Wage and Hour. If you run a company, or have a team reporting to you, I’m sure you’ve heard the term. And most of the time, it’s said with a feeling of dread. Like, “oh, they’re making a wage hour claim”, or “you don’t want to do that, it runs afoul of wage hour”.
That’s because wage and hour violations are the most frequent employment law mistakes employers make; and they usually end up being very expensive. So trying to avoid them is definitely the way to go.
But, in fact, it’s really easy to get wage hour rules wrong; or simply not know the rules at all. So in this episode, I’m going to review the top wage hour mistakes companies make. So YOU won’t.
The first one is simply not calling an employee an employee. That’s right, misclassifying an employee as an independent contractor, when they don’t meet the independent contractor eligibility guidelines is kind of a massive wage hour violation. And it’s a cascade effect, because if it’s determined the person really should have been a regular employee – well then there are all the employer responsibilities that haven’t been met. Payroll taxes haven’t been withheld or paid, they weren’t covered under workers comp, they may have incurred overtime, they may not have been paid at the right minimum wage rate, and in fact they may not have even been paid often enough.
So getting the employee vs. independent contractor thing wrong can be what I call a ‘bedrock mistake’, because there are all sorts of mistakes that can sit on top of that one wrong move.
Next – let’s say you get the independent contractor question right, and you’ve classified the person as an employee. Well you still might go the wrong way in setting the status of the employee. Is their job eligible for overtime or not – meaning are they exempt or non-exempt. Again, getting this one wrong leads to getting a whole host of other wage hour questions wrong. If you decide they aren’t eligible for overtime, when they actually should have been overtime eligible, well then again you’re going to miss a lot of employer responsibilities.
First and foremost, you aren’t going to pay them overtime – and that’s a huge wage hour no no. Then there are the other things, like tracking their time, meal breaks, rest breaks, how often they get paid.
And, if you’re puzzled about everything on that list, don’t’ worry. Because I’ll go into detail on them as we go along – because surprisingly they’re actually the other wage hour mistakes companies make!
“…getting the employee vs. independent contractor thing wrong can be what I call a ‘bedrock mistake’, because there are all sorts of mistakes that can sit on top of that one wrong move.“
Next up is not hitting the minimum wage standards. Now, there is a federal minimum wage – but a lot of states (and sometimes even down to the city) have their own minimum wage guidelines and rules. In fact, California is one of those states. And they have a minimum hourly wage rate for non-exempt employees; but they also have a minimum or ‘floor’ wage for exempt or salaried employees. And if you pay someone under that exempt minimum rate – even if they hit all the other eligibility guidelines, you have automatically pushed them over into the non-exempt category. And that brings with it all the non-exempt requirements – paying overtime, meal and rest breaks etc.
I keep talking about meal breaks – well that’s another one of the wage hour biggies. One interesting fact, the next few mistakes I’m going to talk about all related to non-exempt employees. That’s because there are more restrictions around how you handle your non-exempt team members.
So, back to meal breaks. This mistake is frighteningly easy – exempt employees have to have a meal break of a minimum of 30 minutes for each 5 hour shift they work. And if they don’t take a meal break, or take it too late, or if it’s too short, the company owes them a penalty. So, let’s say Tina takes her meal break 5 and a half hours after she started her shift. Well, that’s a late meal break – so the company owes her a penalty of 1 hour’s wage.
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Or, let’s say she takes 15 minutes instead of 30 minutes – well the minimum break time is 30 minutes, so again, the company owes her a penalty of 1 hour’s wage. Now there are additional rules around the meal break – but the upshot here is, if you violate those rules, you owe the employee 1 hour’s wage as a penalty. And that penalty needs to be paid in the same pay period the violation occurred.
This leads nicely into rest breaks. And again, I’m going to focus on California’s guidelines. Non-exempt employees have to get a rest break of no less than 10 minutes. Now the number of rest breaks they’re due, and when they happen, are dependent on the length of their shift. Although rest breaks usually aren’t tracked on a timecard, the way meal breaks have to be, you still have to be very careful that you fully relieve the employee of any duties during both the meal and rest breaks.
And again, if this doesn’t happen – well, there’s that hour penalty thing again.
And just for clarity – meal breaks are usually unpaid time, rest breaks on the other hand, have to be paid.
By the way – here’s a fun fact: the standard rest break is usually 15 minutes. That’s because over the years, with the whole ‘the rest break has to have absolutely no work responsibility attached to it” thing, that extra 5 minutes is 2.5 minutes to go to the break and 2.5 minutes to return from break. So viola – 15 minutes.
And finally, here’s a wage hour factoid many people don’t know. There are laws around when and how often you pay your employees.
Exempt employees can be paid monthly – and again, there are rules around when those payments have to happen.
Non-exempt employees on the other hand have to be paid at least twice a month. And yes, they also have rules around when those payments have to happen, and what they have to include.
And the final mistake is what’s included in someone’s final pay and when that pay happens. Again, get that wrong, and the waiting time penalty kicks in – it could be costly.
So take care not to accidentally wander into the deep end of wage hour. Review your responsibilities with counsel, so you can be sure you’re doing it right – from the start.