5 Ways to Avoid Wage and Hour Penalties
5 Ways to Avoid Wage and Hour Penalties

5 Ways to Avoid Wage and Hour Penalties

It's no secret that the Department of Labor's Wage and Hour Division is cracking down on labor law violations. In Fiscal Year 2016 alone, more than $266 million in back wages were collected for more than 280,000 workers. As increased efforts have been placed on protecting workers, employees are becoming more aware of their rights in the workplace and more willing to take action against employers who have violated labor laws.

Among the most common legal complaints are wage and hour lawsuits, frequently filed by employees who feel they have been treated—and paid—unfairly. Lawsuits range from employees seeking overtime pay to challenging classifications. As the number of labor law violations and lawsuits continues to rise, the more vigilant employers must be to manage employees properly or fall victim to added costs.

As an employer, it's critical that you review HR policies and employee classifications to ensure you're not making the same mistake. Below are five tips your organization should follow to help avoid labor law violations and employee lawsuits.

1. Be clear about worker duties.

Wrongly classifying employees as exempt, and thus denying them overtime pay, is a costly mistake made by many employers. The key to properly classifying is to truly know what your employees do. That doesn’t just mean what their job description says they do. It means understanding their actual duties each day and designating them as exempt vs. non-exempt accordingly.

The law presumes employees are entitled to overtime; the burden is on the employer to prove otherwise. That’s why having clear, accurate job descriptions on file is critical, so employers can support an employee’s exempt status.

Most employees are likely to be considered non-exempt and therefore eligible for overtime pay. At evaluation time, have your employees confirm their job descriptions. If they don't have a description, ask them to track their duties for a week and develop one. In that process, measure how they really spend their time and classify each employee appropriately.

2. Keep accurate, detailed records.

Keep records on name, address, gender, workweek, hourly rate, daily and weekly hours worked, daily or hourly earnings, overtime pay, and extraordinary additions or deductions from pay for three years for all hourly employees. The rest of your required information will come from your payroll records.

If you don't keep accurate records, an employee can sue for virtually any amount of back pay claiming unpaid hours worked. You’ll need well-kept records to offer direct evidence that specifically address the issues an employee’s lawsuit raises.

3. Pay wages when they're due.

Making payroll can be challenging because of issues such as cash flow, payroll taxes, withholdings, Social Security—you name it. It’s stressful for business owners! As a result, there are a lot of things a lawyer can go after.

What else NOT to do:
* Don’t hold back on overtime pay to "make it up" on the next check.
* Don’t pay $500 if you owe $1,000.
* Don’t pay your contractors but not your employees.
* Don’t delay on your payroll taxes. The government is cracking down, which could be costly for your business.
* Don’t average employee hours over a two-week pay period. You cannot consider a 50-hour week plus a 30-hour week as 80 hours of straight time. Each work week stands alone in the eyes of the law.

4. Don’t use comp time to pay for overtime.

Private employers cannot give time off in the future in exchange for overtime work now. There is no “banking” of comp time. Even if employees agree to it, you're violating the Fair Labor Standards Act.

Keep it simple: Give your employees what they’re due every payday.

5. Classify contractors and employees properly.

If you can tell a worker where to be, what to do and when to do it, that worker is probably your employee—not a contractor. It all comes down to who has control.

Consider factors such as:
* Does the company control or have the right to control what the worker does and how the worker does his or her job?
* Are the business aspects of the worker’s job controlled by the payer? (This includes things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
* Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)?
* Will the relationship continue, and is the work performed a key aspect of the business?

If you misclassify and lose a suit, you'll pay back wages and back payroll taxes. Not only that, you’ll end up on the government’s radar going forward which means a strongliklihood that auditors will check in on your organization more frequently. If you're not sure about contractor-employee status, then cover yourself by making the worker an employee.

In the end, remember this: When there's an opportunity to be fair, do it! What’s good for your employees will be what’s good for you, as well.

Source: Department of Labor


To mitigate your compliance risk, look no further than Paycor’s unified, all-in-one HR and payroll platform. It all starts with paying your employees accurately and on time. Paycor's Perform payroll solution saves you time by offering an efficient payroll process while ensuring tax compliance. Plus, Paycor's HR Support Center and On-Demand solution will help ensure your job descriptions are accurate and up to date. Plus, if you have questions about classifications, our certified HR professionals can offer support and guidance.


This content is for educational purposes only and should not be considered legal advice.

More to Discover

SaaS Payroll: 6 Tips to Find the Perfect Solution

SaaS Payroll: 6 Tips to Find the Perfect Solution

Software as a Service (SaaS) is the term used for software that’s delivered and used totally online or in the cloud. As more businesses turn to online solutions to manage their workflows, do accounting, etc., it should be no surprise to see that payroll processing is no exception. From tax-filing and employee self-service to data security and compliance management, SaaS payroll automates routine tasks and ensures accuracy, so business leaders can focus on what really matters, improving the bottom line. If you’re in the market for an online payroll system, you’ll need a sharp eye to find the perfect match for your organization. Keep in mind, not all payroll software is created equal. Whether you want to go with a bare-bones solution or...

10 Must Haves for HR SaaS

10 Must Haves for HR SaaS

Software as a Service (SaaS) is the term used for software that’s delivered and used entirely online or in the cloud, meaning that no software is actually installed on employees’ hard drives. More and more businesses are turning to cloud-based solutions to manage their workflows, run accounting and control their supply chains, often as part of a larger enterprise resources planning (ERP) solution. Probably not surprisingly to most, the HR function is no exception. A SaaS human resources solution can enable small and midsize business owners to control every aspect of their employee management tasks online. And in doing so, HR departments can eliminate mundane and error-prone manual tasks such as wrangling multiple spreadsheets and...

Paid Sick Leave Laws By State

Paid Sick Leave Laws By State

Everyone, at one time or another, has worked with that person who comes to work with a bad cold (We’re hopeful it wasn’t you). Not only is it annoying, it also jeopardizes the health of other employees. But have you ever stopped to think that maybe that co-worker came to work because they didn’t have enough paid sick time available and wouldn’t get paid for a missed day or two? Here’s a high-level overview of states’ paid sick leave laws for private sector employers. Keep in mind this list is not inclusive of every state’s laws; there are many more nuances to understand and comply with. Alabama Paid Sick Leave Laws No state sick leave laws. Alaska Paid Sick Leave Laws No state sick leave laws. Arizona Paid Sick Leave Laws Covered...

Compliance with State and Municipality Sick Leaves

Compliance with State and Municipality Sick Leaves

In the past, granting paid sick leave was at the employer’s discretion in the private sector. While employees are covered for long-term leave under the Family and Medical Leave Act (FMLA), there’s no federal paid sick leave act that requires private employers to pay for short-term sick leave. But now we’re seeing a growing movement of laws being created at the state and municipality levels that are designed to protect employees who might be forced to choose between going to work sick and infecting their co-workers, or calling in sick and potentially losing pay and, in the worst-case scenario, even their jobs. Paid sick leave gives an employee financial peace of mind when they find that they can’t work because either they’re sick or...