Five Tips to Avoid Wage and Hour Lawsuits

Now more than ever, it’s critical for U.S. businesses to be compliant with labor laws, as Department of Labor regulatory enforcement and litigation spending is on the rise. The 2017 Annual Workplace Litigation Report by Seyforth Shaw, LLP reports that workplace class action settlements hit a total of $1.75 billion in 2016. Additionally, the settlement value tripled in 2016 for wage and hour litigation. This is due to the total value of the top 10 settlements hitting $695.5 million in 2016, up 50% to 2015’s total settlements of $463.6 million, and triple 2014’s $215.3 million. A few of the most costly businesses’ wage and hour settlements in 2016 included Outback, FedEx, WalMart, and Bank of America.

Employees who are filing suits are having more success, now yielding a staggering 76% success rate for employee plaintiffs filing wage and hour class action lawsuits. The Department of Labor is headed by the Secretary of Labor, Alexander Acosta, who recently was appointed by the Trump administration to replace former Secretary Tom Perez. While the changing of the guard from Secretary has settled in, businesses are seeking clarification on what priorities Secretary Acosta will pursue. But surprisingly, businesses are still not considering wage and hour compliance a top priority.

According to the recent survey report by, “Top Challenges for U.S. Businesses with Hourly Workers“, one major insight uncovered an inherent contradiction in how businesses are managing compliance. 56% of respondents did not feel confident with understanding changing labor laws while only 5% of all businesses cited compliance as a top priority. So how can you protect your business from wage and hour litigation? Here are five tips to avoid wage and hour plaintiff lawsuits:

Correctly classify your employees.

Worker misclassification lawsuits (e.g. Uber and FedEx) are one of the top class action filings impacting businesses today. Many businesses make the grave mistake of classifying workers as independent contractors to avoid dealing with employment and labor laws such as withholding income tax, Social Security, and Medicare from wages. If your business has a level of control over what your worker does, how they are paid, provides supplies and tools to perform their job, and has a worker contract that details employee benefits such as vacation pay and insurance, then you must classify your worker as an employee.

Second, be sure your business correctly classifies employees for exempt or non-exempt status, as non-exempt employees are entitled to overtime pay. Exempt employees are paid at least $23,600 per year ($455 per week), are paid on a salary basis, and perform exempt job duties and responsibilities, as outlined by the Department of Labor. If your employee doesn’t qualify for all of these requirements, they are considered non-exempt.

Finally, to ensure you stay compliant on the status of each employee (as roles often change), keep your employees’ job descriptions updated often, and have your employee also review and verify those descriptions to document your correct worker classification.

Track, record, and save time punch data.

In order to protect your business from back pay claims of unpaid hours worked, properly track and document your employees’ time worked for a minimum of three years of payroll. Additionally, document all employee names, genders, addresses, hourly wages, daily and weekly hours worked, total earnings, and overtime pay.

Using automated time tracking tools can help accurately keep track of employee hours worked while formally documenting it for potential future evidence. Time and attendance tools can also allow your employees to review and verify their hours worked when they clock in and out which provides a layer of attestation protection for the business.

Pay employees timely and accurately.

According to a recent report finding in HR Dive, 49% of workers will start a new job search after experiencing only two problems with their paycheck. If an employee leaves your business for a payroll error, it’s a fair to assume that this could lead to a litigation down the road.

Make sure your business is entering accurate timesheets into payroll, and create a process to confirm employees are getting paid exactly what they’ve earned. Overtime errors are one of the top wage and hour litigation threats. For non-exempt employees, overtime is 40 hours, and each week worked cannot be averaged over a two week span. Overtime also can’t be paid out on the following week’s paycheck, and you cannot exchange overtime for paid vacation time (unless a bill passes). To help you manage overtime, there are stress profile tools available to prevent employees from working over 40 hours per week. In certain states, employers must also provide their workers with paid breaks. A simple way to comply with these requirements is to use paid break tools to record and accurately pay for those breaks.

Lastly, be sure your time rounding policies don’t produce a net loss to your employees. Although time rounding could cut administrative time and costs for your business, this could be a big risk if your employees end up getting short changed due to rounding errors. The best practice in nearly every situation is to neutrally round.

Avoid tip-related errors.

Another top worker lawsuit is tipping-related disputes, like what we’ve recently seen at Disney World and Chili’s. Best practices to avoid these types of lawsuits include providing your employees a tip credit written notice that they must review and sign for your documentation. Also, don’t exceed the maximum tip credit allowance of $5.12, and you must pay the correct sub minimum hourly wage to tipped employees (to meet the $7.25 federal minimum wage).

To avoid tip-related overtime lawsuits, understand that overtime (over 40 hours worked) must be paid based on the full federal or state minimum wage, (time and a half) not the sub minimum hourly wage. Then, you subtract the tip credit allowance from that amount to get your correct hourly overtime rate.

Additionally, make sure your tipped employees are the only workers participating in tip pooling or sharing, as the Department of Labor states the tip pool cannot include non-tipped employees such as dishwashers, cooks, chefs, and janitors. Finally, make certain you are correctly tracking times and wages worked for both tipped and non-tipped work, as employees who spend over 20% of their work doing non-tipped jobs must be paid at the untipped minimum wage during those hours.

Littler Compliance Toolkit: stay up to date on federal, state, and local jurisdictional updates.

Be sure your business has access to state and federal specific resources to help your business establish policies, procedures, and practices that comply with a constantly evolving labor and employment law landscape. Littler’s Compliance Toolkit provides businesses with documents and tools to help your business remain compliant with state and federal laws when hiring, compensating, managing, and terminating employees. This toolkit includes key employment documents, resources, training, and templates that allow businesses to customize toolkit materials for their specific business.

By using the a workforce management app, businesses can properly track and document employee time and attendance for easy clock in and out to adhere to hour and wage compliance while preventing and regulating overtime.

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