I am a licensed CPA in both New York and Massachusetts, and a member of the American Institute of Certified Public Accountants.
How to Maintain Flawless Wage and Hour Compliance
Wage and hour compliance is becoming an increasingly important concern for business owners. Whether you run a small café with 5 employees or a manufacturing operation with hundreds of workers, it’s important to protect your business from unnecessary litigation. The Federal Labor Standards Act is notoriously confusing and failure to comply adequately could be extremely costly.
A Troubling Trend
Federal lawsuits filed against businesses for wage and hour compliance have grown considerably over the last several years. Since 2001, lawsuits in federal courts related to wage and hour disputes have grown by over 300%. Plaintiffs are experiencing a high rate of success, motivating employees to come forward with allegations against their employers.
The Department of Labor is cracking down on wage and hour disputes like never before. This is due in part by a large increase in DOL audit staff members in recent years. Your best line of defense is to implement an ironclad record keeping system to protect yourself against predatory lawsuits.
Rule 1 – Fine Tune your Hour Tracking System
In this day and age there are many high tech solutions to help maintain a flawless record of employee’s work hours. There are many cloud-based solutions that allow you to track your employees in real time, approve time entries, and even view their physical location via GPS.
QuickBooks users will find a couple of useful 3rd party applications to enhance payroll record keeping. TSheets Time Tracking allows your employees to clock in and out from their work computers, iPhones, or virtually any device with an Internet connection. It also provides detailed reporting to help you spot DOL violations before they become a problem.
Rule 2 – Classify Workers Correctly
One of the most common pitfalls with wage and hour compliance is improperly classifying employees as exempt from overtime pay. In order to classify an employee as exempt they must earn at least $455 per week, or $23,660 annually, and be paid on a full salary basis regardless of total hours worked. In other words, you can’t reduce their salary for working less than 40 hours. Work duties of exempt employees should fall into one of the following categories:
- Outbound Sales
- Learned and Creative Professionals
- Computer professional
Rule 3 – Never Allow Work Off the Clock
Preventing a non-exempt employee from working off the clock should be a no brainer. Many of the overtime lawsuits filed are related to employees being forced to perform work off the clock. Having a strict policy that mandates all work is done while clocked in will reduce your risk of problems down the road. A little bit of free labor is not worth the potential cost of back overtime pay, legal fees, penalties, and reputation damage. If you have an employee willfully working off the clock, it’s crucial to take swift disciplinary action.
Rule 4 – Audit Timesheets and Classifications
Take the proactive step of auditing time reporting procedures and employee classifications. If you’re even in doubt about your reporting procedures, contact the DOL Wage and Hour division directly or hire an independent compliance auditor.
Each employee should be subject to an annual classification audit of his or her exempt or non-exempt status. If you’re ever subjected to an overtime lawsuit, this audit will be your primary source proof. Demonstrating a good faith effort to adhere to DOL classification regulations is usually sufficient to defeat the complaint.
Bottom Line: When it comes to protecting your business from wage and hour lawsuits, nothing will serve you better than diligent record keeping.