Employers, HR directors and payroll managers have a lot on their plate with compliance. It’s extremely difficult to stay up on all the changes and details of local, state and federal employment compliance topics.
Wage and Hour investigations might not be as familiar as OSHA or IRS audits, but their notoriety is increasing due to more enforcement and back-wage penalties.
The vast majority of investigations by the Wage and Hour Division center on compliance with the Fair Labor Standards Act (FLSA), which regulates overtime, minimum wage, child labor and record keeping.
Here are 10 problems that result in the largest penalties. Get these right and you’ll be on your way to 100 percent compliance.
1. Do not misclassify employees as contractors. Make sure you don’t treat anyone as a contractor who should be classified as an employee. Wage and Hour uses a six-factor test to determine correct classification. Focus on things like nature and degree of control, investment in facilities and equipment, opportunity for profit and loss, economic dependence and permanency of the relationship.
2. Include all required pay in the overtime rate. Non-discretionary bonuses, shift differentials, performance bonuses and service charges must be included in a non-exempt employee’s overtime pay rate. This is probably the most common payroll mistake.
3. Pay overtime based on the seven-day workweek. The federal requirement applies after 40 hours in a seven-day workweek. The frequency of your payroll (bi-weekly, semi-monthly, monthly) does not affect this requirement. Comp time or banked hours are not allowed for private sector employees. There are a few limited exceptions for hospital and residential care employees, police officers and firefighters.
4. Be careful with tipped employees. Tipped employees are a minefield when it comes to compliance. Employers, managers and kitchen staff may not participate in tip pools. Pay overtime at the regular rate, not the lower cash wage. And remember if tipped employees make enough in service charges it can increase their regular rate past the usual minimum wage. Also, make sure to inform tipped employees of the five provisions required under FLSA.
5. Apply exemptions correctly. Commonly called “white collar exemptions,” these are exemptions from overtime for executive, administrative and professional employees. To be exempt, employees must meet certain job duties, salary basis and salary level tests. The mere act of paying employees a salary does not exempt them from overtime. Be aware that changes to exemption rules are expected late this year or in 2015.
6. Do not make illegal deductions. Federal law prohibits deductions that benefit the employer (uniforms, tools, etc.) to take an employee below the minimum wage per hour. It does not matter whether the deduction is made from payroll or the employee pays out of pocket.
7. Do not steal time from employees. Breaks of less than 20 minutes must be paid. Lunches of less than 30 minutes must be paid. Lunches of 30 minutes or more that are interrupted for work must be paid. Most training time must be paid. Most travel time must be paid. Not paying for all hours can result in costly minimum wage and overtime backwages.
8. Know your child labor laws. If you hire anyone younger than 18, be familiar with federal and state child labor laws that apply to your business. Child labor laws are less stringent for agricultural labor. Violations can result in severe civil money penalties. Maintain a safe working environment for all employees, especially minors.
9. Post the correct posters. There are two ways to know which posters you must post. Pay the poster companies for the sleek poster collage or download the individual posters for free. The Department of Labor offers a helpful Poster Advisor on its website with questions to determine which posters are required for your business.
10. Keep honest and accurate records. This might seem obvious, but who really wants to read a list of nine things? Make sure time and payroll records are accurate reflections of what hours were worked and what compensation was paid. It is common for manager-level employees to adjust electronic time punches of employees. If it is done infrequently and there is justification to back up the adjustment, it may not be a problem. Take care that adjustments are not done to punish employees or to keep from paying overtime.
Kalen Fraser is president/CEO of The Labor Brain Inc., a labor law consulting firm in Fort Collins, and a former investigator with the U.S. Department of Labor, Wage and Hour Division. Contact her at firstname.lastname@example.org.