The U.S. Department of Labor (DOL) recently announced that the Wage and Hour Division (WHD) recovered $322 million in wages owed to workers in fiscal year 2019 – a record amount, up $18 million from 2018.
For employers, this means that the stakes for paying employees accurately and on time are at an all time high. And that of course means even more pressure for payroll professionals.
While most employers don’t intend to pay their employees incorrectly, mistakes happen. So here are five tips to help your organization reduce risks by paying employees accurately, compliantly, and on time:
1. Audit overtime pay
At first glance, calculating overtime *seems* straightforward – just multiply an employee’s regular rate by 1.5. However, getting to an employee’s regular rate of pay can be quite challenging and can quickly become complex – especially if your employees work in multiple positions with different rates and/or your organization has shift differentials, non-discretionary bonuses, commissions, etc.
To add an extra wrinkle, most organizations are likely already aware of the new salary overtime threshold that goes into effect on January 1st, 2020. This new regulation may increase the number of employees at your organization who are eligible for overtime, and therefore, increase the number of employees you will need to calculate regular rates for.
For payroll teams, a best practice is to frequently audit overtime pay – this will help ensure regular rates are correctly calculated and are compliant with the latest regular rate of pay regulations. Here are the steps to conduct an overtime pay audit:
- Randomly select employees with overtime pay to review.
- Review employee timecards and check regular rate calculations.
- Review non-discretionary bonuses and commissions and check overtime premium calculations.
- Identify any employees with incorrect pay and the timeframe in which their pay was incorrect.
- Calculate back wages owed and pay impacted employees.
2. Audit timekeeping processes
At most organizations, payroll teams are very well versed in workforce labor laws and regulations. However, many employees – more importantly, many managers – do not have the level of experience or knowledge that payroll has. This can lead to unintended compliance violations.
Example: Certain managers may try to give an employee time off in the future in exchange for paying for overtime hours they worked. Even if the employee agrees to it, this is still an FLSA violation.
Payroll teams may not be aware that this practice is happening at their organization, so it is critical to audit your timekeeping processes. You can audit your timekeeping processes by:
- Shadowing managers throughout your organization.
- Recording any non-compliant processes or behaviors in your organization.
- Developing a training program for managers that addresses common compliance issues and how to compliantly track timekeeping processes.
3. Review auto-deduct policies
Some employers do not pay wages during employee lunch breaks. Instead of asking employees to punch out and punch in for lunch, they may find it easier to automatically deduct lunch breaks from employee timecards.
However, auto-deduct policies are often a common cause for wage claims, especially in California where employers must comply with the state’s meal and rest laws, and have been subject to a number of class action lawsuits – as some employees may be frequently interrupted by work during their lunch period.
Example: For some roles like nurses, whose lunch break is often interrupted, an auto-deduct policy could put your organization at risk for a wage claim.
Even at organizations with a clearly defined lunch break, managers who are less familiar with the policy may interrupt employees during their lunch, and this behavior, especially if it is pervasive, could put your organization at risk for a wage claim.
If your organization has an auto-deduct policy, it's important to take these steps:
- Understand state-specific regulations, like in California, that may impact auto-deduct policies.
- Review employees and positions that are subject to an auto-deduct policy.
- Investigate whether those employees are truly able to have a work-free lunch break.
- Train managers to help them understand auto-deduct policies and interruptions during lunch.
For employers that want to track employee lunch and break times, leveraging one automated timekeeping and payroll solution with the ability for employees to attest that they had a work-free lunch can help reduce the exposure to a wage claim. Learn how Rolling Hills Country Club ensures compliance with meal and rest regulations while streamlining their timekeeping and payroll processes.
4. Increase transparency
Sometimes employees may have been paid correctly but they don't understand how their pay was calculated or what hours were included in a pay cycle, and this can lead to wage claims that may not be necessary.
While the DOL provides free resources and programs that educate workers on labor and wage regulations, employers should proactively educate employees and increase transparency around wage regulations that impact employees and your organization’s own pay policies. Payroll can play an important role in these education efforts.
There are a few simple ways that you can help employees better understand their pay and increase transparency around pay:
- Have employees sign off on their timecards each pay period. Instead of asking managers to enter time, having employees enter and sign off on their timecard (then having managers review and approve) increases transparency around the number of hours worked.
- Add more detail and critical information to employee pay statements, like positions worked, hours worked, overtime hours worked, bonuses earned, commissions earned, leave taken, etc. All of this information can help employees better understand their pay.
- Develop a communication plan around your compensation policies to better inform employees about their pay and your organization's pay policies.
5. Review worker classifications
For organizations that leverage contractors, a common cause for wage claims is worker misclassification. Because contractors are not subject to FLSA regulations, they don’t have access to the same benefits that employees have, including overtime and minimum wage protection, FMLA, and other workplace safety protections.
Proper worker classification is critical to mitigating the risk of wage claims and misclassification lawsuits. It's critical for employers to stay on top of the changing laws and tests that govern worker classification.
If your organization employs contractors, here are four steps you can take to ensure you’re adequately classifying workers:
- Review all contractor roles.
- Understand the job duties test and ensure it's consistently applied across all contractors.
- Review industry-specific legal decisions that could influence your organization's worker classification approach.
- Identify roles that could potentially be reclassified.
Conclusion: Focus on how best to reduce your wage claim risk
Clear processes and periodic audits can help your organization fix any non-compliant processes and protect you from wage claims. However, the best way to ensure your organization consistently complies with labor laws and regulations is by leveraging a single solution for timekeeping and payroll that has the flexibility to adapt to changing regulations.
If you'd like to learn more, we talked a lot about the latest compliance trends at our recent Fall HR and Payroll eSymposium. Check out the recordings, grab some APA credits, and make sure you're up on the newest changes.