Avoid the Payroll Issues That Can Jeopardize Your Business

Among the top laws enforced by the Wage and Hour Division of the US Department of Labor (DOL) is the Fair Labor Standards Act (FLSA).  This Act governs minimum wage, overtime pay, and recordkeeping, among others, and can result in civil and criminal penalties for violators.

Overtime (OT) pay is a requirement for employees who are paid on an hourly basis, termed non-exempt employees.  The law requires that any employee who works more than 40 hours per week is paid time and one-half for any hours over 40.  OT cannot be waived by an agreement between the employer and employee, and any workplace rule that “overtime is not allowed” will not mitigate the employer’s obligation to pay OT if the employee worked more than 40 hours.  The burden of monitoring work hours and preventing OT from occurring rests on the employer.

Some employers, especially small medical practices whose office hours may vary or small/young companies, attempt to classify workers as exempt (salaried) to avoid paying OT.  The DOL has very specific criteria for the positions that qualify for this exemption and many workers would be incorrectly classified as exempt.

Recordkeeping can also be a hot issue for small employers who are notorious for operating rather informally and resisting the use of time cards or time sheets.  It would be difficult for an employer to defend against an accusation of owed wages if the employee is not required to complete a document listing the actual hours worked.  The emphasis in the previous sentence is intentional as some employees enter on the timesheet the same 8:30 am to 5:00 pm for each day regardless of the real hours worked.  It’s not uncommon for an employee to begin work early and ‘clock in’ much later because the employer “won’t pay overtime.”

The last hot-potato issue for employers is the distinction between employees and independent contractors (I/C).  The IRS has very specific and strict criteria for the classification of an I/C; in a nutshell, “The more control a company exercises over how, when, where, and by whom work is performed, the more likely the workers are employees, not independent contractors.” Employers who erroneously classify employees as I/C are subject to fines and unpaid payroll taxes.

Wage and hour issues can quickly put a business in hot water and result in monetary penalties, embarrassment and loss of employee goodwill.  It’s advisable to re-assess your company’s activities to ensure compliance with these important regulations.

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