4 Common Mistakes Employers Unknowingly Make
This post was written by our partners at Stanton Law, LLC.
The Department of Labor collects millions of dollars from employers in violation of the Fair Labor Standards Act each year. Avoid these costly mistakes.
Each year, the U.S. Department of Labor collects millions of dollars in backpay and damages from employers who unknowingly violate the Fair Labor Standards Act (FLSA). Employers may be subject to hefty damages including paying employees for unpaid overtime hours, liquidated damages equal to the amount owed in unpaid wages, and sometimes even the employee’s attorneys’ fees.
Don’t make these costly mistakes:
- You classify a worker as an independent contractor just because they ask to be (or you want them to be).
What you or your employee think is the right classification doesn’t matter to the DOL. Independent contractors must qualify based on many factors that focus on the working relationship between the company and the worker, including (among others) the nature of the job, who controls the way the work is done, who sets the rate of pay and the hours of work, and when and how the relationship will end. It’s not your call. If it looks like an employee and works like an employee, it’s an employee. Don’t “1099” them.
- An employee is paid a salary or has “Administrative” or “Manager” in their title, so they must be exempt from overtime.
Simply paying an employee a salary or giving them a certain title doesn’t make them exempt. Many salaried employees are entitled to overtime. For many jobs, an employee is only exempt from overtime if they are paid a salary of a certain amount AND they perform certain management-like job duties. The employee’s position must have both in order to be exempt from overtime pay. You can’t get around it just by calling them a manager.
- You make automatic deductions and/or adjust time entries for your employees.
You must track your employees’ time and you should never automatically reduce your employees’ time. Instead, employees should clock in and out at the beginning and end of their shifts and meal breaks to ensure time is tracked accurately. If an employee forgets to clock in or out, the employer should ideally receive in writing the employee’s authorization for the time noted for which they will be paid. Most importantly, pay employees for all hours worked. If your employee isn’t following your timekeeping procedures, write them up, but never use time deductions to discipline employees. This is what will land you in trouble.
- You calculate overtime based on the employee’s hourly rate only.
The FLSA requires employers to pay non-exempt employees 1.5 times their regular rate of pay for all hours worked over 40 in a work week. However, most employers don’t realize that other types of compensation, such as certain kinds of bonuses, must be included when calculating the employee’s regular rate of pay. Instead, employers tend to simply make the calculation using the hourly rate, which can cause issues. It can be difficult to determine what forms of compensation should be included when calculating overtime.
Correct classification, understanding hours, and pay is complicated, and even with the best intentions, employers can often find themselves in violation of these and other FLSA rules. If you have FLSA questions or want to make sure your company is FLSA compliant, please reach out to Josh Joel or schedule a consultation with us for timely and sound business advice to help you minimize your legal issues.