Are you doing everything you can to ensure that your small business is compliant with the Fair Labor Standards Act (FLSA)?
According to a 2011 survey by the HR Policy Association, nearly 56 percent of employers surveyed had been sued for FLSA violations within the preceding 10 years, and 26.6 percent of them were sued more than once.
Darrell West, an attorney specializing in labor and employment law at Dickinson Wright PLLC in Nashville, Tennessee, offered these five tips to employers on how to avoid violations and expensive lawsuits.
1. Use a mandatory pre-dispute arbitration program
"A pre-dispute arbitration program is a contract in which two parties agree to resolve disputes that may arise between them in the future by binding arbitration – not inside a courtroom," West explained, adding that so long as these programs are fundamentally fair, they are enforceable and can be worded to cover virtually any type of dispute that could potentially arise out of an employment relationship.
These pre-dispute arbitration programs can include a provision that would require disputes to be mediated before initiating formal arbitration, West said. He added that these agreements should incorporate a waiver of either party’s right to bring or participate in a class action, collective action or another multi-plaintiff lawsuit in order to limit the dispute resolution process to one-on-one arbitration.
"This can limit a company’s exposure to one of the most expensive and disruptive federal wage and hour problems—a Fair Labor Standards Act (FLSA) collective action lawsuit," West said.
2. Conduct periodic wage and hour audits
"Job duties are swiftly evolving because of employers' technological advances, changing operational needs or financial considerations. This often results in outdated job descriptions and inadvertent misclassification of portions of the workforce and erroneous changes in compensation programs," West said.
West said that employers should examine exempt and nonexempt classifications, compensation plans, policies for determining compensable hours worked, and overtime calculation methodologies. If any of these are not compliant with the FLSA, he added, employers must make the appropriate adjustments. [4 Labor Laws You Might Be Breaking ]
"These audits can also be combined with training sessions to ensure compliance at the management levels which have the most direct contact with employees," West said.
3. Classify workers correctly
There are two common types of misclassifications that can get employers into serious trouble, according to West. The first is classifying employees as something entirely different under the FLSA's standards, like an independent contractor or an intern, and the second is mistakenly classifying an employee as exempt from minimum wage and hour payments.
An intern, for example, needs to meet six criteria (read more about them at the Department of Labor) to make sure that the internship is educational and the company doesn't derive immediate benefits from his or her work, West said.
As far as mistaken exemptions go, West pointed to "white collar" exemptions. According to the FLSA, "white collar" exemptions (for administrative, executive and professional employees) require that the exempt employee be paid "on a salary basis.'” However, West said that merely paying an employee a weekly or biweekly salary in a predetermined amount instead of compensating the employee on an hourly basis, does not satisfy the salary basis requirement.
"Subject to very limited exceptions, the employee must be paid a fixed sum of money each pay period of at least $455 per week, and that salary cannot be reduced based on either the quantity or quality of the employee's work," West said.
4. Understand 'compensable hours'
It's important that employers take into account all of the hours their employees work and are entitled to compensation to avoid violating FLSA's minimum wage or overtime requirements, West said. This includes lunch breaks, too. According to West, the FLSA doesn't require an employer to offer lunch breaks, it does require that they be paid for lunch breaks unless they last for at least 30 minutes and the employee is free to leave and relieved from all work duties during their lunch break. This means that if an employee is working during their lunch break, a lunch hour should not be deducted from their paycheck.
"Employers must compensate employees for all time spent in physical or mental exertion (whether burdensome or not) which is controlled or required by the employer and expended for the employer’s benefit," West said.
5. Be proactive in addressing complaints
"All too often, the first time an employer learns about a wage and hour issue is when a lawsuit is served. Thus, it is important for employers to develop a culture in which complaints do not go unnoticed," West said. He advised small business owners to train first- and second-level supervisors to pay attention to employee complaints and formally report those that could be indicative of FLSA violations to internal personnel. It's also important for companies to establish an environment where employees can make complaints and ask questions, and for employers to address those concerns immediately, West said. If potential violations are found in the process, West urged seeking out professional legal counsel to help determine how to answer employees' questions and address the situation.
Originally published on Business News Daily.