Labor Standards Act (FLSA), employers are not required to give workers breaks, though some states do have such requirements as part of their own labor laws. Employers who do provide breaks typically offer one or two paid 15-minute breaks, as well as an unpaid lunch break of 30 minutes to an hour. For its part, the US government does have some stipulations on rest and meal periods, namely, “The employee must be fully relieved from duty for the purposes of eating regular meals.”
As noted in the Department of Labor Wage and Hour Division’s Fact Sheet No. 22, “Problems arise when employers fail to recognize and count certain hours worked as compensable hours. For example, an employee who remains at his/her desk while eating lunch and regularly answers the telephone and refers callers is working. This time must be counted and paid as compensable hours worked because the employee has not been completely relieved from duty.”
Unfortunately, employees aren’t always able to walk away from their work. Hospital nurses, for instance, often end up working straight through their lunch breaks, even while clocked out. For them, it’s tough to take time off when their performance is based on being immediately available to care for patients in need. Compound this problem with an employer who has set their timekeeping software to automatically clock workers out for breaks, and the situation is bound to breed resentment and hostility.
One real-life example of this is included in Tippett’s study. Summarizing a sworn declaration by nurse Jara Neal Willis, Tippet writes: “The hospital allotted her  minutes per day for a meal break, but it was almost always interrupted. … Over the four years she worked at the hospital, she could not recall a single uninterrupted meal break.”
According to Tippett, the hospital in question was able to “reclaim employee wages at such a large scale through the ’rounding’ and ‘automatic break deduction’ functionality of its timekeeping software.” Because the software deducted 30 minutes for lunch automatically, Willis and her fellow nurses were missing out on 30 minutes of pay each shift regardless of whether or not they actually took a break. Nurses could file paperwork with their supervisors to override the deduction, but few did, as such requests were discouraged. Tippett writes, “One nurse filled out the form three or four times, but her supervisor characterized the requests as ‘unacceptable.’”
Hospitals are busy places, but it’s still important workers get the breaks they’re owed — not only for their own sanity and well-being, but also for the sake of their patients. One strategy busy organizations like hospitals can use to ensure employees get their breaks is to have workers act as tag teams, so one person is always on the clock while one or two people are off. The counterargument to this, however, is the person on the clock may be responsible for twice as much work.
Whatever approach an organization decides to take, both employers and employees should be involved in the discussion. That way, a solution that works for all parties can be reached. Once a break policy is created, employees should be made aware of it so no one is ever surprised when a break is deducted.
Scheduling automatic breaks without a fully vetted system that gives employees the time they need to eat and rest could be a recipe for disaster. We recommend employers consult with a labor or employment attorney, check the Department of Labor’s website, and read up on their state’s labor laws prior to automating break time deductions in timekeeping software.
Timesheet Round Is Useful, But Complicated
Most time-tracking solutions offer administrators the ability to round their employees’ clock-in and clock-out times. It’s common for admins of such systems to set up rounding to the nearest minute in order to match up with payroll software solutions that can’t process time in seconds.
But whether a company rounds to the nearest minute or the nearest 15 minutes isn’t really the problem — it’s the direction in which the rounding occurs. The important part is to adjust the tool’s settings so the rounding always occurs in the same direction. That way, everything basically evens out. To quote one of our own blogs on this very subject, “If timesheet rounding is saving you money, you’re probably setting yourself up for a major lawsuit.”
Say an employer has set timesheet rounding to go up to the nearest five minutes when an employee clocks in but down to the nearest five minutes when an employee clocks out. When the employee comes in at 8:31, the timesheet shows 8:35. When they clock out at 5:04, the timesheet shows 5:00. That employee has missed out on eight minutes of paid time.
If you think that’s not so bad, imagine what would happen if the employer used that same system to round to the nearest 15 minutes.
This is an obvious concern for the Department of Labor as well, as the law currently states: “[T]he FLSA allows an employer to round employee time to the nearest quarter hour. However, an employer may violate the FLSA minimum wage and overtime pay requirements if the employer always rounds down. Employee time from 1 to 7 minutes may be rounded down, and thus not counted as hours worked, but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.”
The Department of Labor also gives examples:
An intermediate care facility docks employees by a full quarter hour (15 minutes) when they start work more than seven minutes after the start of their scheduled shift. Does this practice comply with the FLSA requirements? Yes, as long as the employees’ time is rounded up a full quarter hour when the employee starts working from 8 to 14 minutes before their shift or if the employee works from 8 to 14 minutes beyond the scheduled end of their shift.
All of that seems pretty basic, but Tippett’s study found examples of employers shaming their employees into not clocking in or out when the rounding would benefit them. Willis’s hospital, for example, put up signs in the employee break room (including one with a cow and a time clock), warning employees against what it called “mooching.”
Shaming employees for clocking in when the time clock doesn’t favor them, whatever their job title, makes for a toxic work environment. While timesheet rounding can be a helpful tool on many levels, it’s important employers know what they’re signing up for and don’t punish employees when the consequences of timesheet rounding fall in their favor.
For a truly employee-friendly system, employers can set rounding to five minutes down during clock-in and five minutes up at clock-out. That way, the employee always gets a couple minutes extra — and the benefit of the doubt as to whether or not they clocked in on time.
Automated Tools Are Designed to Help Everyone
At a glance, it might be easy to blame wage theft on timesheet rounding or automatic deductions, but these features also have the potential to help. Automated time-tracking software, like payroll software or malware protection, is a tool. When used properly, it has the potential to protect not just the employer, but the employee as well.
Automatic breaks can put pressure on employers to make sure employees get a lunch break, even on busy days. Likewise, they can also prompt employees to take their required breaks. And timesheet rounding? That can benefit employees, too — because every worker deserves to be paid for the job they’ve done.
Danielle Higley is a copywriter for TSheets by QuickBooks.