Bright Lights - Tips & Solutions

HR 101

Fair Labor Standards Act; Vigorous Evaluations!

If you have ever been through a Wage and Hour audit you know that they can be time consuming and expensive.  Many employers find themselves in a situation that requires a complete audit of all payroll records before they even realize that something is wrong. The Department of Labor, the Division of Wage and Hour is responsible for ensuring that all employers are compliant with the Federal Fair Labor Standards Act as well as all Pennsylvania state regulations. 

So what are some of the most common mistakes employers make when classifying jobs and paying employees? 

Many employers misclassify jobs into exempt categories that do not actually meet the threshold for an exempt classification. The Department of Labor has a very comprehensive website (http://www.dol.gov/elaws/esa/flsa/overtime/menu.htm) that contains the FREE information that employers need to maintain compliance with all of the Wage and Hour regulations.  First, make sure that all jobs have a specific classification and any jobs that are in question are evaluated by an attorney.  Make sure you do not miss classify an employee as EXEMPT because they are paid on a salary basis.  These are two distinct terms; exempt means the job and employee are exempt from the overtime requirements as specified in the Fair Labor Standards Act and salary simply means that an employee is paid a static amount per week.  An employee can be salaried and NON-EXEMPT this means that it is possible to be required to pay a salaried employee time and a half for any hours worked over 40, commonly known as overtime!  If you have salaried employees make sure they pass the exemption “tests” prior to withholding overtime. 

Second, make sure you are accurately counting all eligible “hours worked”.  There are many areas that can cause issues for employers as it relates to “hours worked” under the Fair Labor Standards Act.  A few of the most common areas of concern revolve around missed lunches, time at the beginning and end of shift and breaks.  As an employer you want to ensure that Payroll and Human Resources specialists are continuously being updated on the changes and recent trends in Wage and Hour audits.

Third, another area is the overtime calculation for employees that work with more than one rate.  This is what is referred to as the “regular rate” for overtime purposes. This is a calculation combining all rates and all hours to determine the “regular rate” that must be used for time and a half.  This can create concern for employers who pay multiple shift differentials and for employers that allow employees to work in more than one job category with several hourly rates.  Remember that it does not matter what job an employee was in or for what rate an employee was working at the time they reached the 40 hours.  The rate used to determine the overtime premium must be the “regular rate” calculation. 

It is possible to be ready for a Wage and Hour audit; we recommend conducting periodic self-audits.  On a monthly basis randomly select a few time records and payroll records and make sure your systems are working.  On an annual basis re-classify all exempt positions to make sure you have them properly classified.  Finally, even if you have an electronic tracking system for your time records, have employees sign their “time sheets” to ensure that they are in agreement with the “hours worked” to be paid for each pay cycle. 

Implementing these few sound practices has the potential to save you hours of headaches as well as substantial back wages and penalties.