Wage and Hour Claims: Reducing Your Risk

With sexual harassment cases getting loads of media coverage right now, you may think that’s your company’s biggest liability risk. And depending on where you work, you might be right.

Should you throw a bunch of time and energy into preventing harassment from happening? YES.

But there are other risks you need to invest time and energy into as well. Risks that are getting far less attention, but could be just as disruptive to your business: Wage and hour violations.

Expensive, but preventable

Make no mistake. Wage and hour claims are on the rise. The number of FLSA cases has skyrocketed over 450% since 1995. And if you think those numbers are staggering, you should check out some of the data on back wages and fines.

If you’re a business owner or HR professional, this information may seem super scary, and rightfully so.

One of the more frightening aspects of wage and hour violations is that employers rarely make these mistakes with a single employee. More often, it happens with a class of employees— which raises the stakes (and the fines) exponentially.

The good news is that wage and hour mistakes are almost always avoidable. In other words, you are your own best defense. You just have to be vigilant.

Classify correctly

There’s no two ways about it. Employee misclassification is the employer’s fault. (Unless you’re letting your employees classify themselves, in which case you’ve got bigger problems.)

The key to avoiding costly claims is to get your employee classifications right the first time. And every time. When it comes to compliance, complacency is your enemy. Stay on top of your game by doing the following:

Make sure you’re clear on how the Department of Labor defines an exempt vs. non-exempt employee.

If you don’t know what the regulations are, your chances of being able to abide by them are pretty slim. And claiming ignorance won’t get you out of a lawsuit or the resulting judgement. When it comes to compliance, knowledge really is power.

Once you have the rules down, figure out how to align the various classifications with your team structure and how your employees work.

Structure positions, job duties, and compensation so that everything fits within defined categories to help eliminate gray area.

Keep accurate and updated job descriptions that reflect positions and responsibilities correctly.

Just because a job description reads like it falls into a specific category doesn’t mean the daily reality matches. If an employee can show there’s a discrepancy, that’s a problem.

Be careful about classification for independent contractors.

The nuances here can be complicated, but that’s no excuse for getting it wrong. You can refer to someone as an independent contractor all day long, but if you’re telling that person exactly what to do and how to do it, you’ve got yourself an employee. And one who may be classified incorrectly.

Err on the side of caution

If you aren’t 100% sure how to classify an exempt vs. non-exempt employee, you can reduce your risk by sticking with a non-exempt status. If you’re unsure about whether or not you’re hiring an independent contractor or staff person, you can fill out this form and the IRS will make the determination for you. It can take up to six months, but at least you’ll have a clear answer. If you want to be safe in the meantime, always choose to err on the side of your employee.

Rinse and repeat

It’s a good idea to evaluate your classifications from time to time to make sure job descriptions, compensation and classifications are all still aligned and where they should be. If you find any anomalies, address them immediately. Don’t wait for your employees to point potential discrepancies out to you.

A good-natured employee might come to you first and agree to work things out amicably. But an unhappy employee might very well call her brother-in-law, who happens to be a litigation expert.

Keep your business safe and your employees happy by classifying staff correctly and paying them what they’re worth.

Photo by NatUlrich

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