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FLSA Lawsuits On the Rise – Beware

Posted on: February 11th, 2015

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FLSA investigations could prove costly to businesses

Federal Fair Labor Standards Act (FLSA) lawsuits numbered over 7,000 in 2012 alone.  Companies such as Walmart, Staples, Merrill Lynch, JPMorgan Chase, Oracle, CVS, Tyson Foods, Lowe’s and AT&T have been subject to significant FLSA penalties for violations.

FLSA cases growth chart

FLSA lawsuits don’t target specific types of companies, so every company could be faced with this challenge and the ensuing penalties. See “What’s behind the FLSA increases”

Determining FLSA violations

Investigators generally look at the following five areas for potential violations:

Earnings codes

Your company’s earnings codes may be the easiest way to identify if compensation is being improperly excluded from the regular rate, and in turn, your overtime calculations. In an FLSA lawsuit investigation, investigators tend to first look at safety, incentive, bonus, auto allowance, operator incentive and per diem.

Deduction codes

A review of your deduction codes can also reveal potential issues, such as deductions that reduce wages below the minimum wage.  FLSA investigators will pay special attention to pay advances, laundry, safety glasses, tools, uniform fees and shoes and union dues.

There are very few instances when you can deduct from an exempt employee’s normal salary without jeopardizing the exempt status. See the DOL fact sheet for more information.

Be sure to document anything that requires employee authorization and to avoid deductions that cause pay to go below minimum wage.

Time tracking rules

Your time and attendance rules can be a potential wage and hour issue. Items to be aware of include:

  • Rounding rules – make sure rounding is fair
  • Automatic meal period deductions – the biggest reason for litigation; If you require employees to punch out/in rather than auto deduct, you have proof of meal periods
  • Time clock rules need to treat clocking in early or late the same for everyone
  • Shift hours overlap work weeks; This may cause underpayment in one week and overpayment the next week

Time card dangers

Other areas that present red flags to investigators in potential FLSA claims involve inappropriate time clock management.

  • Identical in/out and meal period times for almost every day – is the employee actually punching?
  • No out/in and meal time punches – hard to prove if nothing is documented
  • Exact time punches when shift begins (on the dot)
  • Employee time punches are almost the same exact time – possibly buddy punching

Pay stub issues

  • Employee is paid for fewer hours than shown on the time record
  • Deductions for work required equipment (e.g., uniforms, tools)
  • Employee was paid a shift differential or bonus instead of overtime pay

Avoiding difficult, expensive and time-consuming business problems are now a part of business reality with FLSA lawsuits. Key to protecting your business is proper record keeping and documentation, along with a time and attendance system that integrates with payroll and other business functions to accurately track work time.

Your systems should have consistent rules across the board, maintain documentation, have easy data management and reports to prove your compliance and provide proof in the event of a FLSA claim.

MassPay will closely monitor the upcoming changes to FLSA rules and will issue updates and guidance throughout the process to help companies stay in compliance.

Similarly, the ACA (Affordable Care Act) is being closely monitored as reporting requirements for large employers begin this year and parts of the ACA come under fire from the new Congress. MassPay will keep you aware of these changes as well. See A Clear Vision on ACA Compliance for details.

MassPay is an iSolved Certified Partner, offering a complete HCM and Payroll solution and services to small to mid-sized companies. Our mission is to help companies run their HR and Payroll operations more efficiently, and stay in compliance with ACA, minimum wage and other rules & regulations.

See how we can help your company reach its full potential – Get in touch with us today.


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