Almost every employer is required to adhere to the Fair Labor Standards Act – the FLSA. However, that’s oftentimes easier said than done. The FLSA is a complex framework, and mistakes are both common and costly – especially for smaller businesses.
The Fair Labor Standards Act was enacted in 1938 after a rising demand for codified work and pay practices. The FLSA governs the federal minimum wage, overtime pay, child labor laws and laws regarding recordkeeping of pay. The cost for violating these norms is steep. The U.S. Department of Labor, which oversees the FLSA, estimates that it recovered an average of $706,000 in back wages per day last year. The costs are even steeper for willful FLSA violations, and on top of civil monetary penalties, the DOL can and will commit to criminal prosecution.
However – these violations, while common, can be easily avoided so long as you know what they are. That said, here are the most common FLSA errors that often land employers in trouble:
Miscalculation of Hours
The FLSA mandates that all nonexempt employees must be paid for all of their hours worked. While this might sound self explanatory, there are some nuances and things you might overlook in your calculations, such as:
- Training and meeting time.
- Short breaks that are not for the purpose of a meal.
- Off-the-clock work.
- Travel time during the workday, such as time taken to travel between job sites.
- Waiting time.
- On-call time.
- Sleeping time that has been scheduled during a shift.
Each of these must be accounted for when calculating hours worked, per the FLSA.
Misclassification of Exempt/Nonexempt Employees
Under the FLSA, any nonexempt employee must receive no less in hourly pay than the federal minimum wage, and they must receive overtime pay if their work hours exceed 40 in a single work week. Exempt (salaried) employees are not eligible for overtime pay, but they must receive a minimum salary of at least $684 weekly. Exempt employee status can only be conferred on employees that meet specific FLSA requirements. If they are not an exempted employee, then they default to nonexempt.
Be sure to class nonexempt and exempt employees correctly. Confusion can cause either group to be paid incorrectly, which puts you at odds with FLSA regulations. Additionally, misclassification can lead to improper recordkeeping because the FLSA has separate payroll recordkeeping criteria for nonexempt and exempt employees.
Incorrect Salary Deductions
If a salaried, exempt employee performed any work at all for the week, they are to receive their full salaries for that week. Salary deductions can only be made if they are legally permissible according to the FLSA. Here is the exact wording:
Deductions from pay are permissible when an exempt employee: is absent from work for one or more full days for personal reasons other than sickness or disability; for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness; to offset amounts employees receive as jury or witness fees, or for military pay; for penalties imposed in good faith for infractions of safety rules of major significance; or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions. Also, an employer is not required to pay the full salary in the initial or terminal week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.
You’ll want to make sure, before making any deduction, that you are in compliance with FLSA regulations.
Miscalculating Overtime/Misclassifying FLSA Overtime
Their are very strict rules per the FLSA for calculating overtime… including what should be excluded from the “regular rate of pay” calculations.
On top of that, the FLSA has a few different types of recognized overtime:
- Standard overtime
- Fluctuating overtime
- Weighted average overtime
Be sure you know which type of overtime you’re paying for!
Not Knowing State and Local Labor Laws
The FLSA is federal law, but individual states may have additional minimum wage, overtime, child labor and recordkeeping laws – or they may have exemptions. Moreover, when state or local laws conflict with the FLSA, the employer must abide by the law that benefits the employee the most. Head to the DOL website to learn more about your state’s labor laws.
Not Being Up to Speed on FLSA Changes
The Department of Labor periodically releases news and updates about changes in the FLSA. For example, the agency has provided guidance for FLSA adherence during the recent pandemic. Additionally, the DOL will sometimes publish “final rules,” which clarify certain aspects of the FLSA that might not be clear. Staying up to date on these publications will keep you in compliance!
Need More Help with the FLSA? Get in Touch with Capital Payroll!
Following the regulations in the FLSA is vital to the long term health of your business, so it pays to be in the know. If you are in over your head, or just want to spend your time on what brings in money instead of learning about the regulations on how it is divvied up, we’re here to help. At Capital Payroll Partners, we can provide you with the necessary tools and resources to make an informed decision about the classification of your employees.
We’d love to be your payroll partner. Get in touch today! Give us a call at (804) 364-7220 or simply fill out the form below to reach out – we’ll be back in touch ASAP.