HOA Board Meetings: Communication Do’s & Dont’s
Fair Labor Standards Act (FLSA) missteps can be among the most costly errors that a business can face. In 2024 the Department of Labor’s Wage and Hour Division (WHD) recovered more than $273 million in back wages and damages resulting from FLSA mistakes. This number stands in addition to the untold figure representing judgments and settlements resolving enforcement claims brought by employees against employers under the law.
The FLSA is the primary federal law governing wage and hour standards for most workers. The law, in conjunction with various state laws, applies to virtually all employers and establishes minimum wage, overtime pay requirements, recordkeeping obligations, child labor restrictions, and a variety of other workplace standards. Here, we lay out 6 of the most common missteps made by employers resulting in inadvertent—and often costly—FLSA violations.
- Misclassification. One of the most prevalent issues under the FLSA is the misclassification of employees. Misclassification occurs in two forms: (a) employers may mistakenly classify workers as independent contractors rather than employees; and (b) employers often incorrectly classify employees as salaried employees exempt from the overtime provisions of the law. Employee classification can get complicated, but in each case, the appropriate classification is governed by the facts and circumstances surrounding the employee’s work. For example, employees who perform executive, professional, or administrative duties as their primary job function may be classified as exempt from the FLSA’s overtime pay requirements, but only if they satisfy other criteria related to salary and job duties. Critically, neither an employee’s job title nor consent to a particular classification is determinative of the proper classification.
- Overtime pay violations. Another common FLSA violations occurs when employers fail to properly compensate employees for working more than 40 hours in a workweek. Under the FLSA, non-exempt employees are entitled to receive pay equal to “time-and-a-half” for all hours worked over 40 per week. Overtime pay violations can occur for many reasons including, misclassification, improper record keeping, incorrect calculation of the employee’s “regular rate,” or simply not properly counting hours worked.
- Failure to pay for all hours worked. Non-exempt employees must be paid for all hours worked. This includes, among other things, regular work time, breaks less than 20 minutes long, qualifying business travel, certain “on-call” time, training time and time spent checking and responding to email off hours. These violations often occur without the employer’s awareness and can result from well intending employees feeling pressured to work through breaks, perform tasks before or after shifts, or simply attempting to be responsive to after-hours communications.
- Improper deductions from pay. The FLSA prohibits employers from making certain types of deductions from employees’ paychecks that would reduce their pay below minimum wage or reduce overtime compensation. Common examples of improper deductions may include deductions for uniforms, tools, or other job-related expenses. Employers should ensure that any deductions made from employees’ pay are lawful and do not result in the employee receiving less than minimum wage or overtime pay.
- Neglecting recordkeeping requirements. Under the FLSA, employers are required to maintain records relating to hours worked and wages earned for non-exempt employees for at least three years. This includes records of time worked, deductions and additions to wages, and total wages paid. Records that explain the basis for wage calculations must also be retained for two years. One of the biggest challenges employers face defending against FLSA claims, including misclassification claims, is that they often have incomplete records of the employee’s hours worked. In these cases, absent proper records of the employer, the wage and overtime calculations will be based on the employee’s accounting of hours worked unless the employer can produce proof to the contrary.
- Employee tip credit issues. For employers in the service industry, the FLSA’s tip credit rules can be particularly problematic. Regardless of whether an employee earns tips, employees must still be paid at least the minimum wage. Therefore, if an employee’s hourly pay plus the tips they receive is lower than the applicable minimum wage, the employer must make up the difference. Failure to do so is a violation that could result in penalties.
Conclusion:
FLSA violations can be among the most costly mistakes an employer can make. Simple and unintentional mistakes can result in significant liability. Under the FLSA, employees can recover back wages and unpaid overtime for the previous two to three years, penalties equal to double the amount of actual damages and attorneys’ fees. The attorneys’ fees alone reach several hundred thousand dollars and even more. Moreover, improperly withheld payroll taxes may result in back taxes owed and IRS penalties. The DOL may also impose penalties.
By taking proactive steps to ensure compliance, you not only protect your business from legal repercussions but also foster a fair and equitable workplace for your employees. At Primmer Piper Eggleston and Cramer PC we are committed to helping you navigate the complexities of employment law and ensure your business remains compliant and successful. Contact us today to learn how we can assist you in safeguarding your business against FLSA risks.
