Pay Now Or Later

02 Feb, 2012

Employee Pay Irregularities Can Be Costly

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The past decade has seen a dramatic increase in the number of employee class-action lawsuits claiming pay irregularities. Such suits can be very costly for small and large companies alike.

Accordingly, employers would do well to review their payment practices. Here are only a few issues to keep in mind:

Federal and state laws. Employers that engage in interstate commerce must comply with the Fair Labor Standards Act (FLSA), which establishes federal wage and hour standards for covered employees.

Generally, the FLSA establishes a minimum wage for all covered employees and requires additional compensation for hours worked in excess of a set minimum. The FLSA also contains provisions regarding child labor, record keeping, and discrimination with respect to wages.

However, the FLSA only sets minimum standards. If an applicable state law provides for a higher minimum wage, more generous overtime compensation standards or more restrictive standards for child labor, that law supersedes FLSA provisions.

It is critical, then, that employers understand both the FLSA and state law and comply with whichever is more protective of employees.

Exempt classifications. One of the trickiest decisions employers face is whether to classify an employee as exempt from overtime compensation standards.
The FLSA allows the exemption for individuals employed in a bona fide executive, administrative or professional capacity, or in the capacity of an outside salesperson or computer systems analyst or programmer, provided they are paid a certain minimum amount.

However, FLSA and state law criteria may differ, leading to potential noncompliance. Employers that classify employees incorrectly under state or federal law are liable for unpaid overtime wages, may incur penalties, and could be on the hook for employee attorneys’ fees.

A detailed analysis of exempt positions in relation to both federal and applicable state laws can prevent future problems.

Meal and rest periods. The FLSA does not specify whether employees must be provided meal and rest periods. Many states, however, have stringent requirements concerning meal and rest periods.

This issue is at the heart of numerous class-action suits. As such, it is imperative that employers comply with the applicable state laws.

Preparatory/finishing activities.  Activities such as changing clothes and washing up are not considered hours worked under the FLSA, unless such activities are an indispensable and integral part of an employee’s primary activity.

However, state laws may have a different definition of what it means to be “working.” In California, for example, employees are considered to be “working” (and therefore need to be paid) if they are under the control of an employer.

Therefore, employers in some states may be required to pay for the time it takes employees to change into or out of uniforms.

Record-keeping requirements. Both under the FLSA and applicable state laws, employers must comply with technical requirements regarding the maintenance of employee records. However, the FLSA and applicable state law may differ as to how long such records must be retained. Employer violations of such technical rules also are the subject of wage and hour class-action suits.

Given the fact that wage and hour issues are being heavily litigated across the country, it is critical that employers seek legal advice to ensure compliance with all applicable laws.

Emma Luevano is a partner at Mitchell Silberberg & Knupp LLP and represents management in a variety of labor and employment matters, including sexual harassment and other forms of discrimination, public policy violations, wrongful termination, wage and hour issues, and retaliation.

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