How Wage-Hour Laws Create Risks

How Wage-Hour Laws Create Risks

Federal investigators with the Labor Department’s Wage and Hour Division (WHD) routinely look for companies and organizations with illegal pay practices.

The WHD enforces the federal minimum wage, overtime pay, recordkeeping, child labor and other requirements of the Fair Labor Standards Act. When investigators uncover violations, employers must pay back wages, as well as penalties.

It’s a good time for employers to ensure they are in compliance with the complex Fair Labor Standards Act. Here are 14 ways employers can get tripped up by wage-and-hour violations.

1. Failing to correctly classify nonexempt and exempt employees. This is the mistake investigators often target first. Determining employees who are legally exempt from the wage-and-hour laws can be complicated. Here are the basic rules:

  • Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular pay rate. (A 40-hour workweek is defined as any fixed and regularly recurring period of 168 hours over seven consecutive 24-hour periods.)
  • There’s no limit on the hours that employees 16 years or older can work in a week as long as they are paid overtime.
  • The FLSA does not require extra pay for working weekends, holidays or nights unless overtime is involved.

2. Failing to calculate overtime pay correctly. This can occur when an employer doesn’t include all earnings in the base, earned hourly pay.

For example, let’s say nonexempt employees earn mandatory bonuses over a period of time. An employer fails to recalculate the employees’ hourly earnings for the period to include the bonuses. Mandatory bonuses earned for factors related to hours worked and length of employment are considered earned wages under the wage-and-hour laws.

3. Misclassifying employees as independent contractors. According to the WHD, the “misclassification of employees as independent contractors is an alarming trend, particularly in industries such as construction that often employ low-wage, vulnerable workers.”

Often, the WHD adds, “workers are deprived of overtime and minimum wages, forced to pay taxes that their employers are legally obligated to pay and left with no recourse if they are injured or discriminated against in the workplace.”

When the WHD finds cases of misclassification, it may refer the cases to state agencies and the IRS.

4. Failing to pay for work during missed meal and rest periods. Wage-and-hour laws require employers to pay nonexempt employees for all time worked — whether or not it was authorized by an employer or supervisor. So if employees continue to work through meals and breaks of 20 minutes or less, employers are required to pay for the time. And when the extra time results in an employee putting in more than 40 hours in a workweek, the employer also owes overtime pay.

5. Failing to pay for certain on-call time. If an employer engages an employee to wait to be put to work, the individual must be paid for the on-call time.

6. Deducting an exempt employee’s pay for poor performance. This violates one of the basic rules for determining employee status. An exempt employee must be paid the agreed-on salary without regard to the quality or quantity of the individual’s performance during the pay period. When an employer takes money out of an exempt employee’s salary for poor performance, it can result in permanently changing the employee’s status from exempt to nonexempt.

7. Not paying for employees to work electronically after hours. Many employees carry and use cell phones, laptops and other devices throughout their waking hours.

Employees often get involved in work-related tasks on these devices. For example, a manager may tell a non-exempt employee to check in regularly on her cell phone while on vacation. Or an employee may use his laptop at night and on weekends to keep a project going.

The basic rule: When a nonexempt employee engages in work-related activities that benefit the employer (even voluntarily), the time is compensable.

8. Failing to pay for time spent at after-hours meetings. When attendance at a meeting outside normal work hours is required and the subject and activity at the meeting is work-related, the employees’ must be paid for the time.

9. Failing to keep required records. Federal law requires employers to keep time-worked records. So if there is a dispute with an employee about hours and pay and the employer is unable to show accurately recorded time records, courts will favor the employee’s claims and records.

10. Treating exempt employees as if they are nonexempt employees. When an employer treats an exempt employee as if he or she is an hourly paid nonexempt employee, the employer risks losing that employee’s exempt status. Even worse, if the employer treats an exempt employee like an hourly paid nonexempt employee, the employer may also lose the exempt status of all other employees in the same job classification working for the same managers responsible for the wrong treatment.

How do employers treat otherwise exempt employees like hourly paid nonexempt employees? By improperly basing their pay on hours worked (or not worked) rather than on a daily, weekly or monthly salary.

For example, let’s say an exempt employee paid a salary begins coming to work two or three hours late on Mondays. The boss deducts amounts from the employee’s paycheck for the hours not worked. By treating the employee like an hourly paid nonexempt employee, the employer has changed the individual’s status.

11. Substituting comp time for overtime pay. Under federal law, compensatory time off or comp time in place of receiving overtime pay is generally only legal for government employees. Federal law generally requires that employees get paid overtime for all hours worked over 40 in a seven-day workweek established by the employer. (Note: Some states require overtime pay for hours worked over eight in a day.)

12. Taking unauthorized deductions from paychecks. An employer can only legally deduct from an employee’s earned pay the amounts required or authorized by law (such as Social Security, income tax deductions and court-ordered garnished amounts) as well as deductions authorized by the employee (such as deductions for insurance premiums and loan payments).

Examples: An employer cannot deduct amounts from an employee’s pay to cover damages to the organization’s equipment. And an employer cannot withhold a departing employee’s final paycheck as a way of collecting an amount the individual owes on a loan previously obtained from the employer — unless the employee has given authorization in advance.

13. Not paying minimum wage when required. The WHD investigates employers who violate requirements to pay covered employees at least the federal minimum wage.

For example, the WHD found more than 100 employees of a clothing manufacturer were paid on a piece-rate basis without regard for the minimum wage and overtime requirements. Investigators also found weekend work was not recorded on employee time cards.

14. Failing to abide by state laws. States may have their own version of federal wage and hour rules. So employers need to be aware of and comply with the laws in the states where they have employees.

Personal Liability Risks

The dangers involved in complying with federal and state wage-and-hour laws aren’t risks just to legal employers, usually corporations. In some instances, the risks are to individuals involved in noncompliance or violations.

Anyone whose position in the workplace involves making decisions and taking actions that affect employees can be the target of legal actions leading to personal liability — in certain situations, in certain federal court jurisdictions and in many states.

Here are some of the major laws that could cause personal liability risks for workplace leaders: The Americans with Disabilities Act; the Family and Medical Leave Act; the Fair Labor Standards Act; the federal Civil Rights Act (Title VII); the Age Discrimination in Employment Act; The Racketeer Influenced and Corrupt Organizations Act; migration laws enforced by Homeland Security’s Immigration and Customs Enforcement; and certain rules enforced by the Internal Revenue Service (IRS).

How can workplace leaders have a personal risk involving employee-protection and employee-rights laws? Some laws — either explicitly in specific laws or because of court decisions interpreting laws — put obligations on the employer and then extend the obligations to agents of the employer. And when executives, managers, supervisors and other employees make decisions and take actions involving employees, they can be considered agents of the employer.

Minimum Wage Q&As

How much is the federal minimum wage?

The federal minimum wage for covered nonexempt employees is currently $7.25 per hour. Many states also have minimum wage laws. If an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate. Various minimum wage exceptions apply under certain circumstances.

What happens if state law requires a higher minimum wage than federal law?

If state law requires a higher minimum wage, the higher standard applies.

What is the minimum wage for workers who receive tips?

An employer can pay a tipped employee not less than $2.13 an hour in wages if that amount, plus tips, equal at least the federal minimum wage; the employee retains all tips; and the employee regularly receives more than $30 a month in tips. If an employee’s tips combined with the employer’s $2.13-an-hour wage do not equal the federal minimum wage, the employer must make up the difference.

Some states have minimum wage laws for tipped employees. An employee is entitled to the provisions of each law that provide the greater benefits.

Do teenagers have to be paid the minimum wage?

A minimum wage of $4.25 per hour applies to young workers under the age of 20 during their first 90 consecutive calendar days of employment, as long as their work doesn’t displace other workers. After 90 consecutive days or when the employee turns 20 (whichever comes first), the employee must receive minimum wage of $7.25 per hour.

Other programs that allow less-than-full federal minimum wage apply to workers with disabilities, full-time students and student-learners employed pursuant to sub-minimum wage certificates. These programs are not limited to young workers.

Payroll Partners is committed to helping clients stay informed about payroll and human resource news, developments and current events. This article is intended to provide readers with general information on human resources matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular human resources practice. All efforts have been made to assure the accuracy of the information. Payroll Partners does not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular human resources practice. If you are seeking human resources advice, you are encouraged to consult a human resources professional.