LoveToKnow spoke with Dr. Kelly Woodford, an Associate Professor at the University of South Alabama's Mitchell College of Business, about the topic of wage and hour law. All business owners must be aware of and comply with these laws.
Dr. Woodford teaches courses on the Legal Environment of Business, Labor and Employment Law, and First Amendment Law. She also serves as Special Counsel to Jackson Myrick-The Kullman Firm resident in the firm's Mobile, Alabama office. Dr. Woodford's legal career focuses on representing management in various labor, employment, and employee benefits matters. A member of the Alabama Bar and the District of Columbia Bar, she earned her J.D. degree from Georgetown University Law Center in Washington D.C., and graduated summa cum laude from Spring Hill College. In between teaching and her work in Alabama, Dr. Woodford provided information on this very important topic for business owners.
About Wage and Hour Law
First, we asked Dr. Woodford to define the term.
What exactly is wage and hour law?
The phrase "wage and hour law" refers to the federal and state statutes that govern how employers pay their employees. At the federal level, the primary statute governing employee pay is the Fair Labor Standards Act. Employers need to know that a number of states have their own laws that give employees in that state more protections and rights, such as a higher state minimum wage.
What do companies have to do to comply with the law?
To comply with the federal law, companies must pay their employees at least the federal minimum wage for all hours worked, pay non-exempt employees at least one and one-half times the employee's regular rate for all hours worked beyond forty hours in a workweek, comply with the limitations on child labor, and keep specific pay related records.
Does this vary with the size or type of company?
No. Once a company is covered by the Fair Labor Standards Act, the company must comply with all provisions regardless of the size of the company. There are two ways to come under the coverage of the Fair Labor Standards Act. The first is the "enterprise coverage" rules under which all employees of a company are covered if the company as a whole meets the gross revenue test. In most industries, if a company has at least $500,000 in gross revenue, all employees are protected by the Act. However, even if the company as a whole does not have sufficient revenue to be covered as an enterprise, any individual employee who performs work in interstate commerce will be individually covered by the law. The individual coverage rules apply to employees who "work in communications or transportation; regularly use the mails, telephones, or telegraph for interstate communication, or keep records of interstate transactions; handle, ship, or receive goods moving in interstate commerce; regularly cross State lines in the course of employment; or work for independent employers who contract to do clerical, custodial, maintenance, or other work for firms engaged in interstate commerce or in the production of goods for interstate commerce."
What Companies Need To Know
Next, Dr. Woodford shared her observations on common mistakes companies make in complying with the law.
Are There Any Common Mistakes Companies Make?
There are several mistakes companies make with respect to compliance with the federal law. The biggest mistake is confusing payment of a salary with an exemption from overtime; being salaried is not synonymous with being exempt. Generally employers must pay overtime unless an employee is paid on a salaried basis and meets one of the Department of Labor's "duties tests."
A second common mistake is failing to capture and pay employees for all "hours worked." The law defines an hour worked as any time an employee spends in mental or physical exertion on behalf of the employer, whether the work is specifically authorized or not. Thus, for example, if an employer prohibits employees from working beyond their shift without permission, the employer generally must pay the employee who works any unauthorized time and handle the rule violation through the disciplinary process. Another common mistake is deducting the cost of uniforms from an employee's pay. Uniform deductions cannot be made from the pay of salaried workers (whether they are salaried exempt or salaried non-exempt). Uniform deductions from an hourly employee's pay cannot take the hourly employee below the minimum wage. Employers also violate the law by failing to include non-discretionary bonuses and other compensation in the "regular rate" used for payment of overtime. Compliance with child labor restrictions is also a common issue, particularly compliance with the many record keeping requirements associated with employing minors. Finally, employers must be aware of any state laws that impact payroll practices.
How Can Companies Avoid These Mistakes?
The Wage and Hour Division of the U.S. Department of Labor has a number of excellent resources on its website. In addition, the staff members at the local Wage and Hour Division offices across the country are usually very helpful and willing to answer employers' questions to assist employers to comply with the law. When in doubt, of course, contact an attorney who regularly handles wage and hour related matters.
Checklist For Compliance
Dr. Woodford provided the following checklist as a helpful tool. Wage and hour employment law cannot be easily summed up in a simple checklist, so please be sure to check the government resources or consult with your business attorney to ensure full compliance with local, state and federal law regarding wages and employment.
A Minimum Checklist
At a minimum, employers need to:
- Set a workweek - a set seven consecutive calendar day period that will be used to determine how many hours have been worked - and make a record of what the established workweek is.
- Establish a system for recording and maintaining the hours worked each workday and the total number of hours worked each workweek. The law does not mandate how time is kept, only that a record is made and maintained. Keeping a general "schedule" of when workers should have worked is not sufficient.
- Ensure that hourly workers receive at least the minimum wage for all hours worked and that any deductions taken from hourly workers' pay fall within the deductions allowed by federal law.
- Calculate overtime pay using the employee's full hourly rate. The federal regulations and various guidance documents issued by the Wage and Hour Division can help employers determine what compensation must be included in the regular rate and what can be excluded from the regular rate.
- Review the duties of any employees to whom overtime is not being paid to ensure each employee falls within a specific exemption from the FLSA's overtime requirements. Employers should remember that overtime is a "penalty" designed to encourage employers to hire more workers and, in most industries, the majority of employees will not fall within a statutory exemption (in other words, most employees will be entitled to overtime pay).
- Remember that the law requires that employers pay at least the minimum wage and pay non-exempt employees overtime. Only government employers can utilize compensatory time off in lieu of overtime pay. Compensatory time off is not allowed in the private sector. If an employee working for a non-government employer works more than 40 hours in a workweek, the employee must be paid for those hours.
- Review the company's record keeping policies and procedures to ensure that all required records are being kept. This is particularly important if a business employs minors because additional records are required.
- If the business employs minors, review what types of tasks minors are allowed to perform and take steps to ensure no minor performs prohibited tasks. Common mistakes include allowing minors to drive as part of their jobs and allowing minors to load, clean "hazardous" restaurant equipment like dough machines, load or operate trash compactors or paper balers, or use other prohibited equipment such as fryers or commercial microwave ovens.
Remember that compliance with the law is every business owners' responsibility. Whether you're opening a small business or hiring employees, it's important to check with your attorney to ensure you are in full compliance, and review the resources suggested in the interview for more information.
