Compliance Corner: November 2017
7 FLSA Mistakes Employers Can’t Afford to Make
The federal Fair Labor Standards Act (“FLSA” or “Act”) governs minimum wage, overtime, recordkeeping, and other wage and hour requirements for most employers in the United States.
Due to the FLSA’s complexity, it’s no surprise that the Department of Labor estimates that 70% of employers are not complying with the Act in some way.
Below are seven potentially costly FLSA mistakes employers should avoid:
1. Misclassifying nonexempt employees as exempt.
The FLSA exempts certain employees from its minimum wage and overtime requirements. Some of these exemptions—such as those for “white collar” exempt employees—are technical, unclear, and are undergoing change.
As this may be the most prevalent and expensive FLSA mistake to make, employers should consult legal counsel if they have any doubt whether their workers are properly classified as “exempt” or “nonexempt.”
2. Improperly calculating the overtime rate of pay.
Unless exempted, employees covered by the FLSA must be paid overtime for hours worked exceeding 40 in a workweek at a rate not less than one and a half times their “regular rate of pay.”
An employee’s regular rate of pay is not merely their hourly rate. It includes all remuneration for employment except for certain payments specifically excluded by the Act. Determining a worker’s regular rate of pay usually involves considering the following types of compensation:
- hourly pay or salary
- non-discretionary bonuses
- shift differentials
- piece rate pay
Even payments received in the form of goods, such as room and board provided by the employer, should be considered. Neglecting to include any of this remuneration in determining an employee’s regular rate of pay may lead to a lawsuit or a complaint being filed with the Department of Labor.
3. Not paying for all hours worked.
Nonexempt employees must be paid for all time their employer requires or permits them to work. This includes, but is not limited to:
- their regular work activities
- traveling as part of their principal duties
- training programs (but not if the training is voluntary, outside regular working hours, not directly job-related, and no other productive work is performed during the training)
- bona-fide meal periods (usually 30 minutes or more)
- rest breaks generally lasting from five to 20 minutes
- on-call time when employees must remain on or so close to the workplace that they cannot effectively use the time for their own purposes.
Failing to properly count and pay employees for all hours worked could result in minimum wage and overtime violations.
4. Allowing “off the clock” work.
“Off the clock” work is any work performed for an employer which is not paid and is not counted toward a nonexempt employee’s weekly hours for overtime purposes.
Tech such as smartphones, email, and other remote access greatly increases the likelihood of off-the-clock work because employees commonly fail to record unscheduled work hours performed away from the workplace.
Employers that ask or require nonexempt employees to work off the clock, or condone it, violate the FLSA.
5. Not paying employees who work through meal breaks.
Employers are not required to pay nonexempt employees for bona fide meal breaks, typically lasting at least 30 minutes. Bona fide meal breaks mean the employee is completely relieved of all duties for the entire meal period.
Nevertheless, employees who work through all or part of their meal break should be paid for this time. So, check your time-keeping system to make sure it is not automatically deducting for meal periods that are not actually taken.
6. Sloppy recordkeeping.
Under the FLSA, certain records relating to hours worked and wages for nonexempt employees must be kept for at least three years. This includes:
- hours worked each day
- total hours worked each workweek
- the basis on which employees’ wages are paid (e.g. $10 per hour, $500 per week)
- regular hourly pay rate
- total daily or weekly straight-time earnings
- total overtime earnings for the workweek
- all additions to or deductions from wages
- total wages paid each pay period
- the date of payment and pay period covered by the payment
These records may be kept at the place of employment or in a central records office. Failing to properly maintain required records will hinder employers if they need to defend themselves against charges of FLSA noncompliance.
7. Ignoring state law.
Many states have their own wage and hour laws that differ from the FLSA, such as minimum wage and overtime regulations.
When federal and state laws conflict, the law more protective of the employee generally must be followed. Consequently, employers should review state and local wage and hour laws wherever they have employees.
A note from Paul:
Although these seven mistakes are common, they merely scratch the surface of FLSA errors employers can make which may result in a lawsuit or administrative complaint.
Even though the financial impact of FLSA mistakes for a few employees won’t break the bank, damages accumulate fast when employers face unpaid wage claims for a larger group of workers going back two or three years.
Consequently, it’s important for employers to educate themselves and their managers about federal, state, and local labor laws and regulations.