Mistakes happen, even to the very best of us. The best part about mistakes? Learning from them. Sometimes, if you’re lucky, you can even learn from others’ mistakes and avoid the problem yourself.
Supporting thousands of clients nationwide on an ongoing basis, we learn firsthand about the mistakes that happen. Our goal is always to have clients learn from them and not repeat the same mistakes again. There is also being proactive to prevent problems from ever occurring to begin with.
What follows are some of the most common mistakes we see happening in the world of employment compliance. If you’re looking for ways to shore up your practices and ensure compliance, fixing these (if they’re happening for you) is a great place to start!
Mistake #1: Pay periods versus workweek for overtime pay
By law, overtime is required to be paid when an employee works more than 40 hours in a workweek. In some states, there is an additional overtime requirement once an employee works more than a certain number of hours in a day. When overtime is worked, it is paid at time and one half.
There are some who are under the misconception that overtime is paid when an employee exceeds 80 hours in a two-week pay period. Overtime is never about pay periods. All work hours over 40 in a workweek are paid as overtime.
Mistake #2: Defining the Workweek
There is no law that defines a workweek. The law only says that a workweek must be 7 consecutive 24-hour periods. Thus, a workweek cannot be Monday through Friday. This also means the workweek can be anything you want it to be. Here are some examples:
- Monday through Sunday
- Tuesday through Monday
- Wednesday through Tuesday
- Friday through Thursday
If you have not defined the workweek specifically, then it will default to the calendar week of Sunday through Saturday.
While this may seem trivial, it becomes an issue as it relates to overtime. As we learned from Mistake #1, overtime is paid when work hours exceed 40 in a workweek. Properly defining the workweek is the only way to know when overtime is applicable.
Employees need to be clear on this as well. If they think the workweek is Monday through Friday (which it cannot be), they may assume overtime is required if they work on Saturday even though they have not exceeded 40 hours for the workweek.
There can be any number of misunderstandings about overtime when you are not clear about simple things like defining the workweek.
Mistake #3: Not paying for unauthorized work time
You may have experienced them….the ones who “milk” the clock and work more than they should. Sometimes it’s a little here and a little there and doesn’t add up too much. Sometimes it’s a significant chunk of time and results in overtime for the week (or day, if applicable).
You try to prevent it; you have a policy in your policy manual that says working beyond the schedule and/or overtime must be authorized in advance. You even say extra time won’t be paid if it is worked without your approval. Yet, it still happens.
When it comes down to it, can you really refuse to pay it? Sadly, no, you cannot refuse to pay an employee after s/he has worked, regardless of your policy. You can apply standard disciplinary measures such as verbal and/or written counseling, perhaps suspension without pay, and even termination, but you cannot refuse to pay for time worked. This will only invite wage & hour claims.
Also, while having a policy prohibiting unauthorized work time/overtime is recommended, please remove any language about non-payment when it is worked without authorization.
Mistake #4: Excluding “salaried” employees from overtime
Many employers fall prey to the following myth: “I pay my employee a salary, so I don’t have to pay overtime.” This is absolutely false. The method of compensation has no bearing on overtime requirements. Simply paying an employee a salary does not exclude you from having to pay overtime. “Salaried” is not a category for overtime purposes.
Under the Fair Labor Standards Act (FLSA), employees fall into one of two categories: exempt or non-exempt. Methods of compensation, such as salary or hourly, do not determine a legal classification of employee. To qualify for exemption, an extensive review of the salary requirements and duties test is required.
If an employee cannot be classified as exempt, then the employee is considered non-exempt. Non-exempt employees receive overtime pay at all times, when it is worked, regardless of their method of compensation.
Mistake #5: Unauthorized deductions from pay
Employers need and/or want to take paycheck deductions for any number of things. It could be for health insurance premiums, vacation advances, paycheck advances, broken or lost equipment, and so on. While the need to take these deductions may seem reasonable, they may not always be allowable.
Whether or not an employer can take paycheck deductions is determined by individual state law, which stipulates the following:
- The reason(s) paycheck deductions can be taken.
- What is required prior to taking the deduction (i.e. written authorization from the employee).
- Limitations on the amount of the deduction.
- Whether any deduction can be taken from a final paycheck.
Unfortunately, deductions are limited in most states. In general, employees are entitled to be paid for all hours worked and cannot have their pay reduced for miscellaneous deductions. If it is allowed, employees generally must volunteer for the deduction and provide written authorization.
To avoid wage & hour claims, call us if you need more information on paycheck deductions to ensure you are managing this appropriately.
Mistake #6: Failing to pay final checks as required by law
Like so many other things, when and how you have to comply is not up to you. When you must provide a terminated employee with his/her final paycheck is one such example. Final paycheck rules are established by each individual state and those state regulations can vary significantly from one state to another.
Final paycheck regulations will often differ depending on the type of termination that occurred. For example, was it voluntary (on the part of the employee) or involuntary (i.e. a firing)? The time frame for providing someone with his/her final check who is discharged may be different than if that same person quit voluntarily.
Complicating matters further, states often distinguish between quitting with notice versus quitting without notice. The time frame for providing someone with his/her final check who quits with notice may be less than if the person provided no notice, for example.
In some states, all final checks are due the next payday, regardless of why and how the termination occurred. Even then, the requirements are often such that the next payday cannot exceed a certain time frame, such as 20 days.
The result is that you cannot make up your own policy on this or have one policy be applicable to everyone in all situations. You must establish final pay practices per applicable state laws.
Mistake #7: Ignoring the I-9 Form
An I-9 Form is a document that all employers, no matter the number of employees, are required to have for each employee. While this requirement has been in place since 1986, many employers are still sorely lacking in that knowledge and/or are failing to properly manage this area of employment compliance.
The Immigration Reform and Control Act of 1986 (IRCA) requires all employers to verify the identity and employment eligibility for all employees hired after November of 1986. This is accomplished using the I-9 Form.
You should be using the most current I-9 form available. Visit the United States Citizenship and Immigration Services website for the most current form.
Many requirements apply to the I-9 Form. Call us if you need more information. If you fail to complete or retain I-9s, fines range from $110-$1,100 per violation.
Mistake #8: Hiring temps to avoid employment problems
There is no situation in which you can hire someone and avoid employment problems or consequences that may result from that employment relationship. This includes unemployment claims, retaliation and discrimination claims, wage & hour claims, workers’ compensation, and so on. A temp is your employee for all intents and purposes and problems can arise with that relationship regardless of the temp status. This is especially true if you are paying the employee directly. For other relationships, you may be considered a “joint employer” and share in at least some, if not all, of the possible liability.
Mistake #9: Not compensating interns
Few internships in the private-sector will qualify as unpaid. They exist in very limited circumstances and are determined by both federal and state laws. There are specific criteria that must be met to qualify. If the internship in question does not meet the criteria, then the intern must be paid. Before bringing an intern from the local school on board and proceeding with no compensation, please review the criteria and ensure you will be compliant. You cannot treat all interns the same or have a “one-size-fits-all” policy.
Mistake #10: Having “1099 employees”
The concept of a “1099 employee” is an oxymoron. A 1099 individual is not an employee; s/he is an independent contractor. That’s the nature of a 1099, independent contractor relationship – they are not employees. Therefore, you cannot have an employee who is paid as a 1099 individual. Only independent contractors can be paid that way.
IRS rules as well as state laws establish specific criteria related to who can be considered an independent contractor. Know that the criteria for determining employee vs. independent contractor status are stacked in favor of workers being employees. Bottom line: the overwhelming majority of workers do not meet the criteria to qualify as independent contractors.
If you have independent contractor workers, review the arrangements carefully in consultation with us and/or legal counsel to avoid becoming an enforcement statistic.
Conclusion
Did you discover something you’re not doing correctly? Did you learn about an area that you need to research more before proceeding down a certain road? If so, that’s great! You can begin to fix problems or figure out how to prevent them before they become a costly nightmare. Every little bit helps. If we can provide further guidance, please call us. That’s what we’re here for!
