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Wage theft is an increasingly common practice in which employers deprive their workers of wages they are owed through practices like improperly logging their hours or simply failing to pay wages fully and promptly. The problem is serious enough that a report from the Center for Urban Economic Development at the University of Illinois at Chicago estimates that workers in Cook County lose more than one million dollars a day to the practice. One of the most common methods of wage theft is through the violation of overtime laws. Overtime in the restaurant industry is a particular problem because of how overtime rules interact with minimum wage provisions and the tip credit.

Understanding the Tip Credit

The tip credit is a specific exception to minimum wage law that allows employers to pay employees less than minimum wage on the assumption that the worker’s tips will make up the difference. Restaurants are one of the main industries that can take advantage of the tip credit because of their high percentage of tipped employees, such as servers and bartenders.

The exact amount of the tip credit varies by state. In Illinois, employers may deduct up to 40 percent of the Illinois minimum wage as tip credit, giving a new minimum wage of $4.95. The tip credit is a complex piece of the minimum wage law that can give rise to a variety of violations by employers. One of the most complicated of these issues related to the tip credit is how it interacts with overtime law.

The Tip Credit and Overtime

Generally speaking, overtime laws require employers to pay their workers one and a half times their hourly wage for working more than 40 hours in a week. However, restaurants and other employers can still take advantage of the tip credit. Unfortunately, many do so incorrectly. The issue is that many employers take the tip credit out before multiplying the hourly wage by one and a half, when they should take it out after. To illustrate the difference, suppose a server works 60 hours in one week and is paid $4.95 an hour plus tips.

For the first 40 hours, the employer can simply pay the $4.95, but for the last 20 they need to start paying overtime. The incorrect way to do the calculation would be to simply multiply the $4.95 wage by 1.5 giving a new wage of $7.43, which would result in a paycheck of $148.60 for those 20 hours. The proper way to perform the calculation is to multiply the full minimum wage, $8.25, by 1.5 to get $12.38, and then subtract the tip credit afterwards to get a minimum wage of $9.08 and a paycheck of $181.60, a serious difference from the incorrect calculation.

If you believe you have been the victim of an overtime violation, contact an Illinois employment lawyer today. Our firm helps clients in many towns across the northwest suburbs, including in Palatine, Barrington, and Schaumburg.

About the Author: Attorney Ken Apicella is a founding partner of DGAA focusing in the areas of personal injury, employment, insurance coverage disputes, and civil litigation. Ken earned his J.D. from DePaul University College of Law in 1999. He has been named a SuperLawyers Rising Star and a Forty Illinois Attorneys Under Forty to Watch. Ken has written and lectured for the Illinois Institute for Continuing Legal Education and regularly serves as a moderator at Northwest Suburban Bar Association's Continuing Legal Education seminars.

More and more employees are facing issues related to wage theft. Even though many are not aware of what the term actually mean, legal claims related to it have been steadily rising in recent years.

Broadly speaking, wage theft happens when an employer illegally deprives an employee of wages that they are owed. In some cases that can mean subverting laws that guarantee certain benefits to employees, like the minimum wage law, while in others it can simply mean not abiding by the agreement between the employer and the employee, both of which are violations of the law. Wage theft can be broken down into two categories based on the method the employer uses, methods relating to simply depriving the worker of money they are owed, and methods relating to improperly documenting the worker or their pay.

Wage Deprivation

Wage deprivation methods involve improper payroll practices designed to deprive an employee of their pay. The simplest method of this is an employer’s failure to pay their employees on time. This can include tactics like withholding an employee’s last paycheck or paying them for only certain hours or days worked, rather than paying for all their time.

One common, similar method of wage theft involves withholding overtime pay. Under the Fair Labor Standards act, many employees are entitled to overtime if they work more than 40 hours a week. Employers often take advantage of confusion among employees as to whether they qualify and refuse to pay overtime. Fortunately, the Department of Labor maintains a guide explaining worker’s overtime rights.

Documentation Issues

Documentation issues are a slightly subtler version of wage theft. Rather than simply withholding wages, employers will adjust their payroll or misclassify employees to stop paying them everything that the employer owes them. One of the simplest documentation violations is agreeing to pay someone below the minimum wage ($8.25 currently), which is illegal. Employers may also adopt improper policies related to clocking-in, like forcing employees to work for a period in the morning before they start logging hours. These sorts of policies qualify as wage theft since employers owe employees for that time.

Additionally, employers could improperly classify their employees as independent contractors. Independent contractor is a specific legal status related to the amount of freedom a worker has to set their hours and perform tasks as they see fit. Most workers a business hires will not fall into this category, but an employer may try to label employees as this since it allows the employer to avoid things like workers compensation insurance and payroll tax by shifting the burden to the worker.

If you believe you have been a victim of wage theft, or have questions about your employer’s practices, get in contact with an Illinois employment lawyer. We serve clients in areas across the northwest suburbs such as Buffalo Grove, Barrington, and Arlington Heights.

About the Author: Attorney Ken Apicella is a founding partner of DGAA focusing in the areas of personal injury, employment, insurance coverage disputes, and civil litigation. Ken earned his J.D. from DePaul University College of Law in 1999. He has been named a SuperLawyers Rising Star and a Forty Illinois Attorneys Under Forty to Watch. Ken has written and lectured for the Illinois Institute for Continuing Legal Education and regularly serves as a moderator at Northwest Suburban Bar Association's Continuing Legal Education seminars.