With the myriad of risks you face in running a business every day, it’s hard to believe that the way you compensate your employees has become the biggest risk of all. Unfortunately, wage and hour lawsuits and Fair Labor Standards Act (FLSA) enforcement actions are now among the biggest threats to your bottom line. In fact, the number of federal wage and hour lawsuits filed nationwide has skyrocketed by more than 400 percent since 2000 – and many of these lawsuits drag on for months and hit employers with multimillion dollar settlements, along with bills for unpaid compensation, legal costs, and other damages and penalties.
Between the increased scrutiny of worker classification compliance, recent changes to the Fair Labor Standards Act (FLSA) overtime rules, and new minimum wage laws, this threat is just getting bigger.
Worker classification. With more businesses relying on contract workers as our economy continues to evolve, employee classification violations have risen dramatically. The DOL, IRS, Employee Benefits Security Administration (EBSA), and other agencies have all beefed up compliance enforcement, with the DOL alone collecting over $240 million from employers who were noncompliant with the FLSA in 2015. The most common violations include:
- Misclassification of employees as independent contractors
- Misclassification of exempt vs. non-exempt status
- Miscalculation of bonuses and commissions
- Failure to pay overtime due to misclassification as exempt
Overtime. The DOL’s Wage & Hour Division (WHD) recently proposed changes to the FLSA overtime rules that could affect an estimated 4.2 million workers who are currently eligible for overtime pay. Beginning December 1, 2016, the minimum salary required to be exempt from overtime doubles to $913 per week or $47,476 annually for salaried employees. For higher paid employees, the annual salary threshold to be exempt from overtime will rise from $100,000 to $134,004. For employees who are suddenly declared nonexempt, this could mean losing flexible workplace arrangements such as working remotely and the opportunity to earn incentive pay. For employers, the automatic wage adjustments will affect decisions about merit pay and likely affect workers’ compensation, payroll taxes, and employee benefits. According to the National Retail Federation, compliance with the new federal regulations would cost restaurant and retail businesses about $745 million.
Minimum wage. Fourteen states have now passed legislation to raise their minimum wage levels, and many more are looking at doing the same. With payroll costs going up, there’s no doubt some employers will be forced to reduce hiring, cut hours and/or benefits, or charge higher prices – or all three.
Is your business keeping pace with these evolving threats to your bottom line?
How will these changes impact your business? If you haven’t already done so, now is a good time to review all of your employment, payroll, and recordkeeping procedures to make sure you’re compliant with the FLSA and other laws. You should also be performing regular audits of your employee job descriptions and classifications. Finally, review your insurance coverage for any gaps that might lead to a costly surprise down the road.
With so many areas of wage law evolving at the same time, and with Employment Practices Liability (EPL) lawsuits on the rise, you can no longer afford to be without Employment Practices Liability Insurance (EPLi). It’s your best hedge against a devastating lawsuit that could ruin you.
Ready to learn more about keeping pace with changing wage and hour laws? Get familiar with Heffernan’s legislative and compliance services.