When I was offered a salary position right out of college I thought to myself “Wow, I will actually make this amount each week?” That comfort of having a steady income instead of relying on my server tips was amazing, but I was so naïve about the implications of being classified as salary exempt instead of hourly.
In hindsight, it’s clear that, because my position was entry-level and did not require discretionary decision making with matters of significance, it did not meet the salary exemption standards. From the employee perspective, I didn’t realize the potential to miss out on earnings when working more than 40 hours a week. From the employer perspective, they were able to control their wages, but did they really understand the ramifications of classifying me as salary exempt?
Luckily for the company, they are out of the statute of limitations period, or they could face significant penalties and interest in addition to back wages. As is likely the case in my example, most supervisors aren’t intentionally taking risks, they simply don’t understand the FLSA law. But make no mistake about it, whether intentional or not, in the eyes of the law, companies are still liable for back wages and penalties/interest if employees were not paid correctly.
Do you recognize the risk of paying employees incorrectly? When was the last time you reviewed your employees to ensure proper classification? Did you know that almost every day the US Department of Labor issued a news release about a company who was found to owe back wages? Paying less than minimum wage, calculating overtime incorrectly, and poor record-keeping practices are the main reasons why companies have to pay several thousand dollars to several hundred thousand dollars in back wages, penalties, and interest. A few examples are listed below:
- A Minnesota based sheet metal fabricator recently had to pay $171,000 in back wages and damages.
- A Wisconsin cleaning company required to pay more than $104,000 in back wages.
- A California based sushi restaurant owes $621,000 in back wages, damages, and penalties recently.
- An Oregon drywall company will potentially be debarred from future government contracts as a result of their poor record keeping and pay practices.
Not many organizations could sustain the cash flow hit of a lump-sum payment for back wages or recover from being stripped of working on government contracts that they rely upon for revenue. There are things you can do now to avoid being in the hot seat.
- Ensure your job descriptions are up-to-date and are in alignment with the DOL’s guidelines on who can/can not be classified as salary exempt.
- Assess your current employee population to determine if there are any employees who are paid a fixed salary for each pay period and do not meet the salary exemption qualification.
It is my understanding that we may see a final ruling on the proposed new rules surrounding employee classification as early as May, so the time to act is NOW.
Is your organization looking to change the way employees are compensated and the benefits that are offered? If so, you will want to view our on-demand webinar in our HR Architecture series on Compensation & Benefit.
Kristi Weierbach, Ph.D., Managing Director of Workforce Advisory Services
Kristi focuses her extensive expertise on helping clients design a workforce that is not only prepared for the future, but one that leverages disruption to thrive and succeed. Weaving together a unique blend of anticipatory tools and insights with practical solutions, Kristi provides clients with an organizational architecture that empowers them for the NextGen.