Wage & Hour Law Compliance for Employers
Key Components of Wage & Hour Law
Minimum Wage Requirements
Overtime Pay
Employers must correctly classify employees as exempt or non-exempt to determine overtime eligibility. Non-exempt employees are entitled to overtime pay for hours worked over 40 in a week. Proper calculation of overtime wages is necessary to avoid disputes.
Recordkeeping Obligations
Maintaining accurate records of employees' work hours, wages, and other employment details is a legal requirement under federal and most state laws. Employers must retain these records for a specified duration, usually three years, to ensure compliance with wage and hour laws. Proper recordkeeping is critical for verifying compliance, resolving disputes, and providing evidence in case of audits or investigations.
Child Labor Laws
Child labor laws restrict the employment of minors in certain industries and limit the number of hours they can work. Employers must adhere to these regulations strictly to protect young workers and avoid extremely harsh legal consequences.
Wage & Hour Laws
Wage and hour law compliance is a critical aspect of employment law that all employers should take seriously. The first step to compliance is understanding the many wage and hour laws that govern employers.
Federal Wage & Hour Laws
The Fair Labor Standards Act (FLSA)
The FLSA is a federal law that governs employers in all states and imposes national standards regarding company recordkeeping, minimum wage, overtime pay, and standards for the employment of minors. Perhaps most notably, the FLSA sets the national minimum wage (presently $7.25 per hour) and provides that if any state law governing a given employee sets a different minimum wage, the employee is entitled to the higher of the two. Another notable part of the FLSA outlines when employees are entitled to overtime pay, as well as the amount that they are entitled to. Generally speaking, most employees are entitled to time-and-a-half pay for any time worked that exceeds 40 hours in a single week. However, some employees are exempt from this general rule under certain circumstances. The Wage and Hour Division of the U.S. Department of Labor is tasked with enforcing the FLSA.
The Davis-Bacon Act
The Davis-Bacon Act is a federal law that entitles contractors and subcontractors working on certain federally-funded or federally-assisted contracts to locally prevailing wages. Prevailing wages are frequently higher than standard minimum wages prescribed by federal or state law. Employers who engage in any type of federally-funded contracts should be well-versed in this law, in particular.
The McNamara-O-Hara Service Contract Act (SCA)
Similar to the Davis-Bacon Act, the Service Contract Act is a federal law that entitles contractors and subcontractors working on prime contracts in excess of $2,500 to locally prevailing wages.
State Wage & Hour Laws
Each state has its own law or set of laws governing employee wages..
State Wage Laws
Most state laws entitle employees to higher minimum wages than that prescribed by the FLSA. However, some states set the minimum wage at the same amount as federal law, and some set it even lower. In addition to this, some states set a flat rate for minimum wage, while others determine minimum wage in a more complicated fashion based on formulas and employer revenue. For example, as of 2024, California state law sets a flat rate minimum wage of $16 per hour and adjusts it annually based on a formula. Meanwhile, Ohio currently sets the minimum wage at $10.45 per hour for employees of companies with gross annual receipts exceeding $385,000, and $7.25 per hour for employees of companies with gross annual receipts less than $385,000. To complicate matters further, some states have prevailing wage laws, which entitle certain types of employees working on federally-funded or federally-assisted contracts to a higher rate than prescribed by minimum wage laws.
State Wage Laws
While the FLSA is the main source of law related to the hours an employee works and what he or she is paid for those hours, some states have laws supplementing the federal mandate. For example, a handful of states entitle non-exempt employees to time-and-a-half pay for any time worked that exceeds eight hours in a single day. In addition to this, California state law entitles non-exempt employees to double pay for any time worked beyond twelve hours in a single day.
Industry-Specific Considerations
In addition to the complexities of the overlapping federal, state, and local laws, some industries face unique wage and hour compliance challenges. These industries include:
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Hospitality: Managing employees who receive tips from customers, and who work fluctuating shifts of different lengths.
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Retail: Handling part-time and seasonal workers.
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Healthcare: Addressing long shifts and on-call time.
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Technology: Ensuring proper classification of salaried and contract workers.
Common Wage & Hour Violations
Violations of wage and hour laws can lead to significant legal and financial repercussions. Common issues include:
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Misclassification of Employees: Incorrectly classifying employees as exempt or nonexempt when determining overtime pay entitlement.
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Incorrect Overtime Payments: Failing to pay eligible, non-exempt employees the correct overtime wages.
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Improper Calculation of Special Types of Pay: Paying employees less commission or bonus money than entitled. Improper Pay for Training: Not adequately compensating employees for time spent in various types of workplace training.
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Off-the-Clock Work: Allowing or requiring employees to work without proper compensation.
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Inadequate Recordkeeping: Not maintaining proper records of work hours and wages.
Oftentimes, the allegations listed above are made by a current or former employee of the defendant business or institution. In some instances, a group of current or former employees collectively make allegations as part of a class-action lawsuit. Sometimes, current or former employees file complaints with the FLSA alleging that their rights were violated under the Act.
In these scenarios, the Wage and Hour Division of the U.S. Department of Labor opens investigations on the business in question. These investigations can impose significant hardship on employers because investigators are neither required to announce the initiation of an investigation nor their intention to conduct an in-person visit to the business with the objective of inconspicuously observing business operations.
If the Wage and Hour Division discovers that a particular business is not in compliance with the FLSA, it is within its discretion to recover back-wages, as well as liquidated damages. In some extreme instances, the Division will recommend that a company face criminal prosecution based on evidence they recover during an investigation.
Steps to Ensure Wage & Hour Law Compliance
Conducting Regular Audits
Performing regular audits of payroll and employment practices is vital for compliance with wage and hour laws. Key elements to review during an audit include:
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Payroll Records: Verify that all employees are paid according to applicable laws and that overtime payments are accurately calculated and disbursed.
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Employee Classifications: Confirm that employees are correctly classified as exempt or non-exempt and that job duties and salaries align with their classifications.
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Timekeeping Practices: Ensure all hours worked are recorded accurately and that employees are compensated for all hours worked, including breaks and training time.
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Minimum Wage Compliance: Check that all employees are paid at least the minimum wage required by federal, state, and local laws.
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Recordkeeping: Confirm that all employment records are maintained for the required duration, usually three years, and are detailed and accessible.
Regular audits will help ensure compliance with wage and hour laws, minimize legal risks, and maintain a fair workplace for employees.
Implementing Clear Policies and Procedures
Developing clear policies that align with wage and hour regulations is vital to ensuring company compliance. Once comprehensive policies are put in place, it is equally as important that all employees understand these policies.
Training for HR and Management
Providing training for HR personnel and managers can be an extremely useful tool to keep your team leaders informed about compliance requirements and the best practices to meet them.
Maintaining Detailed Business Records
One of the best ways of defending meritless claims regarding wage and hour violations is to keep meticulous records documenting compliance with all applicable wage and hour laws.
Utilizing Compliance Software and Tools
Leveraging technology to automate and manage compliance processes encourages detailed recordkeeping and reduces the risk of errors.
Keeping Updated with Legislative Changes
Staying informed about changes in wage and hour laws at all levels is imperative to ensuring that once your company is compliant, it remains compliant. Some wage and hour laws, especially at the state and local level, are adjusted annually to reflect factors such as changing costs of living. It is important to stay up to date on the most recent wage and hour laws so that your company can adjust its practices accordingly and maintain compliance.
Responding to Wage & Hour Claims
When faced with a wage and hour claim, employers should:
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Conduct Internal Investigations: Gather relevant documents and employee statements.
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Document Evidence: Maintain detailed records to support your position.
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Communicate with Legal Counsel: Seek advice and representation from skilled employment law attorneys with particular experience in wage and hour claims.