Since 1938, the Fair Labor Standards Act has protected employees by establishing minimum wage, overtime pay, and record-keeping requirements. In recent years, lawsuits have been on the rise, often aimed at companies that made simple mistakes rather than intending a violation.
For example, an automotive service business in Indiana was forced, after an audit, to pay over $1 million in back wages and other damages. Other mistakes that lead to expensive lawsuits and fines include not calculating overtime properly, not forwarding tips, and other violations.
The basic provisions of the Fair Labor Standards Act involve:
The specific rules change fairly frequently as the DoL makes rulings, but the broad strokes remain the same.
Employers often violate the FLSA, not always intentionally. The law can be complicated and changes, making it hard for employers to keep up. Here are the most common violations:
One of the most common errors is to fail to properly place the line between exempt and non-exempt employees. Exempt employees are excluded from minimum wage, overtime pay, and some other protections. Exempt employees are paid at least $35,568 annually (as of January 2021), paid by salary not hourly, and perform specific job duties which are generally executive or administrative in nature.
Some employers will attempt to avoid paying overtime by arguing that the time worked over 40 hours was "voluntary." In some cases it really is; the employee is trying to be helpful by coming in early or staying late, or they get a call during their lunch break and don't want to wait to take it.
The FLSA uses the word "employ" to cover hours worked, and the statutory definition includes "to suffer or permit to work." That is to say, if your employee stays late on their own initiative, that still counts as hours worked because you are permitting them to work. That is, you must ensure that non-exempt employees clock out on time every day. If they are late clocking out, require them to leave early the next day to compensate.
In order to count as exempt, an employee must be paid a predetermined amount every pay period, which can't change depending on the number of hours worked.
You are allowed to dock pay if the employee is absent for personal reasons and is out of personal time, and you can offset amounts received from witness fees, jury duty, or military pay. You can also dock pay for a safety violation. You cannot dock an exempt employee because they have jury duty (this is a big one), for absences of less than a full day (such as to go to a doctor's appointment or vote), for sickness without a leave plan in place, for state or federal holidays on which you close the office, if you close the office due to weather or another emergency, or for poor job performance.
Resist the temptation to try and classify as many employees as contractors as possible to avoid paying benefits and workers' comp. Somebody is only a contractor if they have control over when and where they work, are paid only for the work they do, and generally use their own equipment. "Contractor creep" is a big issue, where an employer tightens the rules on independent contractors until they are essentially employees.
When an employee is subject to both federal and state labor laws, any contradictions must be resolved in favor of the employee. This most often means higher minimum wages, but some states also have a tighter definition of overtime that has to be applied. States may also have rules about how often employees are given breaks and whether breaks should be paid.
Be particularly careful of this if you have more than one office in different states.
Non-exempt employees must be paid for all hours worked beyond 40 at the overtime rate. Make sure to check state requirements too. Paying employees a flat rate even up to 50 or 60 hours is illegal but a common practice. Make sure that you are properly tracking time so that you know when an employee goes over 40 hours. You can then either pay them overtime or send them home.
This one can cause real trouble, as it can be caused by an error entering payroll that then propagates. Overtime pay must be at least "time and a half" (1.5 times regular pay). In some cases, the wrong rate of regular pay may be used, shorting the employee. If neither you nor they notice right away, you may be liable for a lot of overtime pay. Similar problems can occur if time worked is entered incorrectly.
Not keeping accurate records is a common issue. You must keep records of all the time an employee works, including time spent checking emails. Record their pay correctly both to avoid an audit and to ensure that you pay them what they are owed.
Finally, the rules can change at any time. Clarifications of the line between exempt and non-exempt employees, changes in the salary floor for exempt, and other changes may occur at any time. If you are not paying attention, you may miss a major regulatory change.
All of this means that you need to be careful to stay compliant. The safest way to do this is to work with a Professional Employer Organization that has the expertise to stay compliant and can help make sure that you do not inadvertently violate the FLSA. To learn more, download our free eBook “What is a PEO?”