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Wage & Hour litigation can threaten the health of any business, so it’s critically important for companies to comply with current wage & hour regulations. The U.S. has a long history of laws that protect employee rights, especially those related to wage and hour. Unfortunately, adhering to Federal, State, and local regulations adds complexity to the process of wage and hour compliance. The situation is further complicated by changes to existing laws, the enactment of new wage-related legislation every year, and variation that occurs by industry, and geography.

The risks of not understanding or accurately applying wage and hour requirements cannot be ignored by any business that wants to survive. Defending a business against lawsuits related to non-compliance can be costly, especially when several employees unite for a class-action suit. Monetary penalties can include compensation equal to two or three years of back pay per team member. With opposing attorney fees included as part of a judgment, losing a wage and hour lawsuit could even put a company out of business. In addition, the distraction of defending such suits can impact productivity and damage morale. 

Even if no claims are filed, a lack of compliance could be an issue for any business that undergoes a wage and hour audit by the U.S. Department of Labor or a state employment department such as the California Department of Fair Employment & Housing (DFEH). There is really no way of knowing when or why such audits take place, but it’s important to be prepared since they arrive unannounced, and may be triggered by employee complaint(s).

The federal Fair Labor Standards Act (FLSA) is a complex set of regulations that defines minimum wages and overtime pay requirements for non-exempt employees who receive an hourly wage. A report issued by Seyfarth Shaw LLP, an international law firm specializing in employment law, predicts that the number of workplace class action lawsuits due to FLSA violations will explode in 2021, with work-from-home issues expected to fuel most of the litigation. Claims are predicted to center on unpaid, off-the-clock work and expense reimbursement. According to Nicholas Reiter, a partner at Venable LLP law firm, many employers don’t have the infrastructure to track hours for remote team members. “That could be a real risk,” he is quoted on the HR Dive website.

The Wage and Hour Division of the U.S. Department of Labor conducted 4,600 outreach events in 2020 to educate employees and employers about wage and hour regulations. They also filed more than 16,000 cases for overtime and minimum wage violations. These statistics underline the importance of hour and wage compliance. 

Although the compliance process isn’t always simple, there are basic steps any business can take to protect itself against the risks of non-compliance. 

Ensure all employees are properly classified as salaried/exempt or hourly/non-exempt. 

An essential step in wage & hour compliance is ensuring that staff is properly classified as salaried/exempt or hourly/non-exempt.  A current job description applied to applicable Federal and State tests helps ensure that staff are properly classified at the point of hire.  Annually, as roles can change, all positions should be retested.  The default classification is hourly/non-exempt.

Track all hours worked for non-exempt team members. 

Federal and State law requires businesses to maintain accurate records of hours worked. As these requirements typically vary state to state, check with your wage & hour counsel to ensure your data collection is accurate, as that will materially affect how the staff is paid.

Have a strict off-the-clock policy. 

Technology has made it easier than ever for team members to work remotely at all hours of the day. Off-the-clock work happens when an hourly/non-exempt team member doesn’t track or report time worked and receives no compensation for the time. This situation can violate Federal and State laws, even when an employer doesn’t know it’s happening. Avoid confusion by ensuring staff is properly classified, establishing and publicizing a policy against off-the-clock work, and ensuring that all time worked is time paid.  A double-check is having staff scrutinize their time records and pay stubs to ensure they have been properly paid, in full, for all time worked.

Enforce meal breaks and rest breaks in accordance with state labor laws. 

Make sure you’re in compliance with state laws governing required for meal periods and rest periods.  As these requirements can vary from state to state and by industry, ensure you understand applicable regulations and that you are following them.  

Conduct an internal wage and hour audit. 

Manage your non-compliance risk with an internal audit of your wage & hour practices, time & attendance records, and payroll records. Ensure that all hourly/non-exempt team members have been paid at least minimum wage for all hours worked as well as overtime pay for all hours over 8 per day and 40 per week in California. 

Make sure supervisors and team members understand your wage and hour policies. 

With proper training, every team member can be counted on to support compliance.

While this list is not exhaustive, it provides a good start towards wage and hour compliance. Be proactive, and don’t wait until your business is hit with a non-compliance suit. Establishing policies that ensure fair pay for hours worked will also help earn the trust and loyalty of team members.

* This is a general summary only.  You should contact local wage & hour counsel to ensure your organization’s wage & hour practices are timely, accurate, complete, and compliant, consistent with industry & geographical requirements, and applicable Federal, State, and local regulations.

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