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Workforce Management

The Department of Labor is Knocking: Are You Compliant?

Many employers struggle with wage and hour classifications. In fact, the Department of Labor estimates that a massive 80% of employers have some degree of non-compliance with wage-hour laws. The wage and hour division collected more than $266 million in back wages for more than 280,000 employees in 2016.

Failing to properly classify employees and pay them correctly can be a nightmare. Not only are you dealing with federal wage and hour laws, but also many states have their own mandates to follow. If the company gets audited and you didn’t get it right, though, the nightmare will get much worse. The DOL has significantly increased enforcement efforts meaning employers are facing enhanced scrutiny. Penalties are severe, and the fines could cost your company big bucks, so it’s important to make sure everything is buttoned up.

If you haven’t evaluated your company’s compliance with the Fair Labor Standards Act lately, it’s time to inspect your current practices and identify and problem areas.

What You Need to Know Now: Common FLSA Wage and Hour Violations

Failure to correctly pay overtime.

This is probably one of the more common violations. Under the FLSA, employees are entitled to time-and-a-half pay when they work more than 40 hours in a single week. Violations can result in civil or criminal action, and employers can be assessed fines of up to $1,100 for each willful or repeated violation.

Not paying for work done off the clock.

Under the FLSA, non-exempt employees must be paid for all hours worked. For example, if an hourly employee is asked to redo a project to correct errors, you cannot withhold pay for that time as punishment.

Illegally deducting money from a paycheck.

Some deductions are not in the control of the employer, such as deductions for taxes, child support or garnishments. But you cannot, for example, take the cost of repairs out of an employee’s paycheck if he or she has damaged company property.

Not paying federal minimum wage.

This is one of the most frequent wage and hour violations. The federal minimum wage is $7.25 per hour, and many states have their own minimum wage laws. If you’re not paying attention and pay an employee below the minimum, just like failing to correctly, pay overtime, you could be assessed fines of up to $1,100 for each willful or repeated violation.

Stealing tips.

This is another pretty common violation. Employers are forbidden from requesting for or accepting tips earned by employees.

Do you have the right policies in place?

Employee Classifications

Employee classification under the FLSA refers to the exempt or non-exempt status of employees. An exempt employee does not receive overtime pay he or she works more than 40 hours in a work week. It also refers to whether the worker is a company employee (receives a W-2) or a contractor, freelancer or consultant (receives a 1099). Ask yourself:

  • Do the job duties of my exempt employees meet the DOL’s tests to be considered exempt from overtime?
  • Are my workers properly classified as employees and non-employees, and are my employees appropriately classified as exempt and non-exempt?
  • Are my exempt employees paid at least the federal minimum salary of $455 per week?
  • Have I made sure that non-employee statuses meet the DOL’s tax and employment tests such as the IRS Criteria, economic realities tests or other relevant regulations?

Overtime and Minimum Wage

Under the FLSA, “overtime” means “time actually worked beyond a prescribed threshold.” The normal FLSA work period is the “work week” (7 consecutive days), and the normal FLSA overtime threshold is 40 hours per work week. Federal minimum wage is $7.25 per hour for most employees. Ask yourself:

  • Are all of my non-exempt employees earning at least the minimum wage? If a state’s minimum wage is higher, that rate always prevails.
  • Are my non-exempt employees being paid 1 ½ times their regular rate of pay for all hours they work over 40 in a work week?
  • Am I calculating the overtime rate correctly based on the employee’s regular rate of pay.

Off-the-Clock Work

Work that is off the clock is any work done for an employer that isn’t compensated and doesn’t count towards a worker’s weekly hours for overtime purposes. Ask yourself:

  • Do we pay our non-exempt employees for all hours they work?
  • Do we have a clear, published policy about off the clock work?

Record Keeping

It’s important to maintain meticulous records as it pertains to the FLSA. And, you’re also required by law to store those records for three years after an employee leaves the company. Ask yourself:

  • Are all of our FLSA records such as demographic information, hours worked, and wage basis retained for at least three years?

A clear understanding of wage and hour laws enables HR to help reduce expenses and helps keep the company out of trouble as a result of fines from violations. For more information, visit our HR Center of Excellence compliance hub.