While companies may be trying to do everything right when it comes to labor law compliance, the rules and regulations are many. While minimum wage, sick leave, and other laws are front and center in the news, there are other, less talked about regulations that often catch employers off guard and can easily result in expensive violations and fines.
OUR TOP FIVE WAGE AND HOUR VIOLATIONS THAT MAY SURPRISE YOU AND HOW CAN THEY BE FIXED:
1. Misclassification of Independent Contractors
“We usually hire a bunch of 1099s around the holidays to avoid the hassle of all of the paperwork, especially if they will be working for just a few weeks – and the workers prefer it that way.”
During busy times of the year, temporary help may be needed, but beware of hiring on someone as a 1099 as a quick fix to your staffing shortages. In many states, an Independent Contractor classification points to someone who is a vendor rather than a member of staff. Ask yourself:
- Are you contracting with them because they have expertise in a specific area that is not a normal part of your business operations?
- Do they have an established business that offers the services you require?
- Do they have the ability to schedule their own hours and work location(s), as well as have their own equipment to use?
If the answer to any of the above is “no,” chances are you have an employee on your hands versus an Independent Contractor. Fines can be hefty for misclassifications, even if they prefer to work as a 1099.
Consider hiring employees from a staffing agency or directly on a temporary basis instead (which does, unfortunately or fortunately, include all of the standard new paperwork and should generally not be for a longer period than 90 days.) Legal advice is recommended if you are unsure of what kind of worker you have. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
2. Inappropriate Payroll Deductions
“We had all employees sign off at hire that they would allow us to take any necessary payroll deductions throughout their employment – so we’re in the clear, right?”
Not necessarily. Most states have very specific rules about what deductions are and are not allowed to be taken from paychecks and deductions generally must be to the employees’ benefit. Some examples where deductions may not be allowed (even if employees authorize them:)
- Costs for specific uniform purchase and maintenance
- Training expenses
- Shortages in cash
- Lump sum loan repayments
- Repayment of PTO used but not yet accrued
- Company-required charitable donations
- Deposits for use of company equipment or cost of unreturned equipment
Unauthorized and/or unlawful deductions can put appear to put an employer in a position of a creditor who is collecting fees from employees, which is a problematic position in terms of labor law. Even in states that have more lenient deduction rules, the existence of written permission from the employee to withhold certain deductions is often required. Our thoughts? Beyond required taxes, benefit premiums and 401k deductions, paychecks should, for the most part, be left intact.
3. Failing to Pay Reporting Pay
“We have had a few cases where a client cancels an appointment or when an employee simply isn’t needed due to the work available. We only have to pay for hours worked, correct?”
Make sure you check for state laws on Reporting Pay or Reporting Time Pay for non-exempt employees. These types of laws require that employers compensate employees for a portion of their scheduled shift if employees arrive to work ready to start but are subsequently turned away if the shift ends too early or doesn’t start at all. While this will generally not apply for Acts of God, utility failure or closure by a government official, watch for those situations where an employee arrives to work on time but is sent home due to lack of work or shift cancellations. (This also may include temperature checks – even from home.) Employees who ask to leave early for personal reasons would generally not be eligible for additional compensation beyond their worked hours under these regulations.
4. Failure to track state-required meal periods – or automatically deducting them
“We know our hourly employees are taking lunch when they need to – is this really a big deal?”
Whether or not non-exempt employees are taking their meal periods may not seem like a big deal… until it becomes one. An employee claiming to “not need” a meal period may later, if things turn sour, accuse the company of not providing them with one. Fines can be quite hefty and absent policies, documented compliance measures and clear time records, there is no way for an employer to prove that skipping meal periods was an employee’s choice when the state they happen to be working in requires them.
Some employers may decide to go the route of auto-deductions (subtracting a set period of time) from hours worked to ensure that time records are clear; however, this practice is not an advisable nor accurate one to follow (and may be unlawful) as employees, above all, should be paid for all hours worked. If their meal period runs short, or they are asked to interrupt it, the auto-deduction could run you afoul of state and federal wage laws.
A clear company policy around taking meal periods, counseling employees who skip them or fall short of the required timeframe and ensuring time records are accurate are steps to take to ensure compliance. https://www.dol.gov/agencies/whd/state/meal-breaks
5. Final Check Timing and Pay
“Carrie quit on Friday and she said it was fine to pay her final check in the next pay period. In fact, she said it would be easier for her to be paid that way. She signed an agreement so we are covered, right?”
While the easiest solution (for both the employee and employer) may be to pay a final check with your next regularly scheduled payroll (subtracting what you calculate may be owed to you) there are some very specific state laws regarding when, how and how much an employee should be paid upon separation. Details may include:
- Timing of final check payment based on type of separation
- Method and place of payment
- What deductions may be taken… and what deductions are prohibited
- Whether unused accrued vacation or PTO must be paid out
- Whether you are able to use the final check to “recoup” vacation or PTO used in advance of having earned it
As labor laws apply based on where an employee works versus where the headquarters is located, if you are a multi-state employer, it is a good idea to ensure you are aware of all final check state laws. Employees may not “waive” on-time payment or allow unlawful deductions regardless of documents signed. Late payments may also incur daily penalties payable to the employee depending upon the state here the employee performs work. https://www.dol.gov/general/topic/wages/lastpaycheck
WHAT IF WE DO FIND THAT SOME OF OUR PRACTICES AREN’T LAWFUL? WHAT STEPS SHOULD WE TAKE?
The road to labor law compliance can be jump-started with an audit. An HR Consulting service or labor law attorney can assist with this effort and help an employer set new and lawful policies going forward in terms of pay, vacation/sick leave, FLSA classifications, leaves of absence, as well as timecard, employee files and other types of recordkeeping. In terms of assessing past risk liability and recommending corrective actions, it is best to seek legal advice.
Interested in other current employment trends? Click the link to view the recent blog: July Labor Law Updates or check back for more on human resources, payroll, insurance, and benefits.