Many business owners started their careers punching a time clock, but after climbing the ladder to success, it’s easy to forget the satisfaction of clocking a few extra hours or the significance of the overtime pay that came along with it. However, the recent increase in class-action lawsuits for alleged violations of wage and hour laws has become an exasperating reminder for many employers.
Such cases now account for nearly 85 percent of all employment class-action lawsuits, and legal experts don’t see the trend ending anytime soon. Allegations include employers’ failure to pay minimum wage, unpaid overtime and inaccurate “exempt” or “nonexempt” employee classifications. Exempt employees are not eligible for overtime pay regardless of extra hours worked, while nonexempt, or hourly, employees can earn overtime.
Maybe it’s the time intensive reporting associated with wage and hour laws or because the Fair Labor Standards Act was enacted during the Great Depression and no longer reflects the way people work (Today’s constant connectivity and the expectation that we are accessible and responsive 24/7 doesn’t exactly accommodate eight-hour shifts or uninterrupted lunch breaks).
Whatever the reason, wage and hour law violations are one of the most common noncompliance issues for companies, and infractions can be costly. According to one recent report, the average settlement per case is nearly $13 million.
To prevent costly litigation, companies should ensure their practices and their employees comply with state and federal wage and hour laws. Here are a few tips:
- Conducting regular audits can help ensure that the various positions within a company are properly classified as exempt or nonexempt. Audits can also validate that the wage associated with a particular position is fair. Business managers who are not familiar with the nuances associated with each classification’s criteria should defer to in-house human resource experts or engage a firm that specializes in HR to help conduct a thorough audit.
- Educate employees on the rationale for each position’s classification. Some employees have a notion that exempt positions are more significant. Managers should emphasize that all employees are looked upon with the same level of respect, but exempt and nonexempt classifications are required to comply with federal and state employment laws.
- Ensure managers understand the distinctions between exempt and nonexempt. Nonexempt employees should receive uninterrupted meal and rest breaks and are eligible for overtime. If managers don’t acknowledge job classifications, they may maintain unrealistic expectations or be intolerant of an employee’s required work schedule.
- Establish a company policy that defines overtime and outlines procedures for requesting overtime. Does responding to an afterhours email or answering a phone call constitute overtime? If so, is the employee’s supervisor aware of this overtime? Best practices suggest that employees sign a weekly time card to verify clocked hours and supervisors pre-approved overtime.
- Use a time management system to electronically track and verify employee hours. Advanced systems can even flag and calculate overtime before it occurs so managers can make quick, cost-saving staffing decisions. Effective time management technologies can also automatically compile data, such as overtime, into accurate and detailed reports.
- A day’s work doesn’t always fit neatly into eight hours. However, when chronic overtime becomes a costly issue, employers should evaluate the situation. What’s the reason for all the overtime? Is the employee managing his or her time well? Would hiring another employee save the company money and save an employee from burnout?
You don’t have to earn minimum wage, punch a time clock or calculate your take-home pay based on overtime hours to be impacted by wage and hour laws. These laws govern when and how your employees work every day. Stay current on the laws and make sure your company is compliant. If you don’t, it could cost you a pretty penny.
John Allen, is president and COO of G&A Partners, a Texas-based HR and administrative services company that manages human resources, benefits, payroll, accounting and risk management for growing businesses. For more information about the company, visit www.gnapartners.com.