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Is this kind of employment illegal...?

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  • Is this kind of employment illegal...?


    I have a question on whether or not a certain business practice is illegal, and if it is, what the penalty for it is.

    I'm in Kentucky. I know of a small local business where for several years now the the business' owner has paid a small group of people (all people over 18 that he knows and trusts) in store credit to be his employees. Pretty much, these workers get paid X amount per hour in store credit (I dont know how much, but I do know it's at least a dollar under KY minimum wage) and work for the owner whenever they can, sometimes up to like 20, 30 hours a week each, I'm guessing. The employees keep track of their hours and store credit and what they get with their store credit on WordPad the store's computer or in a notebook or they use some other easily disposable record like that.

    As far as official records go, the owner employs no one, and he and his wife work the business entirely by themselves.

    Is this illegal? If so, can the business owner get in serious trouble for this kind of business practice if somebody reports it to whoever this sort of thing can be reported to? Can the "employees?"

    There are at least several dozen people (regular customers, the building's owners, etc.) who can state that the "employees" often work there and have worked there a lot over the past few years and that they get paid in store credit and aren't officially employed.

    Thanks for any responses.

  • #2
    Yes, it is. If he wants to give them store credit as a fringe benefit, that would be fine, but it cannot substitute for cash. He's obviously not reporting any wages to any taxing jurisidiction, not providing a W-2 form, etc. This employer is in violation of too many laws to shake a stick at. Each and every one of these "employees" should immediately start looking for another job and report this employer to the state Dept. of Labor, state Dept. of Revenue, state Office of Employment and Training (the Unemployment Insurance agency), and the IRS. For starters.
    I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


    • #3
      I found how to report this fraud the IRS easy enough, though I'm still sifting through the websites of the other organizations you mentioned, trying to find contact info. I'll find 'em tomorrow.

      Thanks for the reply, it's appreciated.


      • #4
        To put a fine point on it

        At the risk of answering a question not directly asked, it is not necessarily illegal for an employee to work for store credit, within the idea that some states allow for payment "in kind", or "by another acceptable means". Most of the time, this requires a written agreement by the employee to accept payment in this way. It encompasses payment for lodging, meals, etc., and can include payment in company stock, etc.

        As to the rest of the post, there very well may be reporting problems, and additional accounting issues, but there is nothing inherently wrong with paying an employee in widgets, especially if the employee can resell, wear or eat the widgets.


        • #5
          Well, Texas, I did some more research on this, and it appears there are situations in which payment in kind is allowable, even if it is the entire amount.

          However, it does not eliminate the withholding and reporting requirements, the legal requirement to pay minimum wage and overtime pay, etc. which I'd bet dollars-to-donuts, this employer isn't doing.
          I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.


          • #6
            Dollars v. doughnuts

            Patty, I wouldn't risk either a dollar or a doughnut on whether this employer is following reporting and paying requirements. (Especially a wonderful Round Rock doughnut from the Lone Star Bakery--they'll make you slap your mama!)

            It's not uncommon in the tech industry to pay part of compensation, and bonuses, in the form of stock or options. Ministers and caretakers often receive part of their pay in housing. Some employees receive inducements (compensation) in the form of discounts on merchandise.

            Here in the home of the future NCAA football champions--HOOK 'EM HORNS-- we require that payment be in currency, a written instrument negotiable for full face value for currency, or electronic funds transfer. We also provide that an employee may agree in writing to receive part or all of wages in kind or in another form. Another form is generally used for payroll debit cards and the like, but can include a multitude of methods.

            Thanks for your wealth of knowledge, and for keeping us all informed.


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