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Wage & Hour Laws: The Great Under-Appreciated Risk for Employers

The Fair Labor Standards Act (FLSA) establishes federal standards for things like minimum wage, overtime pay and exemptions to the overtime requirement. Despite it being one of the oldest laws employers have to comply with (it was passed in 1938), it is often the least understood.  A recent study by the U.S. Government Accountability Office found that up to 90% of employers are not in full compliance!  But don’t think there is a lot of safety in numbers… here are some of the reasons why employers need to get into full compliance with the FLSA:

  1. It is easy for employees to file complaints. The US Dept. of Labor (DOL) accepts complaints from employees.  There is no filing fee.  The employee does not have to have an attorney.
  2. The DOL likes to do company-wide audits, not just investigate individual complaints. If one employee complains to the DOL about the non-payment of overtime, the DOL won’t limit their investigation just to that employee.  Small violations multiplied by lots of employees can mean big fees and penalties for employers.
  3. The DOL goes back two years to assess penalties (sometimes three). When an employer is out of compliance with wage and hours laws, in a sense it is carrying two year’s worth of liability on its books.  Again, small violations repeated over and over during a two year period of time can really add up.
  4. Employees cannot waive their rights to the protection of the law. You probably know of employees who beg their employer to be treated as exempt.  They’ll say, “I don’t care if I don’t meet exemption requirements! It’s ok with me!” The employee’s consent is irrelevant to the DOL.  If employees change their minds, or if the employer is audited for another reason (see #2 above), the DOL will charge the employer for the unpaid overtime.
  5. Wage and hour laws are “black & white”. When an employer is out of compliance with the FLSA, there are very few, if any, viable defenses for an employer to make.  Some employers think that their “legitimate business reasons” will persuade the DOL that they should be treated as an exception,.. but it won’t work!
  6. To be lawfully treated as exempt, the employee must meet exemption requirements. There are two types of exemptions: 1) white collar (executive, administrative, professional and outside sales); and 2) industry-specific exemptions.  If employees do not fit into one of these exemptions—which are narrowly construed—they cannot be treated as exempt.
  7. The DOL is ramping up enforcement. The DOL is very aware of the wide-spread problems with compliance and is ramping up enforcement efforts.  These efforts include hiring hundreds of new investigators, partnering with the American Bar Association to create an attorney referral system for employees, and interpreting the FLSA more narrowly against employers.

 

What should employers do? They should audit their wage and hour practices on a regular basis to ensure full compliance.  Non-compliance is just not worth the risk!

This article should not be construed as legal advice.

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