One of the many frustrating aspects of owning a business is keeping up with all of the laws relating to employees. If the deluge of class action litigation over the last few years tells us anything, it is that some of the most common -- and costly -- mistakes made by businesses are in the area of wage and hour compliance. Many of these mistakes are easy to avoid by having standard operating procedures in place.
Topping the list of wage and hour pitfalls:
- Making unauthorized deductions from employees' pay. Most state laws restrict the circumstances under which a business may deduct amounts from an employee's pay to (1) required withholding (taxes, FICA, FUTA and other amounts required by law, such as garnishments); (2) amounts the employee authorizes in writing for charitable contributions, insurance premiums, union dues, and other payments made to third parties for the employee's benefit; and (3) to repay the employer for a cash loan or advance on compensation, provided the employee has signed an authorization in advance. In Oregon, it is NOT permissible to deduct for cash shortages, breakage, a negative vacation balance, lost equipment, failure to return company property, recovery of an unearned bonus or moving expenses, or even inadvertent overpayment of compensation.
- Final pay violations. Employees who voluntarily terminate employment with at least 48 hours' notice must be paid on their final work day. Employees who resign on less than 48 hours' notice must be paid within five business days or on the next regular pay day, whichever is earlier. Employees terminated involuntarily must be paid by the end of the next business day. Final pay must include all accrued wages through the last day of work, including vacation, sick pay, commissions, and any other compensation earrned as of the termination date. The final pay must be made available at the place of employment, unless the employee has requested otherwise (e.g., the employee signed up for direct deposit or asked that the check be mailed).
- Failure to provide meal and rest breaks. Non-exempt employees who work more than six hours MUST take a meal break of at least 30 minutes during which the employee is relieved of all duties. In addition, non-exempt employees MUST take a ten-minute rest break for each four-hour segment of work. Employees may not skip or combine meal and rest periods.
- Misclassification of employees as exempt from overtime. Employees must be paid 1.5 times their regular hourly rate for each hour worked in excess of forty hours each week unless they qualify for exemption from overtime. To be exempt, the employee must be paid a certain minimum salary each week and also satisfy a "duties" test. Both federal and state law define who qualifies for exemption, often with no bright line, and sometimes with conflicting results. In the event of a conflict, the employer must apply the law most beneficial to the employee.
And these are just to name a few. In addition to paying employees the wages due for any actionable wage and hour violation, employers may be liable for multiple statutory penalties, interest, attorney fees, plus administrative penalties imposed by the state. Where multiple employees are affected, the damages can be in the tens of millions of dollars (for example, in 1999, Microsoft paid in excess of $92 million to settle a class action involving misclassification of workers as independent contractors -- another wage and hour nightmare). On top of that, many wage and hour violations carry criminal penalties.
All of these problems can be avoided. First, before you put procedures in place, make sure you have someone on staff who understands the law. If you are wearing too many hats to take on human resources yourself, consider hiring a staff person (in the long run, it's cheaper than the alternative). If your business is too small to justify hiring someone in this role, hiring a consultant or outsourcing is an option. Whatever your needs, we're here to help.
For further information on wage and hour compliance, go here.
