Description
In theory, the maximum penalty a US firm could face for violating federal minimum wage and overtime law (the Fair Labor Standards Act or FLSA) is quite large. Alongside requiring employers to pay the back wages they owe to workers, the Department of Labor can levy civil monetary penalties against employers that willfully or repeatedly break the law of up to $2,014 per employee, per week of wages owed.
In practice, most violators of federal minimum wage and overtime laws do not pay any civil monetary penalty. Of the 147,837 minimum wage or overtime underpayment cases closed by the Department of Labor between 2005 and 2021, 91 percent of the minimum wage cases, 90 percent of overtime cases, and 86 percent of cases where employers violated both were ineligible for any civil monetary penalties because the violators were first-time offenders or the violation was not found to have been willful. Of the violations that were eligible for civil monetary penalties, only a little over half received a penalty—meaning that overall, acivil monetary penalty is paid in only 4 percent of minimum wage cases, 6 percent of overtime cases, and 8 percent of cases featuring violations of both minimum wage and overtime laws.
In the rest of the cases, where no civil monetary penalty is levied, the maximum sanction a violating firm faces is the requirement to pay the wages owed to workers and up to an additional equal amount in liquidated damages (though the available evidence suggests that liquidated damages are rarely levied in Department of Labor investigations). With so few firms facing stiff penalties, firms with no previous record of violating labor laws would have to expect to be caught with near certainty to have a strong financial incentive to comply with the laws.
This PIIE Chart was adapted from Anna Stansbury’s working paper, “Do US Firms Have an Incentive to Comply with the FLSA and the NLRA?”
