Are You at Risk for Wage and Hour Violations?

It’s a familiar scenario at workplaces across the country: it’s a busy week, and a non-exempt employee is asked to work a few hours of overtime. His supervisor realizes she forgot to get approval for the overtime in advance, so she offers the worker a day off as “comp time.” Seems fair enough at first — but it’s a lawsuit waiting to happen.

Instead of accepting a “free Friday,” that employee may decide to report the incident as a violation of the Fair Labor Standards Act. The FLSA offers great incentives for wage and hour violation lawsuits. The FLSA regulates minimum wage, overtime pay, equal pay, and child labor, and overtime requirements are the biggest contributor to such litigation. It’s the fastest growing type of class action, and it’s becoming a major concern for companies nationwide.

In January 2012 Novartis Pharmaceutical Corporation agreed to pay $99 million to settle a wage-and-hour class action lawsuit. The suit involved a group of current and former sales representatives seeking overtime pay for hours worked in excess of 40 hours a week.

Complaints on the rise in the “underground economy”

The U.S. Department of Labor reported 40,000 wage-and-hour complaints during fiscal 2010, up 15% from the previous fiscal year. One reason for the rise was the weak economy and the resulting plethora of laid-off workers who decided to go after their former employers for lost overtime wages they believe were owed them.

In February 2012 federal and state officials joined forces to crack down on companies in California that improperly classify workers as independent contractors. In December 2011, the U.S. Department of Labor entered into an agreement with the state of Colorado to avoid misclassification of employees as independent contractors.

One of the reasons for the increased government scrutiny is that it is being increasingly apparent that companies who do abide by FLSA laws are being undercut by competitors who are breaking them. The latter often have employees who are “off the books” or intentionally misclassified as exempt. This allows the unscrupulous employers to get more hours out of their workers while paying them less. Such practices are rampant in what is becoming known as the “underground economy.”

Most vulnerable are the lowest paid, entry-level employees. Often such workers are forced by their managers to work “off the clock”— and feel too intimated to report it because they fear getting fired. With crucial benefits such as family healthcare coverage on the line, they can’t afford the risk.

Steps to take

To avoid costly litigation and stay on the right side of the law, companies can take the following precautions:

  • Conduct periodic internal audits to determine whether employees are being properly classified. This includes reviewing job descriptions and company-wide policies.
  • Keep careful records. Make sure both employers and employees are using daily or weekly timesheets and that both parties approve them when they are completed.
  • Train managers on FLSA and state wage and hour laws.
  • Have a zero tolerance policy for wage and hour violations.
  • Make sure job descriptions for exempt positions satisfy applicable requirements. For exemption fact sheets, click here.

A few thousands of dollars saved by not paying overtime is a drop in the bucket compared to what a business can lose in a wage and hour violation lawsuit. Such suits can cost an organization millions in penalties, payouts, and legal fees — and perhaps most important, reputation. A company that treats its workers fairly will be far more attractive to customers, business partners, and shareholders.

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