Wage and Hour Laws:
Should You Be Concerned?

We have been hearing a lot, lately, about Department of Labor disputes concerning Wage and Hour law issues.

Do any of the following scenarios fit your business in any way?

  • No time clock or detailed time cards to track employee time.
  • Employees paid a (verbally agreed on) salary or commission and no one is paid hourly.
  • When overtime becomes an issue, employees are changed to a salaried status.

All of these fit the business of a client of one of the East Coast service centers in our payroll service center network. The State Department of Labor recently informed this particular business the amount they must pay to employees and ex-employees for not following the state's wage and hour laws ... more than $10,000! And this is just a small business with about a dozen employees.

The Fair Labor Standards Act (FLSA) is a federal law pertaining to minimum wages, overtime, commission pay, meal and rest period breaks, compensable time, and child labor. Many states also have additional wage and hour laws which govern employees' working conditions and pay. Under these laws, businesses are required to keep records necessary to document labor law and tax compliance. In fact, your business could even be liable for transporting, shipping, delivering or selling goods produced or worked on by workers employed in violation of the FLSA, or in violation of any Department of Labor (DOL)regulation!

In California, wage and hour laws heavily favor employees. Even an employee's legal fees may become payable by the employer, if an employee wins a case. Former employees may feel they have nothing to lose - especially after being laid off or fired.

Generally, wage and hour investigations are prompted by employee complaints. However, inspections also may arise as a result of "spot-checks" at employers that have violated the labor laws in the past, or at employers in industries with a disproportionate number of past violations. In addition, some firms report being approached by the Labor Department immediately after being audited by the IRS or State Tax Agency, leading them to believe auditors tipped off their DOL counterparts to possible labor law violations.

If you receive notice of an audit by a DOL or other government agency, the government auditors have the right to question your employees, and review your records.

So, what can you do to reduce the chances of an audit, and limit your liability? Here are a few best practices you can incorporate into your business:

1. Take steps to ensure you have properly classified your employees as exempt or non-exempt from wage and hour laws according to your state's requirements. They may only be paid as exempt (salaried) based on certain types of employment: outside sales (recent rulings could impact this category), computer professionals (special rules apply), executive, professional, administrative and others, if their duties meet certain tests of the law. Otherwise, employees are considered non-exempt, eligible for overtime, and require time tracking.

2. Utilize a formal timekeeping system that includes the actual time work starts, the time in/out for every unpaid break, and the time work ended, for each and every workday. These details are mandatory in California and many other states for all non-exempt employees. A formal timekeeping system, especially one which utilizes time clocks, will help you to create the records you need to maintain in the event of an audit. It will also provide you the data to ensure you are compensating your employees correctly.

3. Ensure employees sign their time cards. This helps promote good communication with your employees regarding their time, and will help in the event of an audit.

4. Make sure you have an up-to-date employee handbook covering your procedures and requirements to follow certain rules.

5. Never pay in cash! You need an audit trail to show your employees have been paid.

Pay 'N Time offers a number of services to help you avoid liability associated with DOL disputes. Our automated timekeeping systems can save you time, help keep you compliant and save you money - even if you only have one employee! Our online HR services provide a tremendous resource for do-it-yourselfers who want to better understand what they need to do to keep compliant. Better yet, we can refer you to a professional HR specialist who can conduct an assessment of your company's HR practices to prevent problems. Of course, if you do get in trouble, we can also refer you to an employment law attorney who can help you address any issues. A proactive prevention approach will save you time, money, and a great many headaches. Give us a call if we can help!

View CA Labor Code