Wage and hour violations represent one of the most common and costly areas of employment litigation. The Fair Labor Standards Act and state wage laws establish minimum wage, overtime, recordkeeping, and other pay requirements that apply to most employers. Violations can result in back pay liability, liquidated damages, penalties, and attorneys' fees that quickly add up, especially in class or collective actions involving multiple employees. Understanding wage and hour requirements helps employers avoid these costly mistakes.
Minimum Wage Requirements
The federal minimum wage establishes a floor, but many states and localities have enacted higher minimum wages. Employers must pay the highest applicable minimum wage for each work location. Tip credits allow reduced minimum wages for tipped employees in some jurisdictions, but specific requirements must be met including proper notice and ensuring tips bring total compensation above minimum wage.
Some employees may be paid below standard minimum wage under special certificates, including certain workers with disabilities and student learners. However, these exceptions are narrow and require Department of Labor authorization. Deductions from pay that reduce effective wages below minimum wage may violate the law even if the nominal pay rate meets requirements.
Overtime Obligations
Non-exempt employees must receive overtime pay at one and a half times their regular rate for hours worked over forty in a workweek. The regular rate includes not just base hourly pay but also non-discretionary bonuses, commissions, and certain other compensation. Properly calculating the regular rate is essential for accurate overtime computation.
State laws may impose additional overtime requirements. California requires daily overtime for hours over eight in a day. Some states have industry-specific overtime rules or different thresholds for overtime eligibility. Multi-state employers must track requirements in each state where employees work and ensure payroll systems apply the correct rules.
Exempt Employee Classifications
Certain employees are exempt from overtime requirements if they meet both salary and duties tests. Executive, administrative, professional, computer professional, and outside sales exemptions each have specific requirements. The employee must be paid on a salary basis at least the required minimum threshold and perform duties that satisfy the applicable exemption criteria.
Misclassifying employees as exempt when they do not meet all requirements exposes employers to overtime liability. Common errors include assuming job titles determine exemption status, failing to verify that duties tests are met, or making improper deductions from salary that destroy the salary basis. Regular classification audits help identify and correct problems before they result in litigation.
Independent Contractor Issues
Workers classified as independent contractors are not covered by wage and hour laws, but misclassification exposes employers to significant liability. The tests for independent contractor status vary by law and jurisdiction but generally focus on the degree of control the employer exercises and the nature of the working relationship. Economic reality and the totality of circumstances matter more than labels on contracts or tax forms.
Misclassified workers may be entitled to back wages, benefits, and employer tax contributions. Government agencies actively investigate misclassification. Some states have adopted stricter tests making independent contractor classification harder to establish. Employers should carefully analyze each working relationship and seek legal guidance when classification is uncertain.
Recordkeeping Requirements
The FLSA requires employers to maintain records of hours worked, wages paid, and other information for all non-exempt employees. Records must be kept for at least three years for payroll records and two years for time cards and other supporting documents. State laws may impose additional requirements or longer retention periods.
Accurate time records are essential for demonstrating compliance. Policies should require employees to record all time worked and prohibit off-the-clock work. Automatic rounding and adjustments must comply with legal requirements. When records are incomplete or inaccurate, courts may accept employee estimates of hours worked, shifting the burden of proof to employers.
Common Wage and Hour Violations
Certain violations occur repeatedly across industries. Off-the-clock work happens when employees perform duties before clocking in, after clocking out, or during unpaid meal periods. Working through breaks, answering emails at home, and pre-shift preparation are common examples.
Automatic deductions for meal periods regardless of whether breaks were actually taken can result in liability. Failure to include all compensation in the regular rate leads to miscalculated overtime. Improper rounding policies that consistently favor employers violate the law. Identifying and correcting these common problems reduces litigation risk.
Collective and Class Actions
Wage and hour violations often affect multiple employees, making these cases attractive for collective actions under the FLSA or class actions under state law. Damages multiply quickly when violations are systemic and affect large employee populations. Liquidated damages, which double unpaid wages under the FLSA, and attorneys' fees compound exposure.
Defending collective and class actions is expensive regardless of outcome. Prevention through compliance is far more cost-effective than litigation defense. When facing potential claims, early assessment of exposure and prompt corrective action may limit damages and support defenses based on good faith compliance efforts.
Compliance Best Practices
Proactive compliance reduces litigation risk and creates fairer workplaces. Regular audits of classifications, pay practices, and time records identify problems before they become lawsuits. Written policies addressing wage and hour requirements ensure consistent practices across the organization.
Training managers on proper timekeeping, meal and rest breaks, and off-the-clock work rules prevents well-intentioned violations. Encouraging employees to report concerns without fear of retaliation demonstrates good faith. When questions arise about compliance, consulting with employment counsel before problems develop is far less expensive than defending litigation after the fact.