By:  S. Eric Bass, J.D., M.B.A.

These days, you hear a lot about possible increases in the minimum wage.  But did you know that the number of wage and hour lawsuits in Federal courts is also increasing?  In fact, these lawsuits have nearly doubled in frequency since 2004.  Experts have offered many possible explanations for the increase in these lawsuits, including economic downturns, new regulations, and, of course, “overly aggressive” lawyers.  But perhaps the likeliest explanation is the growing number of small businesses that simply lack the staff and expertise to comply with the many wage and hour requirements of Federal and state laws.

That’s where experienced counsel, like the attorneys at the Venn Law Group, comes in.  A knowledgeable lawyer can help you learn more about what Federal and state laws apply to your business and how to comply with them.  This article will give you examples of the most common mistakes made by many business owners.

Assuming Certain Employees Are Exempt

Many business owners believe that because they pay a “salary” to an employee, that employee is exempt from the overtime pay requirements.  Others sometimes believe that because the employee’s work is important to the business, the employee must be exempt.  Unfortunately, these beliefs are incorrect.  Federal laws have very specific requirements for determining whether an employee is exempt from overtime pay regulations.  These requirements do not depend on the employee’s importance to the business or regular rates of pay.  The requirements also do not depend on whether the business owner pays them a “salary” for their regular wage.  Instead, federal law has specific wage and duty related tests that must be considered by business owners before labeling an employee as exempt from overtime pay. These tests can be complicated and are best handled with the help of an attorney or HR professional.

Not Paying for All Time Worked

Some business owners do not pay non-exempt employees for time spent putting on protective equipment or traveling to work sites.  Others supply their non-exempt employees with laptops, cell phones, or other communications equipment that may be used to conduct business at any time or ask employees to work or answer phones during a meal period.  Allowing or encouraging employees to work from home adds another wrinkle.  Under many circumstances, these types of practices result in compensable time owed to employees.  Generally speaking, if a non-exempt employee spends time doing things that are integral and indispensible to their work, they should be compensated for that time.  For example, many cases have resulted in non-exempt employees being awarded overtime pay for checking e-mails from home and making calls during off-hours.

Even if you have a policy prohibiting overtime or off-the-clock work, you may still be required to pay for such work if you accept the benefits of such work without disciplining violations of the policy. Consult our blog post on employee handbooks for more information.  In general, business owners must compensate non-exempt employees for all time that they are “suffered or permitted” to work – so be careful to know what qualifies as compensable work time, have a policy on it, and enforce that policy consistently.

Improper Paycheck Deductions

A common problem for business owners is an employee’s misuse, damage, or even outright theft of equipment, supplies, or inventory.  Many of these business owners assume that they can deduct for such items from an employee’s paycheck when discovered.  However, North Carolina has very specific requirements for when an employer can deduct from an employee’s wages.  These requirements generally include a written acceptance of the amount and reason for the deduction by the employee.  If the employee refuses to accept the deduction, the employer then has few options.  Also, the Department of Labor has issued an opinion that certain deductions from an exempt employee’s wages can violate the test that makes that employee exempt from the overtime pay requirements.  Therefore, business owners should be sure that they know exactly when they may deduct amounts from employees’ paychecks and the proper methods for doing so.

Everybody Does It

Another common mistake business owners make is the “everybody does it” mistake.  For example, I often hear business owners say that their clients won’t pay them for overtime work, so they won’t pay their employees for overtime work.  Some businesses owners have heard stories about their competitors or colleagues saving money by making employees “bank” overtime or by offering “comp time.” It just doesn’t work that way.  Following any industry standard, real or perceived, is not a defense for a claim under Federal or state wage and hour laws.  In fact, plaintiff’s lawyers and the Department of Labor often target specific industries because of such common practices, which would make a business owner more likely to deal with a claim for following the herd rather than less likely. As always, you should be skeptical of what “everybody does” or what you “heard from a buddy.” If it sounds too good to be true, it probably is – contact the Venn Law Group before you make significant changes to your overtime practices.

Conclusion

Employees, plaintiffs’ lawyers, and the Department of Labor take wage and hour issues very seriously.  You should too.  Don’t rely on your past experience or industry practices alone to comply with the many applicable rules and regulations.  Ignoring these issues will not make them go away either.  It is worth the time for you to work with your advisors to regularly audit your pay practices.  This work should result in a better workforce and less time spent dealing with claims and issues.  Then you and your employees can focus on your business and avoid those “overly aggressive” lawyers.