Category Archives: FLSA

Ten Tips for How to Avoid FLSA and Wage and Hour Claims

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Time ClockAn FLSA complaint, or its variant – whether it becomes a suit or is settled – will impact revenues, employee morale, productivity, create stress for management, and so on.

In addition, while the costs of defending an FLSA claim may be covered by an Employment Practices Liability policy (hopefully you have one), frequently the costs of settling back wages and fines are excluded from insurance coverage.

But what are the risks, you ask? In addition to the defense costs, employers can be found liable for the following:

  • Back Wages: up to 2 years of unpaid back wages, or 3 years for “willful” violations
  • Liquidated Damages: in the amount of two times or, if the violation is willful, three times the unpaid wages
  • Attorney Fees: shifting of Plaintiff’s attorneys fees to the employer if the Plaintiff prevails
  • Civil Penalties: fines of up to $1,100 per violation for willful violations 
  • Criminal Prosecution: very rare, but can happen for repeat or egregious offenders

For these reasons, and because I’m preparing for my upcoming FLSA presentation (shameless plug), and because lists are fantastic, I offer the following ten steps to help employers avoid employee wage disputes.

1. Determine Who is Entitled to Overtime Pay and Pay It.

Under the FLSA, employees must receive overtime pay (at 1.5 times the regular hourly rate) for hours worked over 40 hours in a work week unless the employees’ job duties make them exempt from overtime.  Job duties – not job titles, tradition, or whim – are key to determine whether an employee is exempt from overtime. The three-part test for exemption requires the following:

a. The employee is paid a set and fixed salary that is not subject to variations because of the number of hours worked or quality of work performance (the salary basis test).

b. The amount of salary meets a minimum level (the salary test).

c. The employee’s duties are primarily in the executive, administrative, or professional duties of the business (the duties test).

Any employee who does not meet all three is entitled to overtime compensation.

2. Keep Accurate Records of Hours Worked.

Why? Because you can bet disgruntled employees are.  In 2011, the DOL announced it had released a smartphone app with a “timesheet to help employees independently track the hours they work and determine the wages they are owed.”  Also, the FLSA requires that employers keep records on each employee including, but not limited to, the following:

a. hour and day the work week begins
b. total hours worked each work day and each work week
c. total daily or weekly straight-time earnings
d. total overtime pay for the work week
e. deductions from or additions to wages
f. total wages paid each pay period
g. date of payment and pay period covered

3. Keep Accurate Records of Payments and Deductions Made.

Paired to good recordkeeping for time worked is the practice of maintaining good documentation of when and how employees are paid. Employers that cannot prove they have paid employees are at risk of wage claims from employees who decide to claim they never received pay. Further, Iowa law requires that an itemized statement of the hours worked, wages earned, and deductions made.

4. Enforce Policies Prohibiting Working “Off the Clock;” Have Employees Sign their Time Cards.

FLSA suits involve complaints from employees worked through lunch, came in early, stayed late, waited in line, walked from one work station to another, answered phone calls or read work emails out of work hours, and so on, without receiving compensation. If nonexempt employees are working – even if they’ve been directed not to work late, or to take a break, they must be paid.

The DOL’s stance on this issue is clear – employers cannot sit back and accept the benefit of employees’ work time without paying for it. If you know or should know an employee is working without authorization, your is to use your power to enforce work rules (see 29 C.F.R. 785.13 – “In all such cases it is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed”).

Make sure your employee handbook or policy reflects your commitment to paying non-exempt employees for all hours worked and strictly prohibit working “off the clock.” One way to guard against claims is to have employees sign time records (electronic signature counts, too!) to certify the record is a true and accurate reflection of hours worked, and further that the employee did not work any additional hours not reflected in the record for the period.

5. Get Written Authorization for Any Deductions from Wages.

Under the Iowa Wage Payment Collection Law, there are three categories of legal deductions from wages:

a. deductions ordered by a court (e.g., garnishments for child support, alimony, or civil judgments);
b. deductions required or specifically authorized by state or federal law (e.g., payroll taxes, guaranteed student loan wage attachments, and permissible administrative fees for garnishments); and
c. and deductions made for an otherwise lawful purpose accruing to the benefit of the employee, and authorized by the employee in writing.

Some employers want to deduct losses from breakage, stolen property, damaged equipment, and so on from an employee’s paycheck. Under most circumstances, it’s not permitted. Not unless the employee has acknowledged and agreed to it in writing. Some deductions are simply impermissible.

6. Pay Employees for Breaks or Meal Periods Less Than Twenty Minutes.

The FLSA treats breaks of fewer than 20 minutes as “hours worked,” and therefore compensable.
Meal periods of less than 30 minutes of uninterrupted time are also considered time worked. The safest approach is not to automatically deduct periods for a lunch break, but rather to have employees record hours worked – whether by sophisticated means such as ADP or other software, or simply a written record on paper. Again, the value of having employees sign these records cannot be overstated.

7. Be Sure Managers Know State and Federal Wage and Hour Laws.

The DOL has a number of tools, training materials, FAQs, and so on geared toward small businesses. Iowa’s Department of Workforce Development has similar tools. Because the area changes so rapidly, regular training and maintenance of subject knowledge is essential.

8. When in Doubt, Err in Employee’s Favor.

Often, a question arises about how to proceed where small employers are uncertain about whether an employee worked through a lunch period, should be docked for time off taken in excess of PTO, or other FLSA and other wage and hour questions. When in doubt, it’s safer (and cheaper) to err on the employee’s side.

9. Make a Clean Break with Departing Employees.

A good number of wage claims arise from an employee the employer thought was gone. Sometimes employees file wage claims for time worked beyond what the employer thought was the date of separation. In this event, the employer can lose its case if there is not some clear evidence that the employee received unequivocal notice he is no longer on payroll.
For that reason, the best practice is to issue separated employees some formal notice of work separation, listing the employment end date, stating the employee is no longer on payroll, and notifying the employee of when to expect his or her final check (make sure that’s within your state wage statute’s required timeframe).

10. If an Ongoing Employee Files a Wage Claim, Don’t Retaliate!

If an employee files a wage claim, makes a demand for wages due, or otherwise attempts to exercise his/her rights to recover what he or she believes is unpaid wages, don’t retaliate against the employee. Instead, conduct an investigation, make substantiated findings, and remember Rule 8 and err in the employee’s favor. Finally, do not withhold any wages that are conceded to be due – this is violation of another provision of Iowa’s Wage Payment Collection Law.

These are my top ten — from research and regulations to caselaw and practical experience.  Do you have any strong rules of your own to add?