A worrisome business trend is the growing number of wage and hour lawsuits that are a significant source of financial exposure for employers. As the number of lawsuits climbs, so does the cost to employers.
The U.S. Department of Labor reports that it receives nearly 25,000 wage-and-hour related complaints per year. The number of Fair Labor Standards Act (FLSA) cases filed in the federal court is more than five times higher than it was 20 years ago.
Overtime claims account for 40 percent of wage and hour class action lawsuits. Other common wage-and-hour claims include:
And a new area of concern - the use of email and mobile devices outside of working hours.
The cost of wage and hour claims to small business
Wage and hour lawsuits are expensive to businesses because settlements can include:
Business owners can decrease the chance of a complaint or suit against them by taking some proactive steps.
Effective time-keeping measures
Employees and former employees often assert in class action lawsuits that the hours paid were not accurate and were under-reported or not reported by the employer. To prevent this type of claim, ensure that the workforce time-keeping practices are well documented and that the reported time is verified by the employee.
Best practices for accomplishing this include:
Additionally, it’s a good idea to implement a written policy that includes information for the employees, such as:
Conduct a wage-and-hour audit
An internal audit of wage and hour practices by expert outside counsel can identify and help prevent most violations of the law - thereby helping to avoid a lawsuit. The cost for such a review is substantially less than the fees to defend - and possibly lose - a single charge.
An effective wage-and-hour audit will include review of employee classifications, such as:
If violations are found, counsel can advise strategies to correct them and deal with any potential back-pay obligations in ways that reduce the likelihood of litigation. After an effective audit, an employer will know the existing risks and can take the appropriate steps to bring the company into compliance.
Enhance compliance training
Another way to avoid wage and hour class litigation is to ensure human resources and supervisors are properly trained in the key danger areas where violations commonly arise. Employers must also ensure compliance with state wage and hour laws, not just the FLSA. Many states have variations and exceptions related to overtime exemptions, as well as wage payment laws that may differ from those of the FLSA. For example, while the FLSA’s fluctuating work-week system can reduce overtime liabilities for participating employees with varying schedules, nearly a dozen states have yet to adopt this method of calculating overtime, instead requiring the time-and-one-half formula.
Companies should conduct thorough review of state wage and hour laws in all states where they have employees.
Effective training, policies and enforcement can help prevent wage and hour violations, and reduce the chance of lawsuits. Should a problem be discovered, proper training can help remedy the situation before it becomes a complaint. If a complaint is filed, the organization will have the structure in place to address and correct it before it becomes a lawsuit.
Contact TriNet for more guidance on wage and hour compliance.
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