Are Your Pay Practices Legal? What to Know to Avoid a Lawsuit

Why do employers keep getting sued over their pay practices? Most lawsuits involve timekeeping and overtime.

By Vianei Lopez Braun

Wage and hour litigation has exploded over the past 15 years. Employment lawyers caution companies to audit their pay practices. Yet, mistakes and lawsuits continue. What gives?

Simply put, wage and hour compliance is not easy. The governing law, the Fair Labor Standards Act (FLSA), is a highly technical statute that has spawned thousands of pages of regulations.

Most lawsuits involve the FLSA’s timekeeping and overtime rules, which seem simple enough. Keep a record of all hours worked by an employee, and pay time and a half for all hours over 40 in a work week. But the devil is in the details.

Consider meal breaks, for example. Regulations say for an employee’s break to be unpaid, it must be at least 30 minutes, and the employee must be relieved of “all” duties. So if an employee is called back to work after 29 minutes or answers a call or an email during lunch, the entire meal period becomes paid time.

Major employers have been sued for automatically clocking employees out for a scheduled 30-minute break. In reality, these “breaks” are often shortened or interrupted, and employees should have been paid for that time. When hundreds or even thousands of employees are affected, small errors add up to big money.

Another common problem is the overeager employee, who likes to come in early and get organized before clocking in. As soon as that employee starts doing anything work-related, he or she is “on the clock.”

For example, assume a secretary clocks in at 8 a.m., but the company knows she always gets to work by 7:30 and starts handling calls and emails. In an FLSA lawsuit, she could be awarded an extra half-hour’s pay for every day worked in the past three years, times two (known as liquidated damages), plus attorneys’ fees. The numbers add up quickly.

Some employers try to avoid timekeeping and overtime rules by making everyone “salaried.” That’s a recipe for disaster.

There are detailed regulations governing when an employee can be considered “salaried,” meaning exempt from overtime. Possibly exempt employees include professionals, high-level administrators, managers who have at least two full-time direct reports, and outside sales personnel. The regulations are narrow, and employers should not consider an employee “salaried” without verifying that the employee qualifies for the overtime exemption.

And sadly, the FLSA discourages employers who want to be creative with employee compensation. For example, in the energy industry some employers have tried to pay field service employees by the day, rather than by the hour. This is convenient for the employer and often lucrative for the employee, but it does not fit the FLSA’s overtime pay requirements. If sued, the employer is faced with expensive overtime claims, as well as a lack of time records.

Because of the FLSA’s requirements, you can’t be too careful, and you also can’t be too creative. When in doubt, check with HR and your employment counsel.