How to Avoid Wage and Hour Litigation

From Christine Ashley, HR & CRM Software Specialist

With a growing number of attorneys specializing in Fair Labor Standards Act (FLSA) cases there has been a rise in Wage and Hour Litigation. Additionally, the Department of Labor has started initiatives that seek to inform employees of their rights under FLSA. Employers should be aware that most litigation claims involve either unpaid work time or misclassification of workers as exempt.

Unpaid Work Time

Unpaid Work Time is often due to auto-meal deduction, rounding policies or off-the-clock work. One way employer’s can protect themselves is the implementation of an automated time and attendance system. Also, reevaluating policies that round punch times unnecessarily and paying employees for actual time worked and not have to reply on complex methods of rounds to speed up payroll processing. Many employers continue using outdated rounding policies even after adopting an automated system because it’s the way it’s always been done. When in fact the rounding was most likely started when time cards had to be calculated manually and it made it easier to calculate daily hours. The Department of Labor accepts rounding if the arrangement devised by the employer averages out so employees are fully compensated for all the time they have actually worked. The problem with rounding is that the net effect may be that the employee’s time is always rounded down, but never rounded up.

Litigation for Wage and Hour violations can also include payroll errors in calculating overtime when employees are or have received bonuses or commissions. The rate of pay used to calculate overtime also includes all forms of non-discretionary compensation such as bonuses, commissions, retroactive pay, incentive and/or shift differentials. Non-discretionary bonuses and commissions can also be a problem because they must be apportioned back over the period in which they were earned thus all overtime in that look-back period must be adjusted. This an be a nightmare to manage manually and employers may want to consider minimizing the risk by adopting automated systems that can recalculate that regular rate/overtime rate for the entire look back period.

Another unpaid work time situation is remote work, with more and more employees having access to corporate email from home or mobile devices. Many employers struggle with how to account for and compensate employees for such time. Create clear policies that state that non-exempt employees are responsible for reporting all hours worked, included hours spent on business related activities outside of the workplace. Also, inform all non-exempt employees of what compensate work includes and give them an automated way to record the time from remote locations if necessary. If it’s not necessary then eliminate access to email and other company systems from remote locations.

Salary vs Exempt 

The exempt worker is paid to “perform a job” and is generally not paid overtime and the non-exempt worker is paid exclusively by the hour which includes receiving overtime pay. Exempt employees under Federal law are “executives”, “professionals” and “outsides sales persons” as defined by the FLSA. To properly classify a position as exempt, it must pass a salary and a duties test. Many employers believe if they give a position a certain title or pay on a salary basis the position will qualify as exempt. This belief has led many employers down a costly road of litigation. It is a requirement to pay an exempt employee on a salary basis. However, simply paying a salary is not enough to make the position exempt.

Misclassifying workers can have tremendous financial consequences for companies. If found in violation by the Department of Labor or through litigation the organization will not only have to pay back wages and overtime owed, but a variety of penalties and in many cases, attorney fees.

A good place to start is evaluating your Time and Attendance policies as well as a full review of all your exempt and nonexempt positions. A good automated software solution can help  employers minimize wage and hour litigation in both time and tracking and HR Management. Implementing training courses and accurate policy documentation so all employees know your policies and can adhere to them can also reduce the risk with wage and hour litigation.

If you need help review your Time and Attendance policies or additional information about HR software, contact Christine Ashley (christine@oasisky.com or 502.429.6902 ext 236). Oasis Solutions Group provides software, training, support and customer programming for HR/Payroll, ERP, Accounting, CRM and Sales software.

This is not intended as legal advice. 

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