Wage and hour compliance can be complicated, but it’s important to get it right. That’s because mistakes can be costly. Earlier this year, the U.S. Department of Labor’s Wage and Hour Division in Honolulu investigated companies at several Hawaii malls and found numerous violations, including employers who were failing to pay overtime, and violations of child labor laws. The companies were required to pay nearly $700,000 in back wages to 339 employees, and fined $60,000 for the child labor violations. In addition, a nationwide crackdown in 2018 resulted in employers paying more than $304 million in back wages to workers.
The Fair Labor Standards Act (FLSA) is a federal law that governs how businesses pay their employees, how pay is handled for salaried and hourly workers, and how businesses can employ minors.
Here are five common mistakes employers make around wage and hour compliance—and how you can avoid them:
Mistake #1: Misclassifying an employee as exempt, based on their job title.
Exempt employees are paid a fixed salary, regardless of how many hours they work each week—and they don’t qualify for overtime. However not all employees qualify for exempt status. There are four main types of workers who can legally be paid on a salaried basis—executive, administrative, professional, and outside sales.
It is important to remember that you can’t just classify an employee as exempt based on their job title. Each category has specific job requirements that must be met in order to qualify—like a sales person whose primary responsibility is making sales or obtaining orders, or a professional whose job involves performing work that requires advanced knowledge of a subject like medicine or law.
What to do: Check the employee’s actual duties, not just their job title, to make sure you’re on solid legal ground in classifying the employee as exempt.
Mistake #2: Allowing under-age employees to work past 7 p.m.
Many businesses employ minors after school or for summer jobs. However there are special rules for under-age employees, especially younger workers aged 15-16. On school days, it’s illegal for these employees to work before 7 a.m. or after 7 p.m., and they can’t work more than three hours per day. (On non-school days, they can work up to 8 hours, but still can’t work before 6 a.m. or after 9 p.m.).
There are no restrictions on hours for older teens, but employees aged 16-17 can’t be expected to work at times that they are required to be attending school, and they aren’t allowed to perform certain kinds of duties, like working with power wood-working tools, using restaurant machinery, or doing any kind of roofing.
What to do: Make sure under-age workers have provided documentation like a work permit, and be careful not to schedule them to work evening shifts or longer than the maximum number of hours.
Mistake #3: Not paying for all the hours an employee works.
FLSA requires employers to pay employees anytime they perform work, whether it was authorized or not. That means that if an employee does work they were not asked to do—or even work that was performed against a supervisor’s wishes—you still have to pay them for the time. Employees also must be paid for some travel time, such as time spent driving from one job site to another, and for things like mandatory training.
What to do: If an employee does work they were not authorized to do, take disciplinary action if necessary to correct the behavior—but pay them for the time.
Mistake #4: Sharing tips with managers.
Some tipped employees keep their tips, while others pool them. Both options are allowed, but when employees share their tips, certain rules apply.
There are two types of tip sharing:
- Voluntary tip sharing, in which the employees pool their tips and mutually agree on how to divide them up.
- Mandatory tip sharing, in which the company has a set policy dictating who receives tip-outs, and how much goes to each person. Regardless of how tips are split up, however, they can’t be shared with managers.
What to do: The best practice is for the company to draw up a written policy for pooling tips, making it clear that tips cannot go to management.
Mistake #5: Not allowing employees to record all the hours they work.
Employees who are paid hourly must keep a daily record of the time they spend on the clock, and they’re eligible for overtime (1.5 times their usual hourly rate) anytime they work longer than 40 hours in the course of the work week. It’s illegal to ask employees to falsify their timesheets, or to tell them to simply report working exactly 40 hours every week.
What to do: Set up a timesheet or time-tracking system and make sure employees record the hours they actually work. Pay employees for overtime, or adjust schedules to keep their hours under 40 hours per week. Daily time records must be retained for at least 6 years.
Failing to comply with wage and hour rules can result in serious consequences and costly fines for employers, as the recent Labor Department crackdown showed. Fortunately, by paying attention to the FLSA and understanding what’s required, you can protect your business and take care of your employees by paying them fairly.
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