Anyone that has ever had to go through a wage and hour audit with the Department of Labor can tell you that it truly is a horror for any business. While many employers struggle with wage and hour compliance, small businesses are especially vulnerable because they often lack knowledgeable human resources support to help them establish policies and practices that are compliant with the various wage and hour laws. One DOL audit could easily result in a business owing thousands of dollars in backpay, fines and penalties. To put it into perspective, the Department of Labor reported that the wage and hour division collected more than $322 million dollars (an average of $1,025 per affected employee) in what they determined to be wages owed to workers in FY2019 alone.
Here are the top 5 wage and hour issues your business should be mindful of.
1. Failing to Correctly Pay Overtime. Probably the most common of the violations. The Fair Labor Standards Act (FLSA) requires employers to compensate applicable employees time-and-a-half pay for hours worked over 40 in a single workweek. Failure to do so not only entitles the employee to backpay, but could also result in civil or criminal action, as well as up to $1,000 in fines for each violation and up to $2,014 for repeated and willful violations.
2. Not Paying for Work Performed Off the Clock. FLSA requires employers to compensate employees for all hours worked. For example, even if the employee has failed to clock in before performing work or performs work after having clocked out, you are required to compensate them for that time. Another common example is an employee who remains at their desk eating lunch while still answering the phones and emails, because the employee wasn’t completely relieved from duty, that can be considered compensable hours that must be paid.
3. Wrongfully Deducting Money from an Employee’s Paycheck. In general, employers are able to make deductions from employee’s paychecks that are legally authorized (such as taxes, child support enforcements or garnishments) or voluntarily authorized by the employee and for the employee, not the employer’s benefit (such as medical insurance deductions). However, an employer generally cannot deduct any items considered to be for the benefit or convenience of the employer, if it would cause the employee’s salary to be reduced below the minimum wage or cuts into their overtime pay obligations.
4. Failing to Pay the Applicable Minimum Wage. This is a frequent wage and hour violation. The federal minimum wage is $7.25 per hour, and many states have their own minimum wage laws. For example, Florida’s minimum wage is currently $8.46 and it will be increasing to $8.56 in 2021. If you’re not keeping up with these changes and pay an employee below minimum wage, you could be assessed fines and backpay liability similar to failing to pay overtime.
5. Incorrect Employee Classification. Employee classifications as per the FLSA refers to exempt or non-exempt status of employees. Exempt employees aren’t eligible for overtime pay while non-exempt employees are. It also addresses whether a worker is an employee or a contractor. Failing to appropriately classify your employees as per the legally defined standard could become a very expensive course correction.
Understanding wage and hour laws that impact your business can help reduce your risks and keep your business out of trouble. Remember, most fines and penalties are assessed on a per-employee, per incident basis, so employer liability can quickly become substantial if noncompliant pay practices are found to have impacted several of your employees, both past and present. Get the help you need to make sure your wage and hour practices are compliant. The HR Hotline® can help. You can download a free HR compliance checklist by visiting thehrhotline.com or contact us for a free consultation by emailing us at firstname.lastname@example.org.