With the economic struggles that many people have faced over the past few years, there has been an increase in the number of wage and hour claims filed by employees against their employers.
Previously, employees were more reluctant to file claims against their employers for fear of retaliation and/or job loss. However, as the economy continues to improve and job security is no longer something to hold on to, more employees are filing claims to ensure accurate payment of wages and to fill the gap of any loss of income from previous years.
Some of the most common wage and hour claims stem from employees being misclassified as 1099 Independent Contractors, misclassification between Exempt and Non-Exempt, eligible employees not being paid overtime correctly at time and a half for time worked over 40 hours in a work week, and other issues related to compensable time on and off the clock.
Hiring employees at 1099 Contractors is a common mistake made by small business owners that can end up costing them a significant amount of money in the long wrong. The IRS website (irs.gov) provides a complete list of guidelines to determine if someone is an employee or an independent contractor to help small businesses stay compliant.
Another common mistake among small business owners is putting employees on a salary to avoid paying overtime. Employees being paid a salary are still eligible for overtime if the duties of the position they are in are determined to be of a non-exempt nature, meaning not exempt from receiving overtime pay.
The Fair Labor Standards Act (FLSA) guidelines put employees into one of two categories: either exempt from receiving overtime pay or they are non-exempt and, therefore, eligible for overtime pay. There are a five possible “categories” in which someone is classified as exempt – executive, administrative, professional, computer and outside sales exemption.
Within each of those exemptions, there is a list of requirements that must be met to qualify for that exemption. For employees that are non-exempt and eligible for overtime pay, it is important to calculate the overtime correctly and within the work week in which it is earned. Additionally, non-exempt/hourly employees are not eligible for what is called “comp time” and must be paid for all time worked.
With technological advances over the years and the ability for people to access work records, co-workers and management 24/7, it is particularly important for employers to establish policies around the use of smartphones, iPads and laptops by non-exempt employees outside of their regularly scheduled hours. If at any time non-exempt employees are working after hours by either answering a call, an email or submitting paperwork, they must be compensated for that time. This is to ensure they are not working off the clock without recording the hours and therefore, opening the company up to a wage and hour claim.
Understanding federal and state wage and hour regulations for a small business owner can sometimes be overwhelming, particularly when certain aspects of the regulations vary between the federal and state levels. The general rule of thumb whenever there is a difference between a federal and state regulation, is that the employer must comply with both and provide the employee with what is most beneficial to them.
For example, the federal minimum wage is $7.25 per hour, but some states have higher minimum wage rates than the federal rate. Employers that operate business in the states where the minimum wage is different than the federal minimum wage must provide the employee with the higher minimum wage rate. Multi-state employers must also take into account each state’s minimum wages, overtime laws, and break and meal period requirements to ensure they are in compliance federally, as well as in each state in which they operate.
Wage and hour claims can be time consuming and very costly for an employer because not only can the employee file a claim against the company for back wages, the employee can also pursue individuals associated with the company such as the owner(s), payroll/accounting staff, and supervisors. A single claim can also open the employer up to a full audit of pay practices and subject them to additional penalties and fines.
To help avoid costly wage and hour claims, it is important for employers to have compliant policies and procedures in place that outline the employees and the employers’ responsibilities. These policies and procedures must be enforced and followed consistently.
Additional information and compliance guidance regarding the Wage and Hour Division of the Department of Labor can be found on the DOL website at dol.gov.