Stagnant Minimum Pay Eroding DOL’s Ability to Fight Wage Theft

As the gap widens between the federal minimum wage and what workers are earning under higher state rates, the US Department of Labor’s means of punishing employers who stiff their staff on pay shrinks.

Wage violations—sometimes dubbed “wage theft” by worker advocates—can occur in multiple ways. Employers may intentionally or unintentionally forget to pay for the full number of hours an employee worked, or impermissibly deduct fees for things like uniforms from a worker’s paycheck.

In these cases, workers who are paid more than the federal rate of $7.25 an hour are often out of luck when it comes to turning to the Labor Department for help—an often overlooked limitation in federal law, attorneys said. That’s because the agency under the Fair Labor Standards Act can only step in and cite an employer if a worker’s pay per hour at the end of the week dips below the rate set by Congress.

Lawmakers’ failure to update the federal rate for nearly 15 years restricts the agency’s role in ensuring workers are being treated fairly in the economy, legal observers say. Enforcement of wage theft at the state level largely varies, and resource limitations at the federal level mean cases involving overtime are more often pursued than minimum wage cases, they say.

“The reason it’s becoming so ridiculously out of joint is because I don’t believe we’ve had a period of time where so many states have raised their minimum wage, and the federal minimum wage hasn’t adjusted upward,” said David Weil, who led the DOL’s Wage and Hour Division under President Barack Obama. But despite some support on both sides of the aisle for a raise to the minimum wage, there has been no bipartisan consensus on what the figure should be, dooming lawmakers’ most recent efforts.

Since the rate was last updated in 2009, 34 states and territories have increased their minimum wage above the $7.25 floor. Of the nearly 79 million workers earning hourly wages in the United States, about 99% were paid more than the federal rate in 2022, according to the Bureau of Labor Statistics.

“Having a low minimum wage at the federal level is absolutely a barrier to enforcement of workers rights,” said Shelby Leighton, a senior attorney at Public Justice, a non-profit legal aid.

Calculating Pay

When the DOL reviews a wage theft claim, it averages the hours worked against the worker’s earnings to determine the rate at which they were paid. For workers paid more than $7.25 an hour, often their earnings will end up being above the federal requirement even when the lost hours are added in.

The process is distinct from recoveries for missing overtime pay, which are instead tied to an employee’s “regular rate of pay.” The FLSA requires employers pay most workers time-and-a-half based on their “regular rate” whenever they work more than 40 hours a week.

As a result, DOL typically brings more overtime cases than minimum wage cases, which are more common.

In fiscal year 2023, 31,150 employees received back wages for violations of minimum wage law, compared to 106,759 workers seeking overtime back wages.

Andrew Bagley, a management-side counsel at Crowell & Moring LLP in Washington, said that because the federal minimum wage has fallen so far behind, most employers are likely paying at least $7.25 an hour, resulting in fewer violations for the DOL to cite.

“And then it is more productive territory to look at the variety of overtime claims,” he said, because “there are a lot of different nooks and crannies in overtime laws that can catch employers.”

State Laws

Workers in states that have passed laws to boost the minimum wage can go to a state agency to file claims for their lost pay—but the length and efficiency of that process varies depending on what state they’re in.

There are “resource problems where state departments of labor just don’t necessarily have the staffing or the resources to investigate claims of wage theft. And then there’s also just variations in the law in terms of enforcement,” Leighton said.

Moreover, “some states don’t have a private right of action, for example, for violations of their wage laws. Or municipalities, for example, will have a higher minimum wage, but don’t necessarily always choose to enforce it,” she added.

Receiving a federal violation for wage theft can have its own deterrent effects, like increased potential fines in the future as a “repeat violator,” according to DOL officials and worker advocates. But absent a federal citation, employers violating wage laws may not be on the DOL’s radar, and are therefore not at risk of the designation.

Proponents of raising the federal minimum wage say the enforcement component is just one reason why Congress should step in to adjust the rate.

“The most basic fair labor standard is a fair day’s pay for a fair day’s work,” said Diana Nobile, a plaintiff’s side attorney at McGillivary Steele Elkin LLP. “And to say that in 2024 $7.25 an hour is a fair day’s pay for a fair day’s work when it’s not even enough to support an individual, let alone a person who has a family, it’s certainly turning its back on everything that the FLSA was intended to cover.”

Debate on the Hill

Since the last update in the mid-aughts, Democrats have tried to address the wage gap by introducing legislation that would provide new avenues for workers to recoup their lost pay.

The Wage Theft Prevention and Wage Recovery Act, for example, would mandate that employers compensate workers at their regular wage rather than the federal standard for back wages.

Under the bill, workers would be allowed to recoup their pay at the rate established on their employment contract, which includes collective bargaining agreements.

Co-sponsor Rep. Bobby Scott (D-Va.), ranking member of the Education and the Workforce Committee, said enforcement agencies and workers “need more authority” to penalize employers that don’t pay what their workers are owed.

But a gulf stands between Democratic proposals for a $15 or $17 per hour federal rate and Republicans who say the number should be much lower.

Last year, Sen. Bernie Sanders (I-Vt.) introduced legislation to set a $17 minimum wage and eliminate subminimum pay for tipped workers following years of advocacy for a $15 hourly rate, a bump that he says is an appropriate adjustment amid high inflation rates.

And the fact that back wages have to be paid at the federal minimum rate is “just one more reason” to raise it to a “living wage,” he told Bloomberg Law.

Some Republicans have been supportive of a higher minimum wage, albeit with some conditions.

Sen. Josh Hawley (Mo.) has proposed increasing the rate to $15 an hour for workers at businesses that make over $1 billion in annual revenue, while Sen. Mitt Romney (Utah) and others have floated a bill that would raise it to $11 per hour along with mandating E-Verify for all employers to prevent undocumented immigrants from working.

Democrats haven’t endorsed either proposal.

The last significant effort at changing the federal rate was during the pandemic, when there was an opportunity to codify the $15 minimum wage in the 2021 Covid recovery bill. But several Democrats voted against the proposal, including New England senators who opposed getting rid of the tip wage.