New Year’s Resolution – Avoid a FLSA Lawsuit

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The new year is not just for resolutions to inspire consistent flossing or commitment to a gym membership. If you are a business owner, then 2016 is an excellent, and in fact, the essential, time to resolve for full compliance with the Fair Labor Standards Act (“FLSA”). In July 2016, the Department of Labor anticipates issuing its Final Rule updating the regulations governing the white collar exemptions from the minimum wage and overtime pay protections of the FLSA. To read more about what the Final Rule means for your business (BIG changes), click here.  With this Final Rule imminent, there has never been a better time than the present to make FLSA compliance your goal for 2016.

How do you do it? As with any good resolution, concrete goals are essential to execution. Here are my recommendations:

(1) Update Your Employee Handbook

The FLSA does not set forth requirements on vacation, holiday, or sick pay, but a savvy employer will outline these payroll practices in an Employee Handbook to ensure consistent treatment among employees.  The FLSA also does not set forth rules on meal breaks or payment of final wages to terminated employees; however, Tennessee law sets forth specific requirements on both of these issues. For instance, Tennessee law requires that employees working six consecutive hours receive a meal break of at least thirty minutes, not to be taken in the first or last hour of the workday.  State law further requires that a terminated employee receive their final paycheck on the next regular pay period or twenty-one (21) days after termination, whichever is less.  It is critical that Employee Handbooks outline not only those requirements, but also, explain other FLSA rights to employees and to supervisors charged with enforcement.  Not only is confusion avoided and consistent application of policies encouraged, but articulating these policies in your workplace is crucial to defending an FLSA lawsuit.

(2) Display Federal Posters

The FLSA requires employers to display an official poster in a conspicuous location explaining that non-exempt employees are to be paid at least minimum wage and overtime for all hours worked in excess of forty (40) hours in one workweek.  This one is easy – go get a poster. The Department of Labor offers examples.

(3) Review Recordkeeping Practice

The FLSA requires employers to keep time and pay records of employees. Your business should retain these records for at least three (3) years from date of creation.  Even in the face of a meritless FLSA lawsuit, it is the employer’s responsibility to provide documentation of wages earned and working hours.  Retained documentation should include, among others, W-4s, evidence of total hours worked each day and week, total earnings per pay period, overtime rate, deductions from or additions to wages, and evidence of payment.

(4) Determine if Your Overtime Rate is Accurate

Remember, the FLSA requires overtime pay for all hours worked in excess of forty (40) in a workweek for non-exempt employees. An overtime rate must not be less and one and one-half times an employee’s regular rate of pay. Understanding “regular rate of pay” is essential. Are you counting bonuses? What if your employees are paid on a piece-rate basis? All of these are questions that should be asked and addressed.

(5) Consider Misclassification

 The employee v. independent contractor and exempt employee v. non-exempt employee classifications keep employers on their toes.  An independent contact must meet very specific criteria.  It is not enough to simply hand over a 1099. Meanwhile, the July 2016 Final Rule will have a big impact on the classification of white-collar employees as exempt under the FLSA. Employers are well-advised to compare job descriptions, employee duties, and compensation to the criteria required to remain an independent contractor or qualify for exempt from the FLSA.

(6) Consider Deductions

Wage deductions almost always require prior employee authorization. The FLSA does not allow uniforms or other items for the benefit or convenience of the employer to be included as wages. If the employer requires the employee to bear the cost of items, such as uniforms, then the deduction may not reduce the employee’s wage below the statutory minimum or cut into overtime compensation. Other deductions, including for absences from work, to offset jury or witness fee amounts, unpaid disciplinary suspensions, or FMLA leave should be carefully tailored to comply with the law.

Resolve to review and address the above in 2016. The most efficient method – an internal wage and hour audit, which will identify potential risks of litigation. A FLSA audit is the best method for avoiding unnecessary damages and legal expenses. Using legal counsel to conduct such a review is essential – offering attorney-client confidentiality, as well as assurance that your business’s policies are compliant with the most recent state and federal laws and regulations. If you have questions on the scope or availability of FLSA audits for your business, contact me.