We are operating in a time of increasing complexity concerning wage and hour requirements. It’s challenging for business owners and managers to avoid violations of all the federal, state and local regulations for our businesses. If that isn’t complex enough, the growing emphasis on enforcement by the Department of Labor takes wage and hour compliance to a whole new level of importance for businesses.
Unfortunately, a growing number of companies each year violate basic requirements of federal labor laws and pay the price. While most business owners and managers aren’t experts in wage and hour requirements, some basic knowledge can keep you out of hot water and help you treat your employees fairly.
With that in mind, here are some common violations you should look out for as a business owner or manager:
Employee Misclassification
Many employers mistakenly assume that all salaried employees are exempt from overtime pay. In some cases, employers may change an employee’s classification specifically to avoid tracking hours and paying overtime.
Our Common Mishaps in Overtime Compliance guide addresses this in much more detail, but according to the Fair Labor Standards Act (FLSA) paying an employee a salary does not necessarily make them exempt from overtime pay. In fact, paying on a salaried basis is only one of three distinct tests an employee must pass for exemption. In our experience, most misclassified employees don’t pass the “Duties Test,” meaning their job duties don’t qualify them as exempt.
It is critical that employers understand the issues surrounding misclassification of employees because the wage and hour department is emphasizing it. Salaried employees not passing the other two tests should be classified as Salaried Non-Exempt and are subject to overtime pay.
Incorrect Overtime Pay
Calculation of the overtime rate is a second sticking point. The FLSA requires employees overtime pay at “one-and-one-half times their regular rate.” For many employees this is clear cut, but the employee’s regular rate is not necessarily their hourly wage. It must include all rates the employee was paid and any non-discretionary bonuses or commissions they received.
If an employee makes a different hourly rate for different kinds of work or receives a shift differential, in most cases you must take those rates into consideration in determining the regular rate, and thus use it as part of the overtime calculation.
Failure to Pay Employees For All Worked Hours
The failure to record and pay employees for all their worked hours can be the result of several issues. Some of the most common scenarios are not paying employees for:
- Performing required off the clock work (i.e. set-up duties, clean-up, mandated pre- and post-shift meetings, required donning and doffing, etc.)
- Travel time between work locations
- Breaks and lunches that do not meet the minimum threshold of 20 minutes
- “Unauthorized” overtime
- Work taken home and completed
- Running errands
Additionally, it’s against labor laws to withhold pay for poor performance or as a disciplinary action. Keep in mind, it is the employer’s responsibility to track and pay employees for all worked time. Failure to do so can result in thousands of dollars in back wages and fines.
Paying Below Minimum Wage
While this seems straightforward, there are a surprising number of violations around minimum wage. These minimum wage violations can unknowingly occur in a couple different scenarios. The first is related to tipped employees, particularly when employers fail to pay the difference when tips earned do not bring the employee to minimum wage. This is most common when workers share or pool tips.
A second area to watch for is making deductions for uniforms, tools or other supplies. Employers should note whether those deductions result in the employee’s wage falling lower than minimum wage threshold. If an employee makes minimum wage, you cannot make these types of deductions.
What does this mean for my business?
Wage and hour compliance is more important than ever. With the current administration’s proposed budget including a significant increase for enforcement, it will only grow more important in the coming year. This is a great time to perform an internal audit of your current time keeping processes, software and rules to prevent these common violations before they occur.
If you’re interested in an expert opinion of your organization’s compliance, Advanced Time can help! Reach out and let’s schedule a chat.
This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for legal advice. If you have any legal questions regarding this content or related issues, then you should consult with a labor attorney for advice.
