I cannot stress enough how important it is for every employer to make sure that they are complying with the Fair Labor Standards Act (the law regulating payments for minimum wage).
Let me tell you why:
1) The FLSA awards attorneys fees to a prevailing employee (but not the employer) and attorneys fees are the biggest issue in that litigation, resulting in even more fees. The fees do not have to be proportional to the recovery; I have seen cases where an employee won $1200 but his lawyer received $120,000 paid by the employer! In addition, that same employer had to pay his lawyers even more than $120,000. In that case, the minor FLSA violation ended up being a QUARTER MILLION DOLLAR MISTAKE!
2) The FLSA and its Regulations can be hyper-technical and are easily violated in good faith. For instance, an employer may not keep time and attendance records by the day, but not have a record of actual hours worked. If there is ever litigation which concerns the number of overtime hours worked by an employee, then that employee’s RECOLLECTION of the number of hours he/she worked will be PRESUMED to be accurate subject to an Employer’s right to rebut. As a student of human nature, I have observed that almost everyone thinks they work more hours than they actually did. That is simply a foible of the human condition and not meant to be cynical.
3) FLSA cases are rarely initiated because of the violation; the cases are usually motivated by an angry ex-employee’s consultation with an attorney because he/she thinks he was treated poorly. After concluding that the Employee has no claim, the lawyer then inquires about pay practices and, if there is a technical violation, file suit immediately to maximize the lawyer’s recovery of fees. Very few lawyers even bother with sending demand letters; they go straight to suit to get the lawyer’s timeclock ticking. In trying to settle these cases, the employee’s unrelated anger often precludes an easy compromise especially since his/her lawyer profits economically if the case is not settled.
4) FLSA cases can become class actions and cause exponential exposure and fees. The traditional Federal Rule for qualifying Class Actions is not applicable to the FLSA. In FLSA cases, the Court can require an employer to give notice to past and present employees advising them of their right to join the lawsuit; and the original plaintiff’s lawyer gets paid BY YOU for his efforts to find more employees to sue you. If you think it is difficult settling one claim, try settling a collective action with 20 plaintiffs.
5) There are TONS of lawyers taking these cases almost all on a contingent basis, meaning the likelihood of suit is increased, especially here in South Florida which leads the country in FLSA claims filed.
6) Paying a salary is not near enough. It has been a common misunderstanding that if an employer pays on a salary as opposed to hourly basis, and does not dock pay for missed time, that the employee is “Exempt” Having this misunderstanding can have devastating consequences. Whether an employee is exempt is a complex question that requires analysis and a real understanding of an employee’s job. Moreover, documentation such as signed job descriptions and appropriate performance evaluations are very helpful to prevent a challenge.
THE GOOD NEWS IS:
With proper counseling, it is not difficult to comply with the FLSA. The key things that an expert will look at are:
1) Your timekeeping system and policies that assure it is accurately maintained;
2) A critical look at your salary exemptions to assure compliance and documentation of compliance; and
3) A review of how overtime pay is calculated. For example, if you pay an employee some sort of commission or override, it must be included in the overtime pay calculations.
My company, HRRiskAdvisors offers very competitive pricing to conduct an FLSA audit.