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October 22, 2009
FLSA Audit: 9 Compliance Tips and a Checklist

By Patricia M. Trainor, J.D.
Legal Editor

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Why is now the time to conduct a wage and hour audit at your company? Because now is the time that you are going to get sued, according to Marc L. Jacuzzi, partner in the law firm, Simpson, Garrity, Innes, Jacuzzi, P.C. Jacuzzi spoke at BLR's 2009 National Employment Law Update held this week in Las Vegas .

To illustrate the rise in federal Fair Labor Standards Act (FLSA) claims, Jacuzzi gave a “snapshot” view of FLSA claims in the Southern District of Florida, which covers only three counties. In 2008, 1,304 FLSA claims were filed in that District Court. Jacuzzi attributes the significant increase in FLSA claims to the fact that so many people are out of work and the longer they are out work, the more likely they will sue their former employers. Additionally, compared to other types of claims, such as sexual harassment or discrimination, FLSA claims are fairly straightforward and easy to make.

Conducting a wage and hour audit will help your company correct any violations and ensure they do not occur in the future. Before conducting an audit, employers should make sure that they are familiar with relevant federal and state law. For example, keep in mind that your state may require you to pay a higher minimum wage than federal law. Additionally, some municipalities have ordinances requiring employers to pay a “living wage” which is higher than both the federal and state minimum wage. Also, while the FLSA requires employers to pay non-exempt employees overtime if they work over 40 hours in a workweek, some states require daily overtime. Finally, employers should be aware of the dual salary and duties tests for the categories of employees who are exempt from minimum wage and overtime laws.

Jacuzzi shared the following checklist for conducting a self-audit:

Exempt employees .

  1. Salary basis. Are the employees paid a fixed amount guaranteed per week and not subject to fluctuation based on quality or quantity of work? Examine your company's docking practices and policies to make sure that docking is not jeopardizing the salary basis. Also make sure that the salary is not less than $455 per week.
  2. Duties. Examine how employees spend their time. Do not rely on job descriptions, because it is actual activities that count. Interview employees about what they do. If you determine that some employees need to be reclassified as non-exempt, Jacuzzi stated that you can minimize the risk of a wage and hour lawsuit by putting a positive spin the reclassification. For example, assure the employee that his or her salary will remain the same.

Non-exempt employees.

  1.   Are hours worked recorded? Make sure that employees are recording start times, time out for meals, time in from meals, and time out at the end of the day. Review your procedures for maintaining time records.
  2. Breaks and lunch. These are not required by the FLSA, but many states require employers to provide breaks and meal periods.
  3. Overtime. Make sure it is being recorded and properly paid.

Other considerations.

  1.   Benefits. Generally, vacation accrual can be capped, but not forfeited. Usually, accrued vacation or PTO is considered wages. However, this area is governed by state law and rules can vary.
  2. Final Payment. The timing and notice of final pay are governed by state law. Also, whether deductions are allowed from non-exempt employee's final pay for breakage or failure to return equipment is also an area governed by state law.

In addition to this checklist, Jacuzzi suggested some proactive steps employers can take to improve and/or ensure compliance with wage and hour laws. These steps include:

  • Appointing a compliance manager, usually the HR manager
  • Adopting a system for auditing violations and showing overtime payments
  • Establishing a system for employees to report violations
  • Educating managers on the law, especially the need for non-exempt employees to record time in and time out.
  • Making managers “own” the problem. Institute consequences for managers if their groups are not properly recording time, such as a demotion or a cut in pay.
  • Revising and/or updating handbooks and policies
  • Training associates on proper timekeeping
  • Having cash registers or email reminders about timekeeping compliance
  • Requiring non-exempt employees to sign a statement on their timesheets verifying that they have worked only the hours recorded

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