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If you are a small business owner, you understand the many hats you need to wear as you get your company off the ground. One that needs to be understanding FLSA law requirements.
As your business grows, there comes a time when you need to hire employees.
This first hire is always challenging because there are still so many unknowns.
However, a successful business will continue to grow and hire more employees.
This is great news for the company but hiring workers requires you to pay attention to the laws that govern how employees are paid.
The Fair Labor Standards Act (FLSA) was written into law in 1938 to ensure employees are treated fairly and compensated for their work.
The basic requirements to comply with FLSA are:
- Employers are required to pay minimum wage;
- Employees are paid overtime for hours worked that exceed 40 hours in a workweek;
- There are restrictions on the employment of children;
- Employers are required to maintain appropriate record-keeping.
An employee is covered under the law in one of two ways:
Enterprise Coverage
Employees who work for certain businesses or organizations (or “enterprises”) are covered by the FLSA. These enterprises, which must have at least two employees, are:
(1) those that have an annual dollar volume of sales or business done of at least $500,000
(2) hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies
Individual Coverage
Without enterprise coverage, employees are protected by the FLSA if their work regularly involves interstate commerce. Specifically, employees who are “engaged in commerce or in the production of goods for commerce.”
Domestic service workers (such as housekeepers, full-time babysitters, and cooks) are also covered by the law.
Complying with FLSA requires small business owners to not only be aware of what the law requires but also have systems in place to ensure compliance with the law.
Ignorance Of FLSA Law Requirements Does Not Pardon
I believe that most employers strive to do the right thing.
Therefore, if there is a violation of the law, it is a result of ignorance of its requirements, rather than intentional noncompliance.
The problem arises when an employee makes the decision to contact the DOL to file a complaint.
Once an employee takes that step, your business could receive a notice of a DOL audit. This is not a communication that a small business owner wants to receive.
Be Proactive
If you are not sure if you are in compliance with the law, now might be a good time to conduct an internal audit to at least understand any gaps in compliance.
1. Determine Exempt vs Non-exempt Employees
The first thing you want to do is conduct a test to make sure you have your employees classified correctly as exempt vs non-exempt employment status.
Make a list of all employees and separate them into two categories: exempt (from FLSA) and non-exempt status.
Use the DOL coverage test to ensure you have employees categorized appropriately.
2. Audit Payroll Records
For employees who are not exempt, look at payroll records to make sure you have a history of pay, the wage for each employee, and accurate records of time worked.
If you find that compensation practices do not comply with FLSA laws, make a list of areas that are not in compliance and begin taking steps to rectify them.
3. Audit Employee Records
The DOL requires you to maintain these records:
- Employee’s full name and social security number.
- Address, including zip code.
- Birthdate, if younger than 19.
- Sex and occupation.
- Time and day of the week when the employee’s workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- The basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, “piecework”)
- Regular hourly pay rate.
- Total daily or weekly straight-time earnings.
- Total overtime earnings for the workweek.
- All additions to or deductions from the employee’s wages.
- Total wages paid each pay period.
- Date of payment and the pay period covered by the payment.
If the employee file is missing some information begin by creating a file with all of the required information.
4. Review of Internal Policies
Review internal policies on employment practices. If your policies are not in writing, now might be a good time to review them, make sure they comply with state and federal employment laws and get policies in print.
Make sure policies are applied consistently. Inconsistency in practice is one area which you could be vulnerable.
If it is good for one employee, it should be good for all. Bias treatment of employees should never enter the decision-making process.
5. Review Employee Job Descriptions
Job descriptions should be updated once a year and reflect on an employee’s job responsibilities. Keep these documents current and part of the employee’s employment file.
The DOL Can Help
If you have done an audit and determine that your compliance with the law has some major holes you might want to participate in a voluntary audit through the PAID program.
The Payroll Audit Independent Determination (PAID) is a new government program that facilitates the resolution of potential overtime and minimum wage violations under FLSA.
The program’s primary objectives are:
“to resolve such claims expeditiously and without litigation, to improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed—faster.”
Under PAID, employers are encouraged to conduct voluntary audits and, if they discover overtime or minimum wage violations, to self-report those violations.
Employers may then work in good faith with WHD to correct their mistakes and to quickly provide 100% of the back wages due to their affected employees.
There is definitely an effort that would go into this voluntary audit, but the benefits are worth the time.
Participating in PAID “allows employees to accept the payments and release their rights to privately sue the employer for the unpaid wages.” Consequently, there is a significant cost savings of time, resources, and settlement costs.
Getting ahead of the issues will be a great defense if an employee decides to take the step and file a complaint.
Make a plan to get into compliance and communicate that intent with employees. Most employees would welcome an apology and a surprise of back pay.
Most importantly, this type of proactive correction will speak volumes to your employees about your commitment to fair compensation, and an employee-friendly work environment.
As with everything employment-related, it is always a good idea to contact a labor attorney to help you navigate the complexities of labor law.
When was the last time you did an audit of the FLSA law requirements?