It’s important to understand and comply with the Fair Labor Standards Act (FLSA) to avoid costly mistakes. This article discusses the top five common FLSA mistakes that businesses make and how to fix them.
In the ever-evolving and highly regulated landscape of business operations, strict adherence to the Fair Labor Standards Act (FLSA) is crucial, regardless of a company’s size.
Established in 1938, the FLSA sets the ground rules for wage and hour standards in the United States, encompassing critical aspects such as minimum wage, overtime pay, recordkeeping, and youth employment standards.
Adhering to the FLSA can be challenging, especially for small businesses struggling with limited resources, a lack of FLSA knowledge, and time constraints. Even the most well-intentioned business owners can advertently fall into common FLSA pitfalls, and these missteps can lead to substantial consequences.
In this article, we’ll explore the five most common FLSA mistakes often made by businesses and provide guidance on how to avoid them.
Ensure that you properly classify your employees as exempt or non-exempt to avoid violating FLSA regulations.
One common FLSA mistake that businesses often make is employee misclassification. This is especially true in smaller businesses where employees take on multiple roles, making it difficult to clearly define duties and responsibilities.
Under the FLSA, employees are classified into two main categories:
- Exempt employees: These employees are not entitled to receive overtime pay for hours worked beyond 40 in a workweek.
- Non-exempt employees: These employees must be paid overtime for hours worked beyond 40 in a workweek.
To be considered exempt, employees generally need to earn a salary above a specific threshold (currently $684 per week, or $35,568 per year) and occupy positions categorized as executive, administrative, professional, or outside sales. The Department of Labor’s Duties Test serves as a helpful tool for employers to determine whether employees fit into these categories.
On the other hand, non-exempt employees are typically compensated with hourly wages or a salary below the DOL’s established threshold. Non-exempt employees are entitled to receive overtime pay for hours worked beyond 40 in a workweek.
To prevent misclassification, employers should create clear and comprehensive job descriptions for each position, clearly outlining the roles, responsibilities, and qualifications required.
Additionally, conducting regular FLSA audits ensures that as employees advance within the organization, their classification status remains accurate.
Failing to Pay Overtime
Understand the rules for overtime pay and ensure that you accurately calculate and compensate employees for any overtime hours worked.
Neglecting to pay overtime is another common FLSA mistake that smaller businesses often make. It is important to understand the rules governing overtime pay and to accurately calculate and compensate employees for overtime hours.
Under the FLSA, non-exempt employees must receive overtime pay at one-and-a-half times their regular hourly rate for any hours worked beyond 40 in a workweek.
Businesses without well-document time tracking policies often fall into the trap of overlooking overtime calculations, resulting in underpayment and potential legal disputes.
To steer clear of potential problems, take the time to educate both yourself and your management team about the overtime regulations outlined in the FLSA and any state and local overtime laws that may apply to your business. In addition, make it standard practice to keep precise records of the hours that employees work. A reliable timekeeping system can help track hours worked and highlight those employees who have exceeded 40 hours.
Improperly Calculating Hours Worked
Make sure you include all hours worked, including time spent on activities such as training, travel, and on-call time, when calculating employee wages.
Another common FLSA error is improperly calculating hours worked. This includes neglecting to account for hours spent on activities like training, travel, and on-call time when calculating employee wages.
The FLSA considers time spent in mandatory training, work-related travel, and on-site on-call presence as working hours, typically compensated at the regular rate.
Additionally, short breaks, usually lasting less than 20 minutes, are generally considered compensable. In contrast, meal periods, typically exceeding 30 minutes, are unpaid unless the employee is expected to remain on duty.
Similarly, any hours worked outside of an employee’s regular schedule must also be compensated. For instance, if a non-exempt employee is scheduled to start at 9 am but begins working at 8:30 am due to a heavy workload, its crucial to pay them for that additional half-hour.
To prevent improper calculation, establish clear policies and procedures for tracking and recording hours worked. Ensure managers and employees are aware of and understand these policies, and regularly review timesheets and records to correct inconsistencies.
Not Keeping Accurate Records
Maintain detailed and accurate records of employee hours worked, wages paid, and any deductions or exemptions claimed to demonstrate compliance with FLSA regulations.
Oftentimes, employers fail to maintain precise records of employee hours worked, wages paid, and deductions or exemptions. These records serve as evidence of compliance in case of audits or investigations, and protect your business from potential violations and penalties.
Implement a recordkeeping system that suits your business needs, whether its digital software, spreadsheets, or physical records. Develop comprehensive recordkeeping policies that outline what information to maintain (such as hours worked, wages paid, and any deductions or exemptions claimed), how to create and store records, and for how long to retain them.
Ignoring State and Local Laws
Be aware of any additional wage and hour laws at the state and local level that may apply to your business and ensure compliance with these regulations.
While complying with federal wage and hour laws is crucial, it’s equally important to be aware of state and local laws that may apply to your business.
Many states have their own regulations, including minimum wage rates, overtime requirements, and other wage and hour standards.
To ensure compliance, familiarize yourself with state and local wage and hour laws and adjust your payroll practices accordingly. This may include modifying minimum wage rates, correctly calculating overtime pay, and providing required meal or rest breaks.
By staying informed and adhering to all applicable laws, you can avoid common FLSA mistakes and protect your business. Remember that FLSA compliance is essential, and by following these guidelines, you can prevent costly errors within your organization.
XpanseHR Can Help
Don’t let FLSA compliance overwhelm you. Our team of experts can guide you through the intricate landscape of FLSA regulations, allowing you to focus on your core business objectives while ensuring your organization’s compliance. Contact us today to learn more.