Compliance Isn’t a Given
Maintaining compliance with hundreds of rules and regulations at the federal, state and local levels is tough. But making sure your minimum wage and overtime pay follows federal and state wage and hour laws is important.
Most workers in the United States who are paid hourly are entitled to be paid the federal minimum wage of $7.25 an hour (some state minimum wages are higher) in addition to overtime wages for all hours worked over 40 each week. Failing to follow state and federal laws that mandate you pay employees properly can result in fines, penalties and damages. Check out these recent cases:
- Pennsylvania – $158,230
The U.S. Department of Labor’s Wage and Hour Division (WHD) ordered Erie, Pennsylvania-based manufacturing company Havpak, Inc. to pay $158,230 in back wages to 126 employees. In addition, they had to pay the same amount in damages as well as a civil penalty of more than $40,000 after an investigation found overtime violations of the Fair Labor Standards Act (FLSA) at two of its facilities.
- San Francisco – $450,548
Bay Area Contract Maintenance, a San Francisco-based janitorial company was ordered to pay $450,548 in back wages to 65 employees. The company failed to calculate all the hours individual employees worked cleaning separate facilities for the company each work week to determine how much overtime was due. They also failed to accurately report actual hours worked.
- Arizona – $723,764
Peoria, Arizona-based contractor, Younger Brothers Companies, will pay $723,764 to 271 employees. Investigators found that the company failed to calculate all production bonuses and commissions in employees’ regular pay rates when computing their overtime. They also failed to make any payment at all to some employees for overtime hours worked. Not recording the unpaid overtime also resulted in an FLSA recordkeeping violation.
Human Error, or …?
Some of these violations can be attributed to human error, but many are the result of willful neglect of the laws. Regardless of the cause, the government doesn’t mess around when it comes to ensuring that you’re paying your employees properly.
Here are the top six most common violations to keep an eye on and make sure your company stays on the right side of the law and out of trouble.
Six Common Wage and Hour Violations
- Misclassifying employees and contractors.
A major compliance challenge confronting employers in this relatively new gig economy is the misclassification of employees as independent contractors or freelancers. Freelancers aren’t entitled to employment benefits such as overtime pay or minimum wage. Even if you inadvertently misclassify some employees as independent contractors—and they don’t get paid minimum wage or any overtime they’re entitled to—your company could be in big trouble when it comes to compliance. It’s important to conduct a regular audit of your employee database to ensure each person is properly classified.
Check out our recent article on classifying employees and independent contractors to learn more.
- Failure to pay minimum wage.
It’s almost unbelievable that some business owners are either too cheap or just plain naïve when it comes to employment law.
In 2018, the Bureau of Labor Statistics calculated that 1.276 million people were paid below minimum wage.
Restaurant employees and sales people who receive commission make up 912,000 of that number, but that still leaves more than 360,000 people who were paid less than minimum wage. That’s criminal. Literally. They can be fined under both federal and state laws.
- Failure to properly pay overtime.
The FLSA mandates that the majority of employees be paid time-and-a-half when they’ve worked more than 40 hours in a given week. For these additional hours, workers must be paid at one-and-a-half their “regular rate,” which also includes any commissions or bonuses they earn during that week.
The number of employees who are incorrectly or not paid overtime at all is very difficult to calculate. Why? Because unless the violators are reported, a lot of employees either don’t realize that they’re being underpaid or are fearful of retaliation for filing a complaint, leaving the violators to operate largely unchecked.
- Not paying hourly employees for off-the-clock work.
If an employer allows or encourages employees to work off the clock (even something as small as responding to emails), and the company can benefit from that work, those hours must be included in the employee’s wages and overtime. It doesn’t matter if the work is done before or after a regular shift; it’s got to be counted.
- Taking illegal deductions.
If employees make minimum wage, it’s a wage and hour violation to deduct items such as cost of uniforms, drawer shortages, damaged equipment and customer theft from their pay.
- Incorrectly paying tipped employees or stealing tips.
The FLSA guidelines say that employers can pay workers lower than the federal minimum wage if they regularly take in more than $30 in tips each month. But remember, there’s a limit to how low.
The lowest cash wage an employer can pay an employee who gets tips is $2.13 an hour. (Read more about tip credits here.)
An employer who steals tips is bad business. But in some cases, they may retain tips and put them in a common tip pool, which is perfectly legal. In a tip pool, all employees who regularly get tips contribute a certain amount of their tips. The pool is then divided among the employees (and sometimes bussers, front of house and back of house workers). Employees are only required to contribute tips that are in excess of the calculated tip credit.
How Paycor Can Help
If all these regulations and compliance challenges have you thinking, “I just want to run my business, not worry about compliance all day!” we’ve got an easy fix: Let us handle it for you. We’re payroll and tax compliance experts and have people who monitor tax legislation every single day. Eliminate that burden and focus on your business instead of losing sleep over calculating, preparing and getting your payments in on time.