11.30.20169 min read

5 Huge Fair Labor Standards Act Mistakes Business Owners Make

By Myranda Mondry

The Fair Labor Standards Act (FLSA)—the federal statute that establishes minimum wage, overtime pay, and employment standards in the U.S.—was enacted over 78 years ago in 1938, but many of today's American business owners still aren't sure what it means or how to comply. 

And it's no wonder. "The FLSA's wage and hours provisions are a complicated, shifting target," says employment attorney Daniel Abrahams. "And the law is being reinterpreted in new ways all the time…making it very difficult to stay on top of every nuance in real time."

So complicated, in fact, that not even the U.S. Department of Labor (DOL), the very department charged with enforcing the FLSA, can keep up. An FLSA lawsuit was filed against them in 2006 by employees claiming the DOL had broken their own rules. And, well, they had. After nearly ten years of battling the lawsuit in court, the DOL recently paid out more than $7M to settle. "If the DOL can't get this right," says Jackson Lewis attorney Paul DeCamp, "what chance do other employers have?"

Unfortunately, ignorance of the law is not an alibi—and it's certainly not an alibi that will hold up in court if you're hit with a wage and hour lawsuit (which, by the way, are on the rise).

In an effort to learn more, TSheets partnered with Mark Tabakman of Fox Rothschild to identify the top mistakes employers are making when it comes to FLSA compliance. Together, they surveyed more than 1,000 small business owners across the United States, asking "How much do you really know about the FLSA?"

The results…weren't great.

The average score of the FLSA quiz was a dismal 56 percent—a solid fail—indicating that the average business owner is pretty lost when it comes to FLSA compliance.

But there's still time to turn things around. These are the top five mistakes business owners are making when it comes to the FLSA—and what you can do today to avoid repeating them.

1. Not abiding by state laws

Does Federal law (a.k.a. the FLSA) trump state law? Or is it the other way around?

According to the FLSA quiz, only 42 percent of business owners got this question right. The other 58 percent believe that the FLSA typically overrides state laws. 

Employment law attorney Maria O. Hart has the official answer: "The federal law is one thing," she says, "but it's the minimum. Each state is well within their authority to create a more robust or stronger law." In any case, business owners should always comply with the more stringent law.

How can you comply today?

"It's always a good idea to check in with your legal counsel," says Hart, "someone who is familiar with both federal regulations and state laws. They can help ensure your business is in compliance."

In the meantime, she recommends familiarizing yourself with the DOL's website and reading up on Federal and state laws. No one expects you to understand the FLSA inside and out, but you do need to have a basic understanding of what's expected from you and your employees when it comes to the FLSA. 

2. Putting too much weight on employee job titles

Does an employee's job title play a role in determining whether or not that employee is exempt or nonexempt from overtime pay?

More than 32 percent of FLSA quiz takers answered "yes." But that's simply not the case. Slapping the word "manager" on the end of the employee's job title and boosting their salary isn't enough to classify them as "exempt." They must first meet the duties test of the FLSA — in the eyes of the Federal law, job duties carry far more weight than job titles. 

Long story short, labeling an employee a "manager" and boosting their salary above the exemption threshold could get you into some hot water if their job duties don't meet the exemption requirements. And asking a nonexempt employee to go above and beyond the call of their job description without also offering them the corresponding job title and exemption status will almost certainly result in a costly lawsuit.

How can you comply today?

Hart recommends conducting regular audits of your employees (both exempt and nonexempt) to ensure their job duties consistently correspond with job titles. "During this process," she says, "ask yourself, ‘Are they still doing what they were hired to do? Have their responsibilities changed? Is it time to increase their salary? Would a raise boost them outside the overtime threshold?’ If the answer is ‘yes,’ it might be time to reclassify.”

3. Allowing exempt employees to choose their own hours

If an exempt employee works 50 hours one week, and just 37 the next, can you still require them to make up the remaining three hours? 

The correct answer is yes, but only 41 percent of FLSA quiz takers got it right.

While the FLSA doesn't necessarily care how many hours your exempt employees work each week, your other nonexempt employees might. Think of it this way, if you require your nonexempt employees to hit 40 hours each week, but let your exempt employee get away with working 37 (even if they did work 50 the week before), you could have a discrimination suit on your hands.

How can you comply today?

Start with a crystal clear company policy that details exactly how many hours your employees are expected to work each week and under what circumstances they are able to work overtime—then, enforce it uniformly. 

"A written overtime policy protects the business when it is clear when it is compliant, and when it is implemented uniformly by the business,” says Hart. "You should periodically take a good hard look at whether or not a policy is being implemented."

4. Assuming that salaried employees are automatically exempt

If a salaried employee works more than 40 hours per week, do they deserve overtime pay?

The correct answer is yes, and nearly 40 percent of FLSA quiz takers got it wrong. Surprisingly (at least, to many of the quizzers), salaried employees are not automatically exempt from overtime pay. In fact, as of December 1, 2016, any employees making less than $47,467 per year will be considered "nonexempt"—meaning they qualify for overtime pay. Yes, even if they're salaried. 

This new salary threshold of $47,467 nearly doubles the old one, and experts expect that number to continue to climb—which means you'll likely have quite a few salaried, nonexempt employees on your hands in the very near future.

If you're not sure why that matters, consider this: “If an employer fails to pay any overtime worked to a misclassified employee," says Hart, "the employee may be owed backpay for the time worked but not paid, liquidated damages (which is essentially doubling of the backpay), statutory penalties, and the employees’ attorneys’ fees if a claim is made.”

How can you comply today?

First, check with your legal counsel to ensure your employees are classified correctly (remember, "salaried" is not synonymous with "exempt"). Then, start tracking nonexempt employee time.

It might seem counterintuitive to require your salaried employees to track time, but doing so will allow you to keep an eye on overtime hours worked and confirm that your employees are being compensated correctly.

Which brings us to our final mistake …

5. Failing to keep accurate employee time records

If your nonexempt employee is salaried, should they still be required to track their time?

In short, yes.

However, only 43 percent of FLSA quiz takers got this right. 

Not only does the FLSA require business owners to track and store accurate time records for nonexempt employees, but they also require that those records be stored for two entire years.

And, according to Hart, it's in your best interest to track employee time regardless of the FLSA. "In the event you are hit with a wage and hour lawsuit," says Hart, "accurate and organized time records can serve as your number one defense!"

How can you comply today?

Find an automated time tracking system (like tsheets) that works for you and your business and start tracking employee time. As in, right now.

Once you've got some accurate time data stored safely in the cloud (and in your arsenal), you'll be able to make smarter business decisions when it comes to employee classification or restructuring, and you'll always know exactly how many hours your employees have worked—which can serve as your number one defense in the case of an FLSA lawsuit.

Myranda Mondry is a copywriter and researcher at TSheets—an employee time tracking and scheduling software that's used by more than 20,000 successful businesses worldwide. Based in the up-and-coming tech community of Boise, Idaho, she has a Journalism degree from Boise State University and a serious passion for helping small businesses succeed. In her spare time, she can usually be found curled up with a good book or out hiking Boise's famous foothills.

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