The 10 Riskiest Wage Hour Mistakes HR Leaders Make

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The U.S. Department of Labor (DOL) collected a record "$246 million in back wages for more than 240,000 employees" from employers who were found non-compliant with the wage hour requirements of the Fair Labor Standards Act (FLSA) in 2015. Over the past decade, there's been a staggering 253 percent increase in newly filed wage-related lawsuits in federal court.

In order to reduce your risk of non-compliance with the FLSA, HR leaders would do well to review their pay policies. So to help inform your compliance and risk mitigation efforts, here's a list of the 10 most common wage errors that can create expensive liability for your organization.

1. Treating Employees as Contractors

Classifying your employees as independent contractors should be a tool to avoid paying overtime. It doesn't remove your responsibility to comply with the ACA, workers compensation or unemployment. If your employees are required to work on-site during specific hours, use tools and equipment that you provide or perform core business functions, they're probably misclassified if you consider them a contractor.

2. Exempt Salaried Employees

Employees who are paid a salary are not necessarily exempt from overtime. In order to be exempt, they must perform executive, administrative, professional, computer or outside sales duties, according to the Department of Labor (DOL). Before the revised rules were released in May 2016, they had to have made at least $455 per week. Under the new rules, however, which will take effect December 1, 2016, the minimum salary has been revised to $913 per week, with an automatic adjustment every three years.

3. Deductions From Exempt Employee Salary

Employers are not permitted to deduct pay based on the quality or quantity of exempt employees' work — even if they only work a few minutes in a week. You can't deduct for poor work performance or weather-related closures, either. There are seven exemptions to the "no pay docking rule," which include full-day absences, unpaid disciplinary suspensions and violation of major safety rules.

4. Automatic Break Deductions

The FLSA and state laws require short breaks of 10 to 20 minutes to be paid, but say meal periods of 30 minutes or more can be unpaid. If employees are interrupted during an unpaid break, they must be paid for the entire period. One of the easiest ways to reduce this risk is by ensuring your human capital management (HCM) technology doesn't deduct unpaid meals automatically.

5. Paying NonExempt Employees by Shift

While employees must be paid for all hours worked, many timekeeping systems default to scheduled hours. If employees perform work before or after their shifts, your technology could be introducing liability. You should require all non-exempt employees to punch in and out.

6. Not Paying Non-Exempt Employees for Pre- or Post-Shift Activities

Employers are required to pay for work-related activities, even if they're completed outside your employee's scheduled shift. This includes time spent powering up computers, checking emails and changing into uniforms. You are not required to pay for time spent walking into the building, security checkpoints or waiting to punch a time clock.

7. Failure to Pay for Meetings or Training

Non-exempt employees must be paid for time in meetings or training. The only exception is if attendance occurs outside work hours, they're not required to attend, the meeting is not job-related or they're not working productively.

8. No Pay for Travel Time

Non-exempt employees do not need to be paid for their normal commute. However, employees should be paid for all work-related travel, with some limited exceptions under certain state laws. That includes time spent traveling to a different work site. Depending on local legislation, you may need to pay all travel time for overnight trips.

9. Not Including "Extras"

Your employees' overtime rate is actually a little more complex than just "time and a half." You're legally required to provide "all renumeration," in addition to overtime rate, such as shift differentials.

10. Failing to Pay Overtime on Bonuses

Bonuses, commissions and the fair market value of non-monetary awards are considered "renumeration" that must be applied in overtime calculations. If a non-exempt employee worked overtime during a calendar year, their annual bonus must include overtime pay.

Full compliance with the FLSA requires up-to-date, accurate wage hour pay policies and technologies that don't introduce risk. By reviewing your wage policies and practices and taking pains to make adjustments where deficiencies may exist, you can take a big step toward avoiding non-compliance and its associated costly penalties and lawsuits.


Tammy McCutchen headshot

Tammy McCutchen is a principal in Littler Mendelson's Washington D.C. office, and also serves as VP & Managing Director, Strategic Solutions for ComplianceHR. She is a leading authority on federal and state wage-hour laws and prevailing wage laws.

At Littler, Ms. McCutchen counsels businesses on wage-hour compliance, including conducting internal audits on independent contractor status, overtime exemptions, and other pay practices. She also represents employers during investigations by the U.S. Department of Labor and serves as an expert witness in wage-hour class actions. In her role at ComplianceHR, Ms. McCutchen provides strategic direction for the company and manages development of compliance applications designed to assist employers in making key employment decisions including whether to classify workers as independent contractors or exempt from overtime.

Before joining Littler, Ms. McCutchen served as Administrator of the U.S. Department of Labor's Wage and Hour Division, and was the primary architect of the 2004 revisions to the overtime exemption regulations, the first major changes to the regulations in 55 years.

Ms. McCutchen is on the Editorial Advisory Board of Law360, is a member of the Small Business Legal Advisory Board of the National Federation of Independent Business, is a Policy Fellow at the ACU Foundation, and serves as Chair of the Federalist Society's Labor & Employment Practice Group. She is a graduate of Western Illinois University and Northwestern University School of Law, and clerked for Judge Daniel A. Manion on the U.S. Court of Appeals for the Seventh Circuit.