• WisBusiness

Wednesday, March 24, 2010

Small business owners: Watch out for employee compensation traps


By Karen Harned
The federal government wants to know if your business is compliant with the Fair Labor Standards Act. Minimum wage and overtime laws can be confusing but not paying the proper wage to an employee can quickly turn into an expensive headache.

U.S. Secretary of Labor Hilda Solis has pledged to make wage and hour enforcement a top priority. The Department of Labor is hiring more agents to investigate and charge businesses with overtime and other wage violations under the FLSA. The Wage and Hour Division has a 28 percent increase in its 2010 budget and continues to increase enforcement. With that in mind, now is an excellent time to make sure your business hasn't run afoul of wage and hour rules.

To avoid DOL penalties or claims from disgruntled employees, make sure your business hasn't fallen into these common traps.

1. Allowing hourly employees to waive their right to overtime pay.

An employee may not waive his right to overtime pay. Even if an employee is instructed to only work 40 hours per week, any hours actually worked over 40 hours in a seven-day workweek will be subject to overtime pay. An employer can instruct an employee not to work more than 40 hours per week, and generally may discipline an employee who works unauthorized overtime.

2. Averaging the hours worked over two weeks.

Even though the employer uses a two-week pay period, the FLSA treats each workweek as a single unit. If an employee works 42 hours in one week, the employee must be paid the two hours of overtime, even if the employee only works 20 hours in the subsequent week.

3. Giving time off instead of cash.

The FLSA is very biased in favor of cash compensation rather than "comp time." Neither the employer nor employee can agree to or insist on comp time in lieu of overtime pay.

4. Treating all salaried employees as exempt from FLSA overtime rules.

Being a salaried employee is not solely sufficient to classify an employee as exempt from FLSA overtime requirements. Additionally, neither job title nor job description is sufficient. Employers must be careful to ensure that employees are properly classified. Exempt employees must meet a certain minimum salary and fall under a certain exemption category specified by the FLSA.

5. Docking the pay of an employee who is exempt from overtime payments.

An exempt employee must be paid on a salary basis. This means that the employee on a weekly or less frequent basis receives a predetermined amount of pay, which is not subject to reduction. If you make improper deductions from an exempt employee's salary, the salaried basis of payment is destroyed and the exemption is lost. Don't jeopardize the exemption. Make sure the exempt employee's pay is the same every week, regardless of hours worked. In other words, if an exempt employee shows up for part of a workday, you must pay him for the whole day.

For more information about FLSA compliance issues visit the Department of Labor's website. Additionally, employers need to make sure they are compliant with all state wage and hour laws. Some states have higher wage requirements than the FLSA. Employers should check with their state's labor offices to ensure they are compliant with their state's standards.

-- Harned is the executive director of the NFIB Small Business Legal Center.

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