Between state and federal guidelines, employers and human resources professionals must comply with dozens of wage and hour rules. To add difficulty, employers with employees working across multiple states must comply with the guidelines in each individual state, some of which may directly conflict with the guidelines in the employer’s primary state. The volume and complexity of those rulings make these costly wage & hour mistakes common:
1. Misclassifying employees as independent contractors.
Only employees are protected by the provisions of the Fair Labor Standards Act (FLSA), so the Department of Labor sets clear guidelines to prevent employers from misclassifying employees as independent contractors (and therefore infringing on the worker’s rights to the protections available to employees, like overtime pay, employer contribution to taxes, benefits, paid time off, and others). It’s critical to evaluate every worker against the requirements before classifying them, and please note, a worker can always be an employee but cannot always be an independent contractor. Typically, a worker cannot be both an employee and an independent contractor for the same company.
2. Failing to comply with final pay guidelines.
The timing of final pay is not addressed by federal law but governed by state law in most cases. Employers must pay wages immediately when they discharge employees. They must pay employees who quit and who do not have written employment contracts for specified time periods within 72 hours of quitting. They must pay employees, who give 72 hours’ advance notice of their intention to quit, and who quit on the day given in the notice, at the time the workers end their employment. For this reason, it’s critical that organizations are familiar with state laws regarding final pay in any state in which they employ workers.
3. Misclassifying non-exempt employees.
In order to deem an employee exempt, an employer must ensure they meet the guidelines established by the FLSA. As a guideline, employers should interpret the FLSA’s guidelines literally and err on the side of caution; if you have to use creative interpretation to fit an employee into an exempt classification, they should likely remain overtime-eligible.
4. Failing to comply with rest period rules.
While federal law does not require that employers offer meal or rest periods, they do govern how these breaks should be paid when they’re offered: short breaks lasting 5-20 must be paid time while breaks lasting 30 minutes or more can be unpaid, however, the employee must be fully relieved of all duties during the 30-minute break for it to be unpaid. Furthermore, many state laws address meal and rest periods – and some mandate that they are offered – so it’s important that your local team has a strong understanding of both state and federal law.
5. Paid time off policy or payment errors.
While federal law does not currently address paid time off – that is, it neither requires employers to offer it nor governs whether it’s a payable benefit upon termination of employment – employers must be familiar with state paid time off guidelines. Some states prohibit a use-it-or-lose-it policy and many states mandate that unused PTO is paid out upon termination of employment (with exceptions, in some cases).
6. Docking pay from exempt employees.
The Fair Labor Standards Act (FLSA) outlines when it is and isn’t permissible to deduct from an exempt employee's salary, yet many employers treat exempt employees like non-exempt employees when it comes to pay docking. To avoid penalties for improper deductions, your local leaders and payroll staff must familiarize themselves with the FLSA’s Part 541 Exemptions.
7. Always rounding in favor of the employer.
Employers are permitted to round pay to the nearest fifteen minutes so long as they ensure that the policy allows time to round both down and up. More specifically, the DOL says that should employers choose to round to the nearest 15 minutes, then worked time from 8-14 minutes must be rounded up to the quarter-hour.
8. Violating youth employment laws.
While 14- and 15-year-olds may work, there are a number of restrictions in place: 1) they cannot work in hazardous jobs, 2) they are limited to 3 hours per day on a school day and 8 hours per day on a non-school day, and 3) their worked hours must fall between 7:00 a.m. and 7:00 p.m., except from June 1st through Labor Day, when they're permitted to work until 9:00 p.m.. Employers are relieved of most restrictions with 16- and 17-year-olds, who can work unlimited hours any time of day in nonhazardous jobs.
Errors are more common among small employers and employers who have employees across multiple states. Many employers choose to mitigate risk by partnering with a professional employer organization, or PEO, which can provide ready-made payroll practices, policies, and support that are fully compliant with both state and federal guidelines.
For more information on how Axcet HR Solutions makes managing payroll easier, visit our website.
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