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5 Common Employee Pay Mistakes–And How To Fix Them

Is your business compliant with the Fair Labor Standards Act? Here’s the facts about exempt employee laws, overtime pay, and hours worked.

5 Common Employee Pay Mistakes–And How To Fix Them
[Image: Flickr user kate hiscock]

Time and money are the basic building blocks of every business, but when it comes to managing the two among employees, employers can fumble easily and expensively.

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A 2011 survey conducted by the HR Policy Association found that 58% of all surveyed employers had been sued during the preceding 10 years for Fair Labor Standards Act (FLSA) violations, and more than 25% had been sued more than once.

Unfortunately, given the dynamics of the everyday workplace, it can take a law degree to fully grasp the mandates behind FLSA, making wage and hour violations some of the easiest legal blunders to make in running a business–even for the most well-intentioned employers.

Understanding these five most common mistakes is a good start to protecting yourself and your business.

1. Misclassifying Your Workers

Abide by a few simple and clear rules for determining proper compensation. When it comes to minimum wage and overtime payment, misclassifying workers, according to U.S. Department of Labor (DOL) standards can lead to a legal headache.

Here are some common misconceptions about classifying employees as exempt or nonexempt:

Myth: All salaried employees are exempt from overtime pay.
Most employees have to make at least $455 a week. That salary cannot be subject to reduction based on either the quantity or quality of the employees’ work, and the employees must perform specific kinds of work to be exempt.

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Myth: All interns can be unpaid.
According to the DOL, interns can only be unpaid if they meet all six detailed criteria, which basically state that the internship must be truly educational, and that the employer cannot gain immediate advantage from the intern’s activities. That is, you can’t get college students to do grunt work for free.

Myth: Any worker I don’t pay a salary or hourly wage, or offer benefits, is an independent contractor.
Legitimate contractors generally must be able to determine how, when, and where they will do the work you hire them to do. You only get to insist on a particular result of the work. If these conditions are not met, then your independent contractors may be entitled to overtime and benefits.

2. Forgoing a Wage and Hour Audit

As technology continues to evolve in the workplace, job descriptions are becoming more fluid–making it easier than ever to misclassify workers and harder to keep up with legal requirements. Failing to keep an eye on your wage and hour program with a regular audit can prevent you from noticing subtle–but costly–mistakes.

Unfortunately, most businesses don’t think to inspect this part of their business. Using an audit also serves as your chance to self-discover your own wage and hour issues without having an employee–and his or her attorney–do that for you.

3. Miscalculating Hours Actually Worked

An employee’s work schedule and the amount of time he or she works are not necessarily interchangeable, and payment must reflect the latter. But nailing down compensable hours, or hours actually worked, can be tricky. Here are some tips to keep in mind:

Pre-shift and post-shift work may be compensable.
If pre- and post-shift duties are necessary for an employee to do his or her job–such as putting on protective gear–you may have to pay for that time, even if the employee’s primary work activity has not actually started.

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Lunch breaks aren’t breaks if your employees work during the break.
Under the FLSA, you don’t have to pay employees during meal breaks if they are at least 30 minutes long. Employees have the right to leave their workstations during the break, and they are relieved from all duties. If you know your go-getter employee is working through his break, then he’s entitled to be paid for that.

Avoid automatic timesheets or have override mechanisms in place.
When dealing with compensable time, each day can be different. Timekeeping systems that automatically deduct for breaks, or clock employees in or out at predetermined times, will often fail to record what actually happened on any given day, such as an employee working through lunch.

If you must use such a system, be sure it includes relatively simple procedures to override the default entries, and train your employees on how to use them. Remember: the FLSA puts the burden on you–not your employees–to maintain accurate records of hours worked.

4. Not Leveraging Pre-Dispute Arbitration Agreements

You may be confident you’ll never be caught in the fray of an employment-related lawsuit, but never assume it won’t happen to you.

A pre-dispute arbitration agreement can be your FLSA safety net. When crafted fairly and properly, a pre-dispute arbitration program can limit your exposure to one of the most expensive, disruptive, and common federal wage and hour dilemmas–an FLSA collective action lawsuit, or a class action alleging state employment law violations. Generally, these agreements can be made mandatory, and they can limit the resolution of future disputes to one-on-one arbitration.

5. Ignoring Known Problems

Sweeping complaints under the rug will only hurt you in the long run. If you realize you’re probably–or maybe–operating outside the federal wage and hour laws, investigate your wage and hour program.

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If you are aware of any complaints, then call your attorney, and take corrective action immediately. You should always try to stay one step ahead.

  • Train first- and second-level supervisors to recognize employee wage and hour complaints, and have a systemized protocol for reporting those complaints.
  • Offer a way for employees to express their complaints internally, such as a tip hotline or comment box, so they can seek redress internally before seeking a lawyer.
  • Know how to handle a real legal threat. Have a trusted attorney on standby or have a contingency plan in place. One person should be designated to handle all employee questions. Employers should neither offer misleading information about the situation nor admit to violations.

Darrell West is a member attorney with Dickinson Wright PLLC’s Nashville office. He concentrates his practice in labor and employment law.