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

Payroll Software with Direct Deposit

Payroll Software with Direct Deposit

Organizations continue to look for ways to become more efficient without compromising service or security and choosing a payroll service that offers direct deposit is a good way to start. Eliminating paper checks from your payroll processing not only saves paper (win for the environment!) but also saves your workforce the hassle and time it takes to cash or deposit every paycheck. The majority of employees today prefer electronic transactions and the immediacy of direct deposit. If you’re considering a new automated payroll solution, it’s worth it to invest in one that can accommodate direct deposit services. But before you buy, review these frequently asked questions about the process. What are the Benefits of Direct Deposit? Instant...

Final Paycheck Laws by State

Final Paycheck Laws by State

Once upon a time, it was the norm for employees to stay with their employer for decades, oftentimes retiring from the same business at which they started their career. Today, however, employees are more transient, bouncing from job to job at various companies throughout their work life. As such, receiving a final paycheck from an employer is becoming commonplace. As an employer, it’s important to know the legal requirements surrounding an employee’s final check. Some states have differentiating laws depending on whether the employee quit or was terminated. Regardless, the final check should contain the employee’s regular pay from the most recent pay period along with any additional types of compensation such as accrued PTO or a bonus if...

How To Calculate Overtime Pay

How To Calculate Overtime Pay

Calculating overtime pay continues to be a hot topic. The Department of Labor plans to introduce new federal overtime regulations in 2019 which would redefine the current boundaries of whom is eligible to receive overtime pay. They also plan to revisit the way employers must calculate a worker’s “regular rate of pay” for Fair Labor Standard Act (FLSA) purposes. This could lead to a wider pool of employees receiving overtime wages. But before we get ahead of ourselves, let’s dive into some key factors to remember when calculating overtime. Who Can Receive Overtime? In the workplace, you’re either considered an “exempt” or a “non-exempt” employee based on your specific job duties. Only non-exempt employees are eligible for overtime pay...

Rise Above the Status Quo: An Executive Summary

Rise Above the Status Quo: An Executive Summary

Our Biggest and Best Web Summit Yet! More than 18,000 people registered for Paycor’s two-day online Rise Web Summit, held in February, where industry experts offered advice on all things HR, from employee engagement to hot button compliance issues. If you didn’t get a chance to watch the webinars live, feel free to watch them on-demand. In the meantime, here’s a quick overview of each session and some of the key takeaways. The Future of HR Now more than ever, executives depend on the unique insights HR can bring to the table. However, there is a problem. Many HR leaders just aren’t thinking big enough. Our keynote speaker, DisruptHR’s Jennifer McClure, outlined four key strategies HR leaders can use to push past their comfort zones and...