Checked Out: How DOES Ignores Wage Theft

Published by: DC Jobs With Justice & Restaurant Opportunities Center-DC

Written By: Elizabeth Falcon & Margaret K. O'Hora

Checked

Out:

How DOES Collects

and Then Ignores

Evidence of Wage Theft

Executive Summary

Tipped workers in DC are at high risk of wage theft, and DC government does not do enough to protect them. DC will eliminate the two-tier wage system in 2027, but until then, much is needed to stop and prevent tipped workers from having their wages stolen.

DC Jobs With Justice and Restaurant Opportunities Center-DC analyzed one year’s worth of employee wage and tipping information provided by the DC Department of Employment Services (DOES) to determine whether employers are following the law and, if not, what DOES is doing about it.

Our analysis found that DOES regularly receives evidence that employers are breaking the law, but does not act to deter or punish these violations. Specifically:

Many employers have reported to DOES that they failed to increase tipped workers’ base pay when the District minimum wage increased on July 1, 2021 including many that were paying $4.00 an hour or less.

217 out of 547 DC employers filing reports at DOES were not meeting their obligation to pay tipped workers the full minimum wage when a worker’s tips fell below the amount necessary to take a tip credit.

DOES is not adequately punishing employers for these violations, because many employers continue to report violations over and over again.

THE DEPARTMENT OF EMPLOYMENT SERVICES IS DC WORKERS' FIRST LINE OF DEFENSE AGAINST WAGE THEFT

D.O.E.S. IS UNDER-UTILIZING BOTH THE STRENGTH OF THE LAW AND THE INFORMATION GAINED IN THE PORTAL

547 businesses reported into the Tip Portal in the year studied.

Businesses reported paying their workers less than the Tipped Minimum Wage at least once over the year. These workers were paid less than $5.05 by their employer

28%

Businesses reported that they failed to make up the difference between the Tipped Minimum Wage and the full minimum wage. These workers were paid less than $15.20.

39%

Introduction

Rather than investigating noncompliance, deterring violations, and protecting workers, DOES allows employers to avoid filing reports and continue stealing from workers for months at a time with impunity.

The Department of Employment Services (DOES) has turned its back on some of the most vulnerable people working in Washington, DC. Tipped workers are among the District’s lowest-paid workers, subject to unpredictable pay, harassment, and physical strain. Workers whose wallets are lighter due to wage theft also receive lower unemployment benefits if they lose their jobs, and will have less in their social security checks when they retire. At the same time, the District has some of the strongest wage theft laws in the United States. These worker protections empower DOES to investigate wrongdoing, get employees their unpaid wages, and fine employers to punish them and deter further violations.

DOES is DC workers’ first line of defense against wage theft, which is the failure of an employer to pay a worker their agreed-upon wages for time worked. The restaurant industry, where most tipped workers are employed, has some of the most wage violations in the country. Additional industries employing tipped workers include hotels, nail studios, car washes, and valets. In order to better scrutinize the practices of tipped employers, DC law requires DOES to collect wage and tip information about tipped workers once a quarter in an online Tip Portal.

We found that DOES is not acting on the information gained in the portal and underutilizing the strength of the law. Rather than investigating noncompliance, deterring violations, and protecting workers, DOES allows employers to avoid filing these reports and continue stealing from workers for months at a time with impunity. Although DC will soon join other states that do not allow a lower minimum wage for tipped workers, workers who rely on tips will still be part of a two-tier “tip credit” system until 2027.

DC HAS SOME OF THE STRONGEST WAGE THEFT LAWS IN THE COUNTRY. BUT TIPPED WORKERS ARE NOT BEING PROTECTED

WHEN EMPLOYEES RELY ON CUSTOMERS TO PROVIDE MOST OF THEIR PAY...

THEY ARE AT GREATER RISK OF BEING UNDERPAID

How the Tipped Minimum Wage Works in DC

When workers rely on customers to provide most of their pay, as tipped workers do, they are at greater risk of being underpaid. Under District law, someone whose jobs is customarily tipped can be paid a lower hourly “Tipped Minimum Wage” instead of the regular minimum wage. The assumption is that they will receive enough tips per hour to ensure that they are taking home at least the District’s full minimum wage. The tips a worker earns toward the full minimum wage are referred to as the employer’s “tip credit.”

No one is allowed to pay a tipped employee less than the Tipped Minimum Wage even if their overall pay with tips far exceeds the minimum wage. Companies are also not supposed to pay the lower Tipped Minimum Wage to any workers unless the company has provided them with clear information about how the tipping system in their workplace functions. This must include a notice of hire stating pay rates, overtime eligibility, a tip-sharing policy, and the amount of deductions for credit card fees. A company that fails to provide all of this information to workers must pay the regular minimum wage to all workers. This system will remain in place until the Tipped Minimum Wage is finally phased out in 2027.

DC MINUMUM WAGE

JULY 1, 2022 - APRIL 31, 2022

FULL MIMIMUM WAGE: $16.10

TIPPED MINIMUM WAGE: $5.35

GAP: $10.75

EMPLOYERS MUST MAKE UP THE DIFFERENCE IF TIPS DO NOT COVER THE FULL MINIMUM WAGE

EMPLOYERS MUST ALSO REPORT THIS TO D.O.E.S.

The Tip Portal

22,650

PEOPLE WORK FOR TIPS IN DC

DC WILL STILL HAVE A TIPPED WAGE SYSTEM UNTIL JULY 1, 2027

AS MANY AS 18,100 TIPPED WORKERS ARE UNPROTECTED

DOES is responsible for enforcing workplace protections for DC’s private employees. Generally, employers have been required by District law to keep employee time and wage records just as individuals must keep certain income documents in the event of an IRS audit. This simplifies the government’s ability to resolve disputes over payments when they arise. DC businesses must keep these records for at least three years. But DC is unique in requiring employers of tipped workers – restaurant servers, bartenders, baristas, valets, and others – to report hours, wages, and tip information directly to DOES every calendar quarter or pay fines. This collection system is colloquially called the Tip Portal and is available through the DOES website.

Since 2014, District law has required employers of tipped workers to report those workers’ earnings to DOES. The agency began accepting submissions in the second quarter of 2016, reporting to the Council in 2017 that they had conducted approximately 263 audits and found 80 violations. In 2018, the DC Council amended the law to specify the information that employers of tipped workers were required to submit.

All companies with tipped workers must make sure that their complete quarterly report was submitted to DOES within one month of the quarter ending or be charged a penalty. Employers are also required to use a third-party payroll company to prepare workers’ pay and can be fined if they do not.

This should protect workers in multiple ways. Primarily, it gives DOES large quantities of evidence about what is happening inside DC businesses that have tipped workers – including violations, apparent administrative issues, or incomplete notices. Unlike other investigations, where the agency must send an information request or subpoena and wait for the employer to provide documents to review, DOES’s review of the quarterly wage reports (and any evidence of violations) can happen close in time to the events they are documenting.

Additionally, the Tip Portal reporting requirement should deter employers from shortchanging their employees because they know the watchful eye of DC government is attuned to their actions.

THE TIP PORTAL SHOULD BE -- BUT INEXPLCABLY IS NOT -- THE AGENCY'S MOST POWERFUL TOOL FOR FINDING AND PUTTING AN END TO WAGE THEFT.

What Records Did DC Jobs With Justice Receive?

In 2022, DC Jobs With Justice (DC JWJ) filed a Freedom of Information Act (FOIA) Request and, after taking DOES to court, received tip reports for fiscal years 2020, 2021, and the first two quarters of 2022. This report focuses on the one-year period from April 2021 through March 2022 (the “reporting period ”). The spreadsheets detail employees’ rate of pay, total hours worked, total tips, gross wages, average hourly wage, and average hourly tips. Each employer’s business name, address, and other identifying information was also provided. The FOIA response fails to detail week-by-week data for employees as the law currently requires. And, although the FOIA requested “all quarterly wage reports,” and the reporting law says that such report must include an employer’s tip sharing policy (if used), these were also not provided in the FOIA response.

What Violations are Reflected in the Data?

DOES failed to ensure employers regularly report. Most employers of tipped workers are not filing reports at DOES. Only 547 unique employers filed reports during the reporting period. There are as many as 2,200 restaurants in Washington, DC, and 1,418 that held DC liquor licenses in 2021. Of those with liquor licenses, only 498 reported once or more into the Tipped Wage Portal during the reporting period. Employers that are reporting do so about 75 percent of the time.

Employers are violating the minimum wage law by failing to pay the legal Tipped Minimum Wage and by not ensuring employees’ final pay rate is at or above the regular minimum wage.

Number of times an employer reported to D.O.E.S. that they failed to pay a worker the difference between the tipped wage and the full minimum wage, resulting in lost wages

1,501

1,938

Number of times an employer reported to D.O.E.S. that they had failed to raise pay tipped worker pay to $5.05 or more as of July 1, 2021, resulting in lost wages.

1,200,000 HOURS OF WORK - THAT D.O.E.S. KNOWS ABOUT - WENT UNDERPAID

Employers are violating the minimum wage law by failing to pay the legal Tipped Minimum Wage and by not ensuring employees’ final pay rate is at or above the regular minimum wage.

Out of 547 unique employers reporting over the FOIA timeframe, 154 reported to DOES that they were paying workers a Tipped Minimum Wage below the legal minimum of $5.00 or, after July 1, 2021, $5.05 per hour. These lost wages totaled $70,000. After the minimum wage increased on July 1, 2021, there were still 1,938 instances where an employer was paying their employee less than the Tipped Minimum Wage.

And even though employers are obligated to pay the difference to their tipped workers when tips fall short of the regular minimum wage, many are not. Over the reporting period, 217 employers self-reported 1,501 instances of wage theft to DOES by showing that they failed to pay their employees the difference between the Tipped Minimum Wage and the regular minimum wage.

In total, employers reporting into the portal underpaid their workers for 1.2 million hours of work. The data shows that establishments that were underpaying one worker were more likely to have reported underpaying most or all of their tipped workers, suggesting employer negligence in meeting its legal obligations if not deliberate intent to break the law.

This is just the tip of the iceberg. Employers that are not reporting into the Tip Portal are just as likely – if not more likely – to underpay their workers, since they are going unchecked by DOES. In 2017, DOES estimated there were 22,650 tipped workers employed in restaurants as servers, bartenders, counter workers, and related roles working in DC. During the FOIA time frame, DOES received wage data for approximately one-quarter of these employees. Therefore, approximately 18,106 tipped workers in DC are unprotected because their employers do not report their quarterly wage data to DOES.

Moreover, tipped workers often work in places that have non-tipped workers like chefs, line cooks, dishwashers and others making the regular minimum wage. Since DC’s Tipped Minimum Wage has increased on July 1 every year, at the same time as the regular minimum wage, it’s likely that employers who fail to increase their tipped workers’ hourly rate of pay also did not increase other employees’ rate of pay.

Finally, DC JWJ noted that numerous employers’ data had apparent errors, such as employees whose hourly rates of pay and hours worked greatly mismatched the gross wages the employer reported having paid to the worker. In one instance, an employee’s pay was reported as $1,260 per hour. Some employers may be intentionally obscuring data and shortchanging their workers, but others may be confused by the tip credit system or making errors when attempting to calculate hours, tips, deductions, and other requirements.

TWO RESTAURANTS REPORTED PAYING WORKERS LESS THAN $4 AN HOUR IN THREE CONSECUTIVE QUARTERS

DOES Ignores Its Own Evidence, Allowing Wage Theft to Continue

The Tip Portal data provides DOES with

enough evidence of violations to easily investigate and recover unpaid wages for wronged workers. The agency is responsible for making sure that employers are not violating DC laws and that workers are being paid in accordance with those laws. Every time an employer breaks the law, DOES can charge that business with a violation, collect the employee’s owed wages, and impose fines to deter future wrongdoing. When DOES does not take these steps, they are allowing workers to be paid less than what District law has established is fair and giving free rein to the companies that are violating the law – and actually breaking the law themselves.

If an employer has not paid the Tipped Minimum Wage to a worker or has failed to pay the difference between the Tipped Minimum Wage and DC’s full minimum wage, they have violated DC’s minimum wage law. When an employer has broken the law, DOES can collect the back wages owed to the employees for every hour their pay was shortchanged, plus three times the wages owed as damages, and a $50 penalty payable to the District per employee multiplied by every day there was a violation. These potential charges can add up quickly to punish wrongdoers, deter future violations, and put money back in the pockets of already low-paid workers.

A Chinatown bar failed to increase some employees’ wages in July 2021, then did not report subsequent quarterly data, so may have continued to pay workers improperly without detection by D.O.E.S.

A small sit-down restaurant underpaid seven employees starting in July 2021. They continued to report in every quarter that they were still paying workers the previous year's minimum wage nine months later.

DOES’s failure to use the data and realize the

full potential of the law has many impacts.

Most importantly, tipped workers receive less

in their checks and unchecked employers are emboldened to continue breaking the law.

By opening investigations when employers reveal violations and imposing fines against them, DOES can foster a culture of

compliance in the District. But DOES must

act quickly when quarterly reports are filed to identify and quickly address violations. The agency is uniquely positioned to address

these problems more easily than individuals

are. By addressing them close in time to

when the violation occurred, it’s more likely

that wronged workers will actually be made whole.

Employers of tipped workers that are not reporting into the portal should be immediately notified that they are breaking the law. Any time an employer fails to file a report, or have one filed on their behalf, DOES should fine the employer $500. Of the 1,418 DC businesses with liquor licenses in 2021, approximately 920 did not file a quarterly report during the reporting period. If DOES fined those businesses when they did not submit a complete report into the Tip Portal $500 every quarter, or $2,000 per year. This would total approximately $1.8 million across just those employers.

A restaurant group with more than six locations in DC reported inconsistently across the reporting period. During that time, they reported as many as 41 employees in a single quarter who were being paid less than the Tipped Minimum Wage, totaling 9,514 hours over the yearlong reporting period. After submitting reports for five locations in July 2021, they subsequently only filed quarterly reports for one location.

$70,000

Cumulative wages lost by workers who were paid less than the tipped minimum wage in one year. Only based on self-reported data. Does not include penalties

However, the District should prioritize workers by using this potential penalty to encourage employers to report into the portal. Savvy employers may prefer to risk $2,000 in annual penalties for not reporting in order to avoid the greater liability that could result from their violations being discovered by DOES. To incentivize reporting, the agency should consider offering reporting employers a “cure” period to rectify improper payments to workers before imposing legal violations. And when employers report information that includes apparent typos or miscalculations, the agency should inform them of their errors so they can fix them or hire support where necessary.

In July, August, and September 2021, an adult entertainment venue with 53 tipped employees was paying 34 workers less than the Tipped Minimum Wage of $5.05 per hour. They continued to underpay these workers through the reporting period, meaning at least through March of 2022.

Finally, the Tip Portal data could be a useful investigative tool for DOES when assessing tipped workers’ complaints. Workers who have been unable to resolve a dispute with their employer over unpaid wages or other problems may find it difficult to prove the violations to DOES. DOES can offer to provide the portal data to a worker for the time frame of their complaint in the event it substantiates their problem. This can also help DOES determine whether a complainant’s issue is isolated or part of a pattern or practice of violations by that employer.

In 2022, DOES confirmed that it does not notify employers of their omissions and violations. When the DC Council asked DOES how many violations, affected workers, and penalties had resulted from reports into the Tip Portal in 2020, the agency said, “The agency is conducting an analysis of this data and preparing notices to the employers. DOES expects to have a completed analysis by Spring of 2022.” It is unclear why it has taken DOES more than two years to act on the information that’s been in its possession since 2020, but workers are the ones who suffer. DOES act must on the quarterly wage reports immediately when it receives them so that workers who are owed wages receive them and businesses paying less than the minimum wage correct their violations. DC law gives DOES strong enforcement authority that should allow for very high levels of business compliance and worker protection. However, that is not what this data indicates.

REAL LIFE EXAMPLE OF D.O.E.S. LEAVING MONEY ON THE TABLE: ONE CONNECTICUT AVE RESTAURANT

$1.05/hour stolen X 873 hours = $916.65 lost wages

+ 3 X $916.65 = $2,749.95 treble damages

+ $50 daily penalty X 109 days = $5,450 one quarter

Recommendations

To encourage reporting by employers and prevent ongoing violations of District law, DOES should:

Identify employers with tipped workers by relying on government records, such as business registrations, tax filings, and liquor licenses, and impose fines any time they fail to file quarterly wage reports. If they do not begin reporting, DOES should open an investigation to review employee wage and time records.

Open workplace-wide investigations into minimum wage violations (and potentially other wage and hour violations) any time the company fails to pay workers the updated Tipped Minimum Wage beginning on July 1.

Encourage compliance by giving reporting employers with minor violations a “cure” period, which is a time frame during which they can rectify reporting or pay discrepancies, to make wronged workers whole without incurring penalties.

In the event that employers fail to cure during that period, use all investigative tools and legal penalties available to bring businesses into compliance, make workers whole, and prevent future violations.

Develop and implement a course of action that is triggered through the Tip Portal including: immediately reaching out to companies that have missed a quarter after previously reporting, investigating companies that report Tipped Minimum Wage and hourly wage rates below DC’s wage laws, and requesting corrected information from companies with reporting inconsistencies.

Help substantiate complaints filed by tipped workers by reviewing Tip Portal reports.

Begin accepting week-by-week employee wage and time records, as well as tip sharing policies for those workplaces where tips are shared.

Publicize any workplace-wide or other major legal violations and/or refer major cases to the Office of the Attorney General.

Reach out to us:

DC Jobs With Justice and the Restaurant Opportunity Center of DC have a long history of fighting for fair and accountable workplaces in Washington, DC. Both organizations have worked to pass a combination of laws to protect workers from wage theft. This includes DC’s minimum wage law, Paid Sick and Safe leave, and the Wage Theft Amendment Act. We consider oversight of the implementation of these laws as vital as the laws themselves, and since 2013, DC JWJ has convened the Just Pay Coalition, which seeks to make those laws real for DC workers. ROC-DC has been an active member in the coalition. The organizations jointly released Still in The Dark in 2022 using the same FOIA data.

The Just Pay Coalition uses a data-driven approach to end wage theft in various forms. Our framework for ending wage theft is heavily reliant on strategies developed by the Obama Department of Labor. We focus on industries where wage theft is most prevalent based on national data and local experience.

DC JWJ, ROC-DC and our partners in the Just Pay Coalition will continue to utilize this data and other tools to ensure that workers are paid according to the law and in recognition of their value. There is much more to learn from this data and we are committed to continuing to do that work.

justpay@dcjwj.org

info@rocunited

1.) Tipped workers are nearly twice as likely to live in poverty as are non-tipped workers and perform physically demanding work. https://www.epi.org/publication/waiting-for-change-tippedminimum-wage/

2.) DOES Minimum Wage Impact Study Report, https://does.dc.gov/sites/default/files/dc/sites/does/page_content/attachments/Minimum%20Wage%20Impact%20Study%20Report_r1.pdf.

3.) Sylvia Allegretto and David Cooper, Twenty-Three Years and Still Waiting for Change, Economic Policy Institute, July 10, 2014, https://www.epi.org/publication/waiting-for-changetipped-minimum-wage/ (stating that the US Department of Labor found that 83% of restaurants have a wage theft violation in a given year)

4.) The portal where reports should be submitted is online at https://essp.does.dc.gov/DOES%20ESSP%20FAQ.html.

5.) B24-1149, the “District of Columbia Tip Credit Elimination Act of 2022,” also known as “Initiative 82.”

6.) Andrea Strong, “Do You Know Where Your Tip Money Is Going?” Eater, June 12, 2018. https://www.eater.com/2018/6/12/17439694/tipping-laws-tip-sharing-fair-labor-standards-act.

7.) An employer cannot take the tip credit, i.e., pay the Tipped Minimum Wage to workers, unless they provide notice to employees as required by DC Code §32–1003(f)(1).

8.) DC Code §32–1003(f)(1),

9.) See, for example, DC Code §32-1008.

10.) In addition to the reporting obligations in DC Code §32-1009.1, employers routinely file reports to District unemployment insurance, licensing, and other programs.

11.) https://essp.does.dc.gov/DOES%20ESSP%20Employer%20Landing%20Page.html12 2022 FOIA 08631; DOES said, “This should be understood to encompass all quarterly wage reports for that period in the possession of the D.C. Department of Employment Services (DC DOES) whether submitted online, in hard copy, or by any other means.”

13.) The information collected differs in some respects from the law’s requirements, most notably by omitting weekly data: “Average hourly wage received per week during the quarter; (iii) Total hours worked at or above the minimum hourly wage established under § 32-1003(f) per week; (iv) Gross wages received per week; and (v) Total gratuities received per week.”

14.)The number of unique employers reporting in each quarter were: 2021 Q3: 387; 2021 Q4: 419; 2022 Q1: 409; 2022 Q2: 397.

15.) Washington, DC Research Facts and Visitor Research, Destination DC, https://washington.org/research.

16.) The minimum wage is increased annually “in proportion to the annual average increase, if any, in the Consumer Price Index for All Urban Consumers in the Washington Metropolitan Statistical Area published by the Bureau of Labor Statistics of the United States Department of Labor for the previous calendar year. Any increase under this paragraph shall be adjusted to the nearest multiple of $.05.” DC Code §32-1003(f)(2)

17.) DOES Minimum Wage Impact Study Report, https://does.dc.gov/sites/default/files/dc/sites/does/page_content/attachments/Minimum%20Wage%20Impact%20Study%20Report_r1.pdf. This number is slightly lower than the 29,000 tipped workers estimated in a 2016 NELP analysis: https://www.nelp.org/wp-content/uploads/ReportCase-Eliminating-Tipped-Minimum-Wage-Washington-DC.pdf. In 2019, DOES estimated that DC restaurants employed wage and salary 29,800 employees: https://does.dc.gov/sites/default/files/dc/sites/does/publication/attachments/2019%20District%20of%20Columbia%20%28Monthly%20Data%291.pdf

18.) Each quarter showed the following employee count: Q3: 4,544; Q4: 6,210; Q1: 5,463; Q2: 5,177. The average of these is 5,349.

19.) Talmon Joseph Smith, “Battle Over Wage Rules for Tipped Workers Heats Up,” NY Times, Oct. 13, 2022. (The author details the complexity of tipping laws across the country. For example, “Ryan Stygar, a labor lawyer and a managing partner at Centurion Trial Attorneys, whose practice mostly represents workers in wage-theft cases but also defends businesses accused of violations, called the network of laws surrounding tipped workers “so bizarre and obscure” that employers acting in good faith can still make legal mistakes.”)

20.) DC Code §32-1011.

21.) The more time passes, the more likely that workers may move on to different jobs or leave the District altogether before DOES finds or remedies the wage theft. It’s more efficient for DOES to order employers to provide unpaid funds in workers’ subsequent paychecks than to expect all of the harmed workers to file complaints.

22.) Question 80, FY2022 Performance Oversight Questions, Committee on Labor and Workforce Development, https://dccouncil.gov/wp-content/uploads/2022/02/DOES-FY22-POHPerfrmance-Questions-Responses-only.pdf.

23.) DC Code §32-1009.01(c) says “The Mayor shall…[p]erform random reporting audits after each quarterly report deadline to ensure compliance.”