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5 Tips to Avoid Costly Wage and Hour Mistakes

by John Stebbins on Aug 24, 2018 2:06:06 PM

In fiscal year 2017, the Department of Labor’s Wage and Hour Division collected more than $270 million in back wages. Rising penalties plus damages arising from Fair Labor Standards Act (FLSA) lawsuits mean employers need to be vigilant with their pay policies. Here are five ways companies can minimize their wage and hour mistakes—and their liability.

Classify Employees and Independent Contractors Correctly

One of the most common issues employers face is misclassifying workers as independent contractors versus employees, denying them critical benefits and protections while avoiding payroll taxes. The penalties for misclassification can be steep depending on whether it was unintentional or intentional. To correctly determine the nature of each worker relationship, conduct an analysis of the facts of each situation using guidance from the DOL and IRS.

Document Exemptions

The FLSA requires that non-exempt employees receive at least the state or federal minimum wage and overtime pay. So it’s critical to delineate workers as either exempt (salaried) or non-exempt (hourly). But be careful: just because someone earns a salary doesn’t mean they’re exempt. If you’re claiming an exemption from the FLSA’s minimum wage and overtime requirements, you’ll need proof. That means having a well-written job description that outlines the duties consistent with the exemption requirements, documenting an employee’s regularly daily tasks and the amount spent on each one, and explaining why you’re claiming the exemption.

Pay Non-Exempt Employees for Compensable Time

Be sure you determine upfront what time a non-exempt employee is considered “suffered or permitted” to work for you. For example, activities like starting up a computer or checking email—even off the clock or away from the office—technically count as work since they are integral to the employee’s job, so you must pay for that time. You also need to pay for time spent by non-exempt employees in meetings or trainings unless certain conditions are met.

Keep Accurate Wage and Hour Records

For non-exempt employees, you’ll need to track their hours worked. One way to make sure you and your workers agree on the calculations is to have them acknowledge and verify your pay records at the end of each week. And hang on to the records to protect your business from back pay claims of unpaid hours.

Calculate Overtime Correctly

Non-exempt workers must be paid overtime if they work more than 40 hours in the work week. So workers understand when you’re responsible for paying them overtime, be sure to clearly define what your work week is and notify employees. To calculate overtime, the regular rate of pay must be multiplied by 1.5. While this calculation may seem straightforward, certain activities can cause errors, such as failing to include extra earnings or non-discretionary bonuses in the regular rate of pay since those amounts count towards “all remuneration.”

Compensation can be tricky—and costly. Find out how to minimize your risk of an enforcement action by downloading our audit preparation checklist. Or contact Complete Payroll Solutions at 866.658.8800.

Download the Audit Preparation Checklist


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