Types of Wage Theft

Reviewed by Nola Stetson (NS), Editor-in-Chief — Wage Theft Practice. Updated May 2026.

Wage theft takes many forms, some obvious and some subtle. Understanding which category your situation falls into matters because the applicable legal standard, evidence requirements, and potential damages differ by violation type. Here is how the most common categories work under federal law, with notes on where state law frequently provides additional protection.

Unpaid Overtime

The FLSA requires non-exempt employees to receive at least 1.5 times their regular rate of pay for all hours worked over 40 in a single workweek. Overtime violations are the most litigated wage theft category, often involving employers who either misclassify workers as exempt from overtime requirements or require off-the-clock work to keep recorded hours under 40.

Common tactics: automatically capping recorded hours at 40 regardless of actual time worked; requiring employees to clock out before completing assigned tasks; paying a fixed salary while ignoring overtime obligations for non-exempt workers. The regular rate for overtime purposes includes non-discretionary bonuses, commissions, and shift differentials — not just base wages — so overtime calculations on complex pay structures are frequently understated.

Minimum Wage Violations

The federal minimum wage is $7.25/hour; many states and cities set higher rates. Violations include paying below the applicable minimum, making deductions for uniforms, tools, or cash shortages that bring effective hourly pay below the minimum, and improperly using the tip credit for tipped employees. The tip credit allows employers to pay tipped employees as little as $2.13/hour federally, with the expectation that tips bring total compensation to at least $7.25, but the employer owes the difference if tips fall short.

Off-the-Clock Work

The FLSA requires payment for all hours worked, including time employees spend on work-related activities before clocking in, after clocking out, or during unpaid meal breaks. Common violations include: requiring donning and doffing of safety equipment without pay; mandatory pre-shift meetings; automatic 30-minute meal break deductions regardless of whether breaks were actually taken; required post-shift cleanup; and answering work emails or calls during unpaid breaks. Off-the-clock violations frequently combine with overtime violations when unrecorded time would push weekly hours above 40.

Tip Theft

The FLSA prohibits employers and their managers from keeping any portion of employee tips, regardless of whether a tip credit is claimed. Common violations: managers participating in tip pools (prohibited under 2018 FLSA amendments); employers deducting credit card processing fees from tips in excess of actual processor fees; employers retaining tips for alleged customer complaints; and requiring employees to share tips with non-tipped workers (e.g., kitchen staff who receive a direct wage, not a tipped wage). State laws in California and some other states prohibit tip credits entirely, meaning tipped workers must receive full minimum wage before tips.

Employee Misclassification

Misclassification takes two forms: (1) treating employees as independent contractors to avoid overtime, minimum wage, and benefits obligations; and (2) treating non-exempt employees as exempt from overtime. Both are determined by substance, not labels.

For independent contractor status, the FLSA applies an economic reality test examining factors including control over work, opportunity for profit and loss, investment in equipment, skill required, permanence of the relationship, and whether the work is integral to the employer’s business. No single factor is controlling. A worker whose employer controls their schedule, provides their equipment, and whose work is central to the business’s core function is likely an employee regardless of what any contract says.

For overtime exemptions, the key is the duties test. An employer cannot make a worker exempt simply by paying a salary or assigning an impressive job title. The employee must genuinely exercise executive, administrative, or professional authority as defined by DOL regulations.

Final Paycheck Violations

While the FLSA does not specify when final paychecks must be issued, most states impose strict deadlines — often the next regular payday or within a few business days of separation, whichever is sooner. States including California, Massachusetts, and Montana require immediate payment of all earned wages on the last day of work for involuntary terminations. Violations carry state-specific penalties that often exceed the amount of the withheld wages.

Earned but unused PTO is treated as wages in many states, meaning an employer cannot forfeit accrued PTO upon termination if state law treats it as vested compensation. California is the most notable example; several other states follow the same rule.

Illegal Deductions

The FLSA prohibits deductions that bring an employee’s pay below the minimum wage or, for overtime hours, below 1.5 times the regular rate. Common prohibited deductions include: cash register shortages, customer walkouts, or breakage; uniform and equipment costs when the deduction cuts below minimum wage; repayment of training costs during employment; and fines or fees for workplace policy violations that reduce wages below required levels.

Some deductions are permissible with written authorization and when they don’t reduce wages below required levels. State law often provides additional restrictions. An employment attorney can advise whether a specific deduction policy violated applicable law in your jurisdiction.

Use the wage theft calculator to estimate your recovery, or see the claims process guide for next steps.