Shadow workers, also referred to as ghost workers, are employees who work off the books. They are paid “under the table.” Companies don’t keep records of their hours or activities.
How does this work arrangement impact the parties involved?
Everyone loses
Companies that use shadow workers likely do so to save on payroll costs. This is probably the prime motivators for these arrangements. Other reasons: Hiring workers who are not legally eligible to work in the U.S.; paying workers below minimum wage.
Loss to workers. Obviously, being shadow workers deprive them of all legal protections, such as minimum wage and overtime pay rules. Because their compensation is not subject to payroll taxes, workers do not build any credits for Social Security and Medicare coverage for their ghost wages.
Loss to companies. Companies that hire illegal workers and fail to follow federal employment law guidelines face stiff penalties if caught. Companies that follow all the rules are put at a competitive disadvantage to those that do not.
Loss to the community. Employees’ under-the-table wages aren’t taxed, leaving the government and communities without the revenue they would have received for reported compensation.
FLSA requirements
The Fair Labor Standards Act (FLSA) is a federal law requiring employers to keep records about employees, including:
- Employee’s full name and social security number.
- Address, including zip code.
- Birth date, if younger than 19.
- Sex and occupation.
- Time and day of week when employee’s workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- Basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, “piecework”)
- Regular hourly pay rate.
- Total daily or weekly straight-time earnings.
- Total overtime earnings for the workweek.
- All additions to or deductions from the employee’s wages.
- Total wages paid each pay period.
- Date of payment and the pay period covered by the payment.
These records should be retained for at least three years. The failure to keep and retain records can result in penalties and sanctions. For example, if violations are willful, a company can be criminally prosecuted and fined up to $10,000. A second willful violation can result in imprisonment. Civil penalties run up to $1,100 per violation.
Example
In one recent case, an agricultural company used shadow workers on a seasonal basis to pick blueberries. They were paid by the pound of berries picked, and the berries that were weighed were credited to an employee’s ticket. In this case, however, workers shared tickets (i.e., berries picked by one worker without a ticket were added to the amount picked by a worker with a ticket). A Federal district court found that this practice violated the FLSA. The company was enjoined from using the practice in the future.
Conclusion
The practice of under-the-table arrangements is nothing new. It’s not only companies that initiate it; some workers prefer to be paid off the books so they don’t have to pay tax on their wages. Unfortunately, with the practice, in my opinion everybody loses.
