Lately, it seems the headlines have been full of stories about the growth of wage and hour lawsuits and Department of Labor (DOL) investigations. For instance, just the other day I came across an article reporting a sports bar in the northeast will be shelling out $6.8 million, plus a bunch of other penalties, to settle wage and hour claims. They’re going to have to sell a lot of Buffalo wings and beer to make up for that!
According to a report by NERA Economic Consulting, on average, employers paid $4.5 million to settle a wage and hour case in 2013, with an average per-claimant settlement value of $7,000.
Pretty scary, right? And it could happen to any of us. Turns out, over half the class-action suits filed in 2013 had fewer than 1,000 plaintiffs. Big companies aren’t the only ones that need to worry about class-action suits.
We could just pull the blankets over our heads and hope it will all go away, but that’s not going to help when plaintiffs’ lawyers are gathering on your front lawn. Instead, let’s take a quick tour through some steps you can take today to help reduce your chances of getting hit with a lawsuit.
Minimum Wage Pitfalls
There are two things to be concerned about when it comes to minimum wage.
- Be sure you’re paying everyone the correct minimum wage to start with. The federal minimum wage for most workers is $7.25 an hour, but if your state or municipality has enacted a higher minimum wage, you must pay the higher amount. In some areas there are different rules that can be applied to tipped workers. If you’re a government contractor, or you employ foreign workers under certain visa programs, you may be subject to special regulations. Be sure you know what the correct minimum wage is, and make sure you’re paying at least that much to everyone on your payroll.
- Be sure any pay deductions don’t inadvertently reduce employees’ compensation below the required minimum wage. For instance, if you charge non-exempt or hourly workers for lost or damaged tools or for the dollar amount of cash drawer shortages, make sure their wages are still above the minimum after the deductions are taken.
According to the NERA study, overtime issues make up the single largest group of lawsuits, or 45% of all cases. Getting overtime right goes a long way toward protecting your business. Here’s what you need to know so you can calculate it accurately for your overtime-eligible workers:
- You need to know how much time they worked. This should be fairly obvious — how can you calculate overtime accurately if you don’t know how much time each employee worked? A modern, accurate time tracking system goes a long way toward achieving this goal. Remember, in most cases, you need to add up all work done at different locations or in different jobs to arrive at the total time worked. Make sure your employees understand they should not perform any work when they’re not clocked in, and make sure your supervisors and managers are trained not to allow “off the clock” work.
- You need to figure the employee’s “regular rate of pay” correctly. Sometimes employers get tripped up because they mistakenly think the employee’s standard hourly rate is the same as the “normal rate of pay” for overtime calculations. However, you may be required to add in certain bonuses, commissions, on-call pay, shift differentials, incentives and other payments in order to properly calculate the pay rate for the purposes of overtime.
If you have any questions about what time or what other payments should be taken into account when computing overtime, it’s a good idea to consult with your labor law attorney.
Worker Classification Conundrums
As it happens, there are also two main concerns when it comes to worker classification:
- Are your “independent contractors” truly independent, or are they actually employees? The Department of Labor, along with the IRS and several state labor departments have been taking a very close look at worker classification. For someone to be legally an independent contractor, it takes more than a clause in a contract stating the worker “agrees” they’re not an employee. If you’re trying to decide if a particular position meets the standards to be classified as an independent contract job, the Department of Labor offers information on their Misclassification Initiative web page. The IRS offers additional guidance you may find helpful.
- Do your exempt employees meet all the criteria to be truly considered exempt from overtime? Some employers mistakenly think their workers are exempt from overtime simply because they’re paid on a salary basis. Then the DOL audits them or the employee files a complaint, and they find out that’s not necessarily true. In fact, there are very specific criteria that must be met in order for an employee to be exempt from overtime. Fortunately, the DOL has created an eLaws Advisor with links to information about the various exemption categories.
These are the major issues that lead to wage and hour lawsuits, but they aren’t the only issues. For instance, if you employ any workers under the age of 16 (or under 18 if the job is classified as “hazardous”), you will be subject to child-labor regulations.
In addition, many states and municipalities have enacted their own wage and hour regulations. Several cities recently have passed laws requiring employers within city limits to offer paid sick days to their employees. Depending on where you’re located, you may be required to pay daily overtime. Some jurisdictions require payments of split-shift or other premiums.
Your best bet is to consult your labor law attorney. Have them conduct a wage and hour audit to ensure your policies and practices are in line with both federal law and applicable state and local regulations. With some preparation (and a good time and attendance system), you can maximize your chances of surviving wage and hour investigations unscathed.