operations | 7 mins read

Is Your Business 100 Percent Labor Law Compliant?

is your business 100 percent labor law compliant
Michelle Jaco

By Michelle Jaco

If you cannot answer that question with 100 percent certainty, odds are that the answer is no, which is daunting because your business could be at risk or on the verge of a major lawsuit.

As a business owner with employees, there are certain responsibilities that are mandatory to follow. The US Department of Labor has established specific requirements under the Wages and the Fair Labor Standards Act (FLSA) that if you, as an employer, do not follow your business could face legal troubles, such as fines and lawsuits.

Understanding the Difference Between Exempt & Non-exempt Employees

Many corporations and businesses have both salaried and hourly personnel. It is important to make sure each employee is in the right classification.

A non-exempt employee is usually an hourly worker. The pay is a set amount, at least minimum wage, and receives an hourly wage for each hour worked. When hourly paid employees work more than 40 hours in a workweek, they will receive overtime pay (1.5 times the regular wage).

On the other hand, since exempt employees are usually paid a salary, they aren't entitled to receiving overtime. However, the FLSA has set up criteria in order to qualify for this exemption.

First is a job classification test known as the white-collar exemption or executive, administrative or professional test, which states that any qualifying employee receives the same amount of wages each week regardless of quantity or even the quality of work.

The second test is a minimum salary threshold for exempt employees, which is currently $445 a week or $23,660 annually.

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Authorized Overtime

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As an employer, it is your responsibility to fully understand what overtime is and how to calculate it. While you may already know that the overtime rate is 1.5 times the hourly rate, here are a few tips to be sure you are calculating it correctly to avoid any labor law violations.

Overtime is calculated paid time on a 7-day workweek basis. It doesn't matter if your pay cycle is weekly, bi-weekly, monthly, etc. The overtime is still based on hours worked per week. For example, Jane gets paid bi-weekly, the first week of the pay period she worked 45 hours, but the second week she was sick and missed a day and only worked 32 hours. Even though the entire pay period doesn't equal 80 hours, she is still entitled to 5 hours of overtime pay for week one.

Sometimes employees may have different pay rates, such as base pay rate and regular pay rate. When an employee receives other forms of payment, such as bonuses and shift differentials, this extra pay will raise the employee's regular rate. Since overtime is based on the regular pay rate of employee time, it is raised as well.

While there are so many calculations made in favor of the employee time when it comes to overtime, there are some things you do not have to count toward OT. Don't count paid sick, personal, holiday or vacation days as part of overtime calculations. It is only counted for the actual total hours an employee has logged.

So, if your company has the benefit of two paid days off for the week of Thanksgiving, and your employees worked 30 hours that week and received two days' pay which would total 46 hours for the entire week. All hours are paid at regular pay rates, not with the overtime premium.

Unauthorized Overtime

When a non-exempt employee works over an allotted number of hours per week, whether or not a supervisor approved the overtime, the employer still has to pay the overtime. How can you protect yourself against time theft that skyrocket labor cost?

The best place to start is to introduce and enforce a company-wide policy against such actions. When an employee is in violation of the policy, enact discipline.

Another way to guard against these actions is with an employee web based clock app. An online time clock is a time tracking program that can be set up to eliminate employee violations and unnecessary overtime.

Another advantage of this clock software is if you need to find a replacement employee quickly, you can scan an employee's name to see the remaining schedule for the week to ensure you're not scheduling anyone into overtime.

List of What Not to Do

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Do Not Automatically Deduct Time for Meal Breaks
In theory, it may seem like an excellent idea to automatically deduct the 30 minutes from 12-00-12-30 for lunch breaks when it comes to employee scheduling. However, in reality, the employee may be unable to stop working at exactly 12 o'clock. The US Department of Labor has strict guidelines concerning what is considered a bona fide meal period and what is not.

A bona fide meal break is not working time. Meal periods are not coffee or snack breaks. It is a time where the employee must be completely relieved from work duties for the purpose of eating a regular meal.

Typically, a meal period lasts 30 minutes or longer. However, if the employee is required to perform any work duties during this period, he or she is not relieved from duty and it is not considered a bona fide meal break.

For example, a secretary may be required to sit at his or her desk during lunch to answer the phone if it should ring. In this case, the secretary should be paid for the entire break period.

An easy way to avoid labor law fines is to use an online time clock, as it works as an online timesheet, keeping track of employee attendance. It also has features including automatic reminders to prevent such mishaps from occurring. This feature will send your employees notifications to remind them it is time to punch in/out or take a break.

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Do Not Allow Comp Time of "Off the Clock Work"
The practices of comp time is when an employee may work extra hours a week to carry over or bank any hours above 40 to use at a later time. For example, if an employee works 48 hours one week, then wishes to take off an 8-hour workday the following week, this would be prohibited. Even though this may sound fair to the employee and employer, the FLSA strictly forbids this practice when it comes to employee attendance and time tracking.

This practice is forbidden under federal law because it allows an employer to get out of paying overtime, which is required under FLSA.

According to the FLSA, any non-exempt employee that works over 40 hours in a single week is entitled to overtime pay. When they are banked it will be paid as regular hourly pay and not the OT rate, which the employee is entitled to.

It's the busy season at work and your loyal non-exempt employee offers to volunteer time to help get things caught up. Should you allow it? The answer is an emphatic NO!

Under the FLSA, hourly employees cannot volunteer to work off the clock. As a general rule, all work done by an hourly employee on behalf of the employer, whether or not it is volunteer work, should still be compensated. Time tracking clock software will aid in ensuring these off the clock hours do not go unnoticed.

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Do Not Waive the Right to Future Overtime
As a struggling business owner, even though the business is beginning to grow, you cannot afford to pay employees overtime. So, you decide to hire new employees to meet the demands. That's perfectly legal.

In the future, the business may fluctuate and the employees' time cards, in terms of hours, may be occasionally reduced or increased as needed. The problem comes in when an employer will ask employees to sign a waiver to waive any overtime an employee may accrue during a shift, therefore going unlogged in the employee timesheet.

The FLSA is stern about hourly employees being paid for all hours worked and OT at 1.5 times their pay rate for any time above the maximum hours.

Do Not Require Unpaid Staff Meetings Outside of Scheduled Work Hours
When trying to keep up with production schedules, sometimes it's hard to find time for a staff meeting during regular work hours.

As a small business owner, you may request a weekly meeting one hour before shifts start. Just remember, by law each employee that attends is entitled to be paid for that meeting, even if it puts him or her at overtime pay.

So, start tracking the hours from the moment any sort of work is implemented by your employees.

How to Deduct Salary from Exempt Employees

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When a salaried or exempt employee uses sick or personal days, can hours be deducted?

Normally, companies who hire salaried positions will have a clear paid time off (PTO) or time-off bank policy, which will state a specific amount of sick or personal days off allowed.

Since salaried jobs are not based on time tracking, the number of hours the employee works, but rather the overall value the employee provides on any given day, normally salary deductions for hours missed or partial days off are not allowed. The deductions can only be made in full-day increments, as exhibited in payroll reports.

Managing your employees' attendance and total hours taken against company limits has never been easier than with the use of a timesheet calculator, which is also available with a time card calculator.

Prevention is Key

The old saying of prevention is the best medicine certainly holds true to ensure you are in compliance when it comes to labor laws. When a company is found in violation - at a minimum - there are still hefty fines to pay. As previously discussed, this can include missed lunch breaks, overworked hours, etc. Who can afford that?

It is your responsibility as a business owner to maintain employee attendance be accurate employee records that include all worked hours by non-exempt, hourly workers for compliance with the FLSA.

These records for tracking employee time should include

  • Personal information - address, occupation, sex, and date of birth, if under the age of 19
  • Workweek information - hour and day workweek begins, total working hours each day, each week Pay rate information - total daily or weekly straight-time earnings, the regular pay rate for any week, total pay for the workweek
  • Deductions information - deductions or additions to wages
  • Pay period information - total wages paid each pay period and date of payment and pay period covered

By using an online time clock, you can simplify the process in making it web-based. Not only can the tracking software capture an employee's hours submitted either online or on the mobile app, but it also, provide an Employee Performance Report that allows you to observe your employee's performance over a selected time period.

You are able to utilize the timesheet calculator to compare actual hours and labor costs against scheduled hours and scheduled costs broken down by day and week.

The best applications even have you covered when an employee forgets to punch in/out of work with the ability to edit these punches either in real-time or set up to allow the employee to edit previous punches within the current pay period with a supervisor's approval.

Before finalizing payroll, there is the added benefit of reviewing all-time punch violations to make sure everyone's time and pay are correct.

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