Wage-and-hour lawsuits continue to be the biggest source of liability for employers under the Fair Labor Standards Act (FLSA), according to data recently released by the Federal Judicial Center, the education and research agency for the federal courts. The twelve-month reporting period ending March 31, 2014 set another record for the number of wage -and- hour cases filed in federal courts —8,126 —representing a 5% increase over the previous year and a striking 438% increase over the last 15 years.
Experts expect this trend to continue given the tightening of the federal standards for class certification, the current focus on the minimum wage and President Obama’s recent directive to revise the regulations on "white collar" exemptions.
As a result, employers should take steps to minimize their exposure to such claims by reviewing their employee classification and pay practices to ensure compliance with the FLSA.
The following six guidelines can help ensure best practices that foster FLSA compliance.
Abide by salary rules. Generally, salaried workers tend to be exempt from FLSA requirements because they are paid a guaranteed salary no matter how many hours they work. However, FLSA regulations require workers earning at least $455 per week, $910 biweekly, $985.83 semimonthly, $1,971.66 monthly or $23,660 annually to qualify as an exempt employee. This minimum applies regardless of the nature of the employee's duties and responsibilities. Employees earning a salary below this threshold must be paid overtime using an hourly rate calculated based on their salary.
Ensure proper payroll recordkeeping. Implement an effective system to record and maintain all hours worked by non-exempt employees, who must be paid at least the applicable minimum wage for each hour worked, and overtime pay at a rate of 1 ½ time the regular rate of pay for all hours worked over 40 in a week. Furthermore, employers should not track the number of hours worked on a daily basis by exempt employees because this could raise questions about whether the employee is truly exempt.
Implement clear policies and procedures for overtime and other issues. Policies should specify how employees should report their time and for what time they will be paid — overtime, meals, travel, training, etc. Employers should also provide a process for employees to bring forward questions and complaints and outline what actions will be taken to address concerns and correct mistakes.
Train managers and human resources personnel. Make sure those in charge of overseeing wage and hour issues understand not only the rules, but also company policy on how to deal with issues such as unauthorized overtime, breaks, meal times, travel time and "donning and doffing" time.
Train employees. Educate employees on the written policies and procedures to help avoid mistakes that could lead to bigger issues down the road.
Conduct annual classification reviews. Misclassified employees can collect double — or liquidated — damages unless an employer can show the misclassification was made in good faith. Performing an annual review of employees' job descriptions and actual duties against FLSA exemption regulations can help spot mistakes and provide proof of good faith efforts to classify employees. If any employees require reclassification, make the change as soon as possible and reimburse the employee for past unpaid overtime.
FLSA compliance can be a challenge for employers, particularly given the current enforcement and litigation focus on wage-and-hour issues. Employers who stay up to date on current FLSA regulations and court rulings and implement effective policies and procedures will be better able to prevent complaints, quickly discover and correct mistakes and successfully defend themselves in the event of a government investigation or civil lawsuit.