Could Wage and Hour Lawsuits Put Your Business at Risk?

By Rieva Lesonsky

Is your small business at risk from employee lawsuits stemming from mishandling wages and hours? Such lawsuits are on the rise, reports Business Insurance, possibly as a result of the growing number of Americans who are laid off. According to the Department of Labor, there were 40,000 wage and hour complaints in fiscal 2010, a 15 percent increase from fiscal 2009.

One expert cited in the article called wage and hour lawsuits the “lawsuit du jour,” and another said these suits have surpassed employment discrimination lawsuits as the kind of suit that businesses are most worried about. One reason wage and hour lawsuits are so popular is that it’s easy for them to become class action suits, which can be costly since they involve entire categories of a company’s employees rather than just individuals.

Obviously, class action suits are more likely to affect big companies, but the effects can trickle down to smaller businesses, so it’s a smart move to make sure your employee wages and hours are being handled correctly.

In most cases, wage and hour lawsuits arise over requiring employees to work unpaid overtime, or misclassifying employees as “exempt” (meaning they are not eligible for overtime). Rules related to wages and hours are complex and differ from state to state. On top of state laws, employers must also abide by federal regulations. The issue has gotten even more complicated as many employees today are using mobile technology, making it harder to track hours worked or monitor what employees are doing.

So what can you do to lessen your risk of lawsuit? Business Insurance offers these tips:

• Be sure you are classifying employees properly as exempt or nonexempt. For details on how to determine this, go to the Department of Labor website.
• Also be sure you are classifying independent contractors properly. (Visit the IRS website for more information.) If you are classifying someone as a contractor, but they are actually an employee, you are opening yourself not only to a wage and hour lawsuit but also to hefty IRS penalties.
• Be aware that federal and state laws regarding issues such as meal or rest breaks can vary and stay up to date on the legislation.
• Keep good records. Records should include employees’ wages, when they start work, hours worked and any meal or break time.
• Have employees review and approve their records and bring any discrepancies to a supervisor’s attention immediately.
• Create a grievance procedure for employees to follow if they believe they aren’t being paid correctly. The goal is not to let an issue spin out of control to the point where the worker feels a lawsuit is his or her only option.
• Job descriptions change, so do regular audits to make sure employees are still properly classified.

If you are sued for a wage and hours issue, it may be in your best interests to settle out of court rather than bringing attention to the issue, which could prompt the suit to expand into a class action suit.

Image by Flickr user Brian Turner (Creative Commons)

This entry was posted on Monday, June 13th, 2011 at 6:00 am and is filed under Business Law, Compliance, Small Business, small business, Workforce. You can follow any responses to this entry through the RSS 2.0 feed.


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