Wage and Hour Compliance: Avoiding Costly Mistakes

Fair Labor Standards Act Overview

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record-keeping, and child labor standards. Violations are among the most common and costly employment law issues employers face.

Minimum Wage

The federal minimum wage has been $7.25 per hour since 2009, but many states and localities have set higher rates. Verify the current federal minimum wage, as it may change through legislation. You must pay whichever is higher - federal, state, or local. Track changes in all jurisdictions where you have employees.

Overtime

Non-exempt employees must receive overtime pay at 1.5 times their regular rate for hours worked over 40 in a workweek. Common mistakes include:

• Failing to include all forms of compensation in the regular rate calculation
• Averaging hours over two or more weeks
• Providing comp time instead of overtime pay (generally not permitted for private employers)
• Not counting all hours worked, including time spent on smartphones or working remotely

Exempt vs. Non-Exempt Classification

Misclassification is one of the most expensive wage and hour errors. To be exempt from overtime, an employee must generally meet three tests:

1. Salary Basis Test: Paid a predetermined, fixed salary not subject to reduction based on quality or quantity of work
2. Salary Level Test: Paid at least the applicable threshold per week
3. Duties Test: Primary duties must meet specific criteria for executive, administrative, professional, computer, or outside sales exemptions

Job titles alone do not determine exempt status. Focus on actual duties performed.

Record-Keeping

Employers must maintain accurate records for each non-exempt employee, including:

• Full name and identifying information
• Hours worked each day and total hours each workweek
• Regular hourly rate of pay
• Total overtime compensation for each workweek
• Additions to or deductions from wages
• Total wages paid each pay period

Practical Steps

1. Audit all exempt classifications annually
2. Review state and local wage laws quarterly
3. Train managers on proper timekeeping expectations
4. Establish clear policies for off-the-clock work
5. Document all classification decisions with supporting analysis