In an effort to keep their companies lean and profitable, small business owners sometimes inadvertently break employment laws. These mistakes can be costly.
Two common ways small operations run afoul of employment laws are:
Misclassifying employees as exempt.
Typically, “exempt” employees are paid a salary and do not receive overtime pay if they work more than 40 hours per week. While it’s tempting to classify every employee as exempt, the classification may not align with the government’s definition of an exempt employee. If that is the case, the company would be required to pay overtime to some salaried workers under certain circumstances.
To be classified as exempt, employees must meet both a functional requirement and be paid no less than $23,660 per year as defined by the Fair Labor Standards Act. Employees who don’t meet both the salary and functional requirements should be classified as nonexempt.
Misclassified employees who have not received earned overtime pay can file suit with the U.S. Department of Labor. The DOL investigates misclassification complaints and also can fine or sue the company if it finds violations.
Many states have their own wage and hour laws, some of which are more stringent than the FLSA’s. Small businesses must adhere to both the federal and applicable state regulations.
Not paying employees for breaks.
The federal government doesn’t require companies to offer meal or work breaks to employees. If a small business does decide to provide employees with short rest or snack breaks of up to 20 minutes, the breaks are considered hours worked. For nonexempt employees, short breaks therefore must both be compensated and, for overtime calculations, be factored into the total number of hours worked during the work week. Exempt workers are not entitled to be paid beyond their salaries for short breaks; likewise, they cannot have their pay docked if they choose to take breaks.
Under the FLSA, employers do not have to compensate any employees for meal breaks that last at least 30 minutes. Nonexempt employees who “work through lunch” must be paid for the time worked. Because nonexempt employees could purposely skip meal breaks as a way to work more than 40 hours per week and thus gain overtime pay, many organizations require employees to take these breaks. Nonexempt employees who do not comply with the policy could be subject to discipline – but the employer still would have to pay the employees for the time worked over meal periods.
As with employee classification, many states have break requirements that businesses in those states must follow.
Overtime is tricky
Where the overtime question gets even more thorny is when employees’ roles require them to perform job duties beyond the traditional work hours. For example:
When an employee must travel overnight for business, all time spent traveling during the hours corresponding to the employee’s normal working hours is counted as time worked. So, if an employee usually works weekdays from 9 a.m. to 6 p.m., but must leave at 3 p.m. to catch a plane on any day (weekends and holidays included), she would be entitled to three hours of pay. The time she spent traveling after 6 p.m. would not require payment.
Getting to and from work does not count as hours worked under the FLSA, but time spent traveling during the employee’s regular workday – driving between jobsites, for example – must be counted as hours worked.
Call backs or emergencies
When employees are called out at night after having completed their day’s work and must travel some distance to perform an emergency service on the employer’s behalf, all time spent on the job, including travel, must be counted as hours worked.
If an employee must stay on the employer’s premises or so close by that he can’t use the time for his own purposes, the time spent “engaged to wait” is counted in the employee’s working hours. An employee who is on call at home or engaging in his own activities is not considered to be working during the hours spent on call.
What if your business has broken the law?
If you discover your company has unintentionally broken one of these employment laws, reclassify misclassified employees and adjust payroll so nonexempt employees are set up to be paid overtime in the future.
You also may determine the company owes nonexempt employees back pay for previously worked break periods or overtime hours. If this is the case, make the payments quickly. It is far better to communicate the error with employees proactively than to have the violation discovered because a worker files a lawsuit or a state or federal agency decides to audit your business.
Wage and hour laws can be confusing. You aren’t running a small business because you want to spend time tracking the employment laws affecting the company – but not following them can put you out of business. If needed, get help from a qualified adviser who can help you navigate these and other complex employment laws.
For more tools to stay on the right side of the law check out these resources:
- The Top 6 HR Compliance Issues
- 17 Labor Laws Every Small Business Owner Should Know
- Is your business at risk without an employee handbook?
Jo McClure is Director of Payroll Administration at Axcet HR Solutions. She can be reached at @joamcclure.