Wage and hour violations are on the rise. Avoid headaches, risks with internal audits.
In 2018, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) recovered a record $304 million in wages from employers for wage and hour law violations. These kind of “wage theft” accusations continue to present a huge risk for employers. Internal wage and hour audits can enable you to manage this risk. Specifically, they will help uncover areas of risk you need to address and provide or contribute to a “good-faith” defense to wage and hour claims.
A basic internal audit involves reviewing: exempt employee classifications, overtime and regular pay rate calculations, and independent contractor classifications. All of this can be confusing, but the WHD has a compliance assistance toolkit with facts sheets and other information to help you understand various requirements.
FLSA provides exemption from minimum wage and overtime pay for certain employees, such as executive, professional, and outside sales positions. Some highly compensated employees also are considered exempt if certain salary standards are met. However, don’t assume that any salaried employee is exempt. To be classified as exempt the person must earn at least $23,660 per year or $455 weekly (check back with DOL in the coming months for anticipated increases on this for 2019). At the same time, each employee must perform specific job duties under the applicable exemption. Look beyond a job description to analyze what primary tasks and responsibilities these employees are handling on a daily basis.
The areas of risk may vary for different organizations. However, the WHD indicates that problems often arise when “employers fail to recognize and count certain hours worked as compensable hours.” For instance, an employee who eats lunch at his/her desk but continues to answer the phone and conduct business is considered to be working. This time, according to WHD, “must be counted and paid as compensable hours worked because the employee has not been completely relieved from duty.”
Overtime pay is another tricky area for some employers. However, unless specifically exempted, covered employees must receive overtime pay (time and a half of their regular wage) for hours worked in excess of 40 in a work week; and there is no limit on the number of hours employees age 16 or older may work in a work week.
When done properly with legal counsel, an internal pay audit is a good measure to ensure fairness and provide a defense if you ever face an FLSA wage claim. The audit results, as well as documentations of action taken to address issues or risks identified, will help show that the employer acted in “good faith” should a claim ever arise.
