The number of overtime lawsuits has risen dramatically in recent years – nearly 400% in the last two decades according to a post at the Baltimore Business Journal.
It’s usually the multi-million dollar companies that get the news coverage but small businesses are just as vulnerable as the big guys.
And for a small company with a minimal budget, an overtime lawsuit can be devastating.
How to avoid them is something every small business owner needs to know.
Why So Many Lawsuits?
The economy is partly to blame for the explosion of overtime lawsuits.
Employers suffer from low sales and feel they can’t afford to pay workers any more than their regular wage. In hard times they might come up with strategies to compensate employees without actually paying them more. Or they might just ignore overtime altogether.
Employees lose their leverage in a sluggish economy. They are less likely to leave their jobs no matter what the conditions and managers know that employees have to be more tolerant than they would in a booming economy where good jobs are easy to come by.
But when employees don’t receive the overtime pay they expect after a long week’s work, especially week after week, they might seek to retaliate against their boss. This probably won’t happen while they’re still employed, but as soon as they are laid off or fired, they’ll take legal action.
Maybe this could be avoided if strong communities kept us accountable for our actions. Bosses who cheat employees and employees who seek large settlements wouldn’t be too popular in a small town. In the old days, two parties would probably have sought out an agreement between each other, but now lawsuits have replaced one on one contact. Establishing a healthy relationship with our colleagues and bosses might help to reestablish our sense of moral duty to one another.
However, tough times can make even the most righteous among us go to extremes. The best way to protect your business, then, is to avoid the most common errors business owners make in compensating their employees.
Common wage and hour mistakes
- Allotting comp-time as overtime “pay”
- Manually adjusting timesheets to reduce overtime
- Paying straight time even for hours over 40
- Being unaware of complicated California overtime laws
- Calculating overtime biweekly rather than weekly
- Misclassifying non-exempt employees as exempt employees
- Not retaining employee timesheet records for 2 years
- Allowing employees to finish work at home on their own time
- Not tracking hours at all and paying a set weekly wage
- Refusing to pay for “unauthorized” overtime
I discussed many of these in more detail in an earlier Q and A post.