Underpayment

Underpayment is the act of paying less than what is due or required in a financial transaction. It can occur in employment, taxation, social benefits, or settlements, and may result from errors, misclassifications, or intentional actions. In employment and labor contexts, underpayment is often referred to as wage theft or underpayment of wages.

In wages, underpayment includes unpaid minimum wage, unpaid overtime, improper deductions, or misclassification of workers as exempt from overtime. In taxation, underpayment occurs when individuals or firms owe more tax than has been paid, due to calculation errors, withholding mistakes, or fraud. In social benefits or pension systems, underpayment occurs when beneficiaries receive less than the amount due, often due to administrative mistakes or processing delays.

Causes of underpayment include administrative error, noncompliance with laws, ambiguous contracts, misclassification of workers, discrimination, or deliberate evasion. Impacts can be significant for workers, causing financial hardship and reduced morale, while broader economic effects may follow from diminished consumer spending. For employers, underpayment can lead to legal liability, restitution obligations, penalties, interest on overdue amounts, and reputational damage.

Remedies typically involve claims or audits by labor, tax, or social-security authorities, back pay of the underpaid amount, and, in some jurisdictions, penalties or interest. Workers may pursue administrative claims, civil actions, or remedies through collective bargaining. Prevention relies on clear contracts, accurate payroll or tax processes, regular audits, and adherence to applicable wage, tax, and benefits laws.