a company was investigated for not paying employees their actual clock in time. Cap-hours are set and no hourly pay was given over this amount previously. one employee was found through the investigation to have been under paid by $4000. At raise time in jan 2006 he was handed a check for this amount, but told that it constituted his raise for the year and that "we both know you do not deserve this". Will this be part of his yearly income for this year? Is it legal? Is the company pulling a fast one on him?

Unless there is a bona fide contract requiring annual, or other, raises, there is no legal requirement the employee receives a raise, ever (unless he is making the minimum wage, and the minimum wage is increased).

And yes, the payment is wages.