Owners of very small businesses often do everything themselves. They don’t have an HR person reminding them what’s legal and what’s not and so they try to keep up with the changing federal and state laws on their own. The problem with this approach is that many small business owners don’t even know what to watch out for. It’s hard to be compliant with wage and hour labor laws when you don’t even know them. Employers running very small businesses should be familiar with wage and hour best practices so that they can avoid labor lawsuits.
Wage and Hour Overtime Violations
According to research done by NERA, 42% of wage and hour cases are related to overtime. While I have listed a few issues specifically related to overtime, be aware that any of the wage and hour issues can result in overtime problems by way of the fact that any loss of hours could result in loss of overtime.
Comp time for overtime
Many employees prefer getting a little extra time off when they work overtime and employers like offering comp time because they don’t have to shell out the extra cash. But, guess what, unless you’re a government employer, it’s not legal to do this under the FLSA.
According to the FLSA, employers must pay their employees in time and a half their regular rate of pay for any hours they work over 40 in a week. Offering comp time to employees even at a rate of one and a half hours off for every hour over 40 worked is not permissible for private employers under the FLSA. Overtime payments must be made in cash and not in time. However, offering comp time in lieu of overtime is permissible for government employees.
Simply not paying overtime because you don’t believe in it isn’t going to save you in a court case. Some employers actually alter time cards in order to ensure that time sheets never have more than 40 hours in a week. If the DOL finds out about it, the company could face a lawsuit. It only takes one perturbed employee to bring the case to a lawyer. It’s not worth the risk. If employees work overtime, pay them for it.
Even if your employees work unauthorized overtime, you still have to pay them for it. Employers must pay for any time that employees work. Some employers think that they can get away with withholding overtime because they’ve forbidden it in the employee handbook. They’ll write up a company policy stating that they don’t pay overtime. This is just an empty statement, however. If employees are working, employers need to pay them or send them home.
Employers should manage overtime with discipline and not with refusal to pay. Unauthorized overtime certainly can warrant disciplinary actions, but the time still must be paid. If employees work overtime without getting prior approval, employers should give written warnings, reduce hours, demote the employee, and finally dismiss the employee. But in the meantime, pay them their overtime.
Misclassifying hourly employees as salaried
Employers misclassify employees in a few distinct circumstances:
- Didn’t understand the job duties tests
- Thought paying a salary was more convenient than tracking time
- Didn’t want to pay overtime and thought they could avoid it by paying a set salary
Classifying independent contractors as employees in order to avoid overtime and taxes is pretty common. It’s also just a lot easier for small business owners to manage contractors than it is for them to manage employees, in terms of paperwork. That’s why a lot of them make this mistake. The IRS does not take kindly to missing payroll taxes, though, so it is a mistake you should avoid.
Minimum Wage Violations
Besides flat out ignoring the minimum wage, there are a couple other practices that could cause employees to fall below the minimum wage.
Employee generated expenses are expenses that the employee agrees to pay out of his or her pocket to cover work related costs. These can include gas, printing supplies, postage, and anything an employee may purchase while on a work errand. The FLSA does not require that business expenses be paid back. There is an exception though. When an employee’s hourly rate, minus those expenses, falls below minimum wage, the company needs to reimburse those expenses. If they don’t, the company would be violating federal minimum wage laws. This is called a kickback.
The same violation could happen within the state. Many states have their own minimum wage laws that are higher than the federal minimum wage. These rates change occasionally so it’s important to stay on top of this in your state.
Unpaid Work Time
Non-standard working time
This is an easy one to mess up because it seems like an employer shouldn’t have to pay an employee for time they’re not technically working. In reality, though, employers need to pay for all the time employees spend at work. Non-standard working time includes: preparation time, on-call time, waiting time, and travel time.
For example, an employee might be told to wait around in the morning for the supervisor to get there and open the door. An employee might need to prep her workstation in the morning. Employees sometimes drive from work to a another location for work. All of these are instances in which the employer must pay for the time worked.
Time rounding is not as commonly used as it was in the past and for good reason. It can be, and often is, easily messed up. Rounding down and not also up can cause an employee to lose time on the clock. Rounding may have made calculations easier before there were systems in place to do the work automatically.
Unpaid remote work
Without online time trackers, employees often don’t track their remote work time and, hence, don’t get paid for it. It’s impractical to write time down on scrap paper and then transfer it to the timesheet at the office. It’s also hard to keep track of time when you’re popping on and off the computer or phone at random times during nights or weekends. All of these minutes may seem insignificant taken separately but, as a whole, it might amount to 3 or 4 hours a month. That’s a good chunk of change to most employees and not something they want to give up. To ensure that employees get paid for this time, an online time tracking system is the way to go.
Follow Labor Law Compliance Policies
In the case of a lawsuit, a note in the employee handbook about a company’s intention to be compliant with the FLSA could be helpful. However, a mere statement that a company follows the rules won’t trump a company’s actions. Businesses should strive to follow all FLSA rules because this is the only sure way to stay compliant.
Length of time to retain records
Employers must retain timekeeping records for a length of time after release of employment in case of an audit.
“Each employer shall preserve for at least three years payroll records, collective bargaining agreements, sales and purchase records. Records on which wage computations are based should be retained for two years, i.e., time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.” From the DOL
Accurately Track Time
Using an online service for time and attendance is the best way to stay compliant with the FLSA. An online system like Timesheets.com helps businesses track time accurately and allows companies the ability to produce these records in the case of a lawsuit. A few important traits of an online system include:
- Ability to pay to the punch
- Time entry signatures
- Audit trail on time adjustments