Jul 20, 2021
Six Compliance Challenges
& How to Conquer Them
Small business compliance has never been more complex. This
eBook will introduce you to the leading challenges and solutions that will help
you to stay on the right side of the law. It’s important to understand
regulations and create compliant processes. This way, you protect your
employees, customers, and your entire business. Managing compliance allows you
to focus on the work that matters, and to leave the worrying behind.
Table of Contents
Occasionally, employees need to leave work. This can be for
medical emergencies, planned medical procedures, family support, or leisure.
Several laws govern the management of these kinds of leave, and they affect
most employers.
Managing multiple types of leave can become a full-time job
if you don’t have the right tools. Let’s break down the main leave laws:
The
Family and Medical Leave Act (FMLA) entitles eligible employees to take unpaid,
job-protected leave for specified family and medical reasons with the
continuation of employer health insurance coverage.
In March
2020, Congress passed the Families First Coronavirus Response Act (FFCRA) which
includes The Emergency Paid Sick Leave Act (EPSLA).
The FFCRA requires employers to provide paid leave through
two separate components;
●
The Emergency Paid Sick Leave Act (EPSLA)
●
Emergency Family and Medical Leave Expansion Act
(Expanded FMLA)
The EPSLA is the second law contained in the FFCRA that
provides paid leave. Specifically, it provides full-time employees up to 80
hours (two weeks) of paid sick leave for basically the same coronavirus-related
reasons as outlined in the EFMLEA.
Paid time
off is offered by many employers. In most cases, employers allow employees to
accrue time off based on their work history. Typically, employers offer a
specified number of accruable hours for every week on the job. Tracking and
managing the number of hours accrued, and the number of hours the employee has
applied to time off is where employers can get tripped up.
Except
for the previous types of family and medical leave, there are no federal laws
that mandate employers provide paid time off. However, many states regulate PTO
to some degree.
24 states: Alaska, Arizona, California, Colorado, Illinois,
Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota,
Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio,
Oklahoma, Pennsylvania, Rhode Island (after one year of employment), Tennessee,
West Virginia, and Wyoming—and the District of Columbia have laws regarding
payment of accrued vacation time.
‘Use it or lose it’ policies are prohibited in
California, Montana, and Nevada. In addition, some cities regulate PTO. Check your state
and local departments of labor.
Complying
with FMLA and COVID leave while administering company PTO is not a simple task.
Our example case shows how tricky leave compliance can be.
Delta Fabrication, a California-based sheet metal
manufacturer, paid $19,694 in back wages to 71 employees after a Department of
Labor (DOL) investigation. The company wrongly paid workers only two-thirds of
their regular rates when they took coronavirus-related sick leave, a violation
of the Families First Coronavirus Response Act (FFCRA).
DOL investigators found that Delta Fabrication first used
the employees’ available accrued sick days to compensate them, wrongly subtracting
hours from the workers’ accrued sick leave instead of providing the additional
leave provided by the act. https://www.dol.gov/newsroom/releases/whd/whd20201124
Correctly administering leave is a compliance minefield for
even experienced HR professionals.
Common problems include:
●
Failure to notify employees of FMLA and
COVID-related leave rights
●
Failing to confirm when employees become
eligible for state or federal leave
●
Managers who don’t understand FMLA or EPSLA or
who neglect to inform HR when an employee takes leave
●
Failure to keep sufficient records including
separate documentation for FMLA and COVID leave
●
Penalizing an employee who takes protected leave
●
Failure to create a formal PTO policy
●
Failure to enforce PTO policies equitably
With Automated PTO and Leave Management, you simply set up
custom time-off categories. This allows you to allocate, accrue and track the
use of federal FMLA and COVID leave, state family leave, vacation, and company
PTO. Automatically.
Automated leave management benefits employees and managers
as well. Employees can check their leave balances and request time off using
any mobile device. Managers have all PTO requests in one location and can
approve, modify or deny.
In addition, managers can see employees on leave or
scheduled for leave as they build shift schedules.
Automated PTO and Leave Management streamlines PTO tracking
and ensures employers can see the big picture before approving or declining
time off. Automated time and attendance also provides historic data that can
make audits easy, productive, and worry-free.
Employers must recognize the classification of their
employees. State and federal laws regarding overtime and variable pay schedules
depend on those classifications, and there can be trouble if records are
inaccurate or absent, altogether.
Employers who fail to classify non-exempt employees
correctly are on shaky ground when it comes to compliance.
What is an exempt employee?
The 'exempt' in exempt employee signifies that the employee
is exempt from the overtime protections in the Fair Labor Standards Act (FLSA).
In other words, the employer doesn't have to pay overtime, generally
time-and-a-half their regular rate for weekly hours above 40.
What qualifies for exemption from overtime laws?
The Department of Labor lists several
categories of employees who are exempt from overtime laws. This is sometimes
called the 'white collar' exemption. To be exempt, employees must meet the
duties and wage test for all requirements. Remember that it’s the actual job
duties that count, not the job title. Note that the salary threshold increase
in 2020 did not affect the classification rules.
What is a non-exempt employee?
Any employee that doesn’t meet the salary and duties test
mentioned previously must be paid overtime. Most hourly workers are non-exempt.
This is far from straightforward. Even if the employer classifies correctly, if
they don’t track time properly, they can violate overtime laws. Pitfalls
include failing to track rest periods, illegal tip pooling practices,
off-the-clock work, and difficulty tracking time for mobile and remote
employees.
Zeigler
Auto Group paid $85,000 in back wages to 214 employees for misclassifying
non-exempt workers, failing to pay minimum wage and neglecting to maintain
accurate payroll records. https://www.dol.gov/newsroom/releases/whd/whd20210331
One of the most famous cases of misclassification involved a
$50 million judgment against MetLife. The claimants were former Claim
Specialists. Up until 2013, these employees were paid hourly. As non-exempt,
they were also paid overtime when they exceeded 40 hours a week. According to
the plaintiffs, weekly overtime work was common. In 2013, MetLife reclassified
the Claims Specialists as exempt salaried employees. Since their job duties
didn’t change, MetLife was asking for trouble. The plaintiffs claimed that they
continued to work 45-60 hour weeks. The judge agreed that the employees were
due overtime pay.
Classification affects more than overtime laws. It can impact
benefits eligibility, minimum wage protections, and workers’ comp eligibility.
In addition, employers who fail to pay legitimate overtime could face state as
well as federal penalties.
There are three main steps for complying with classification
laws:
With Automated time and attendance, you automate employee
timekeeping. Employees punch in and out with a hardware clock or mobile app.
The software creates and saves virtual timecards so you don’t have to worry
about the recordkeeping requirements.
In addition, Automated time and attendance helps you avoid
the complicating factors that can trip up employers. These involve
meals/breaks, mobile employee oversight, tip tracking, and employee timecard
padding.
●
Meal/break prompts and early break clock-in lockout
●
Schedule enforcement
●
Geofencing for mobile employees
●
Missed punch alerts
●
Tamper-proof virtual timecards
●
Audit-ready timekeeping records
While there is no federal law on work breaks, many states
have laws that apply to rest periods. Generally, the laws mandate a paid or
unpaid break for a minimum number of hours worked. Thousands of employers
violate these laws every year.
In many cases, the employer assumes employees are “cool”
with a lax policy. However, when challenges arise, the employer will always be
the one to be penalized if records aren’t in order.
Case Studies
A San
Diego company agreed to pay $35,000 to settle a lawsuit over meal breaks. The
court found the company automatically deducted 30 minutes from employees’ time
worked regardless of whether the employee took a break. The employer had to pay
30 minutes’ back pay plus penalties for each day an employee was improperly
docked time.
https://hrdailyadvisor.blr.com/2004/03/01/meal-and-rest-periods-employers-settle-lawsuits-claimi
In April
2019, a jury awarded a class of 5,000 California-based Walmart fulfillment
center employees over $6 million in damages for multiple violations including
missed meal breaks which are required in California. The court found the
company failed to pay for all hours worked, pay overtime, provide meal periods,
provide rest breaks, pay final wages, and provide accurate itemized wage
statements.
https://www.californiaemploymentlawreport.com/2019/05/five-lessons-for-california-employers-from-6-million-verdict-against-walmart/ng-back-overtime-for-missed-breaks-know-the-rules-and-the-penalties/
Don’t let rest periods cause compliance problems. Each of
the items listed above can be solved with a fully automated time and attendance
solution. With this solution in place, you can rest assured that you have your
bases covered when it comes to break and mealtime compliance.
Protect yourself with:
●
Time clock prompts for unpaid
breaks
●
Manager alerts for missed break punch-outs
●
Real-time manager oversight of
mobile employees on break
●
Automated recordkeeping of shift
punches including rest periods
A minimum wage law sets the lowest hourly rate an
employer can pay employees who are covered by the law. The current federal
minimum wage is $7.25 per hour. It was enacted July 24, 2009. 29 states and the
District of Columbia have a minimum wage above the federal level.
Most state-level minimum wage laws increase
incrementally over several years. The upward adjustments generally occur on
January 1, but some states don’t stick to the calendar year. It’s critical to
know the specifics of your state’s minimum wage law!
In addition, it’s crucial that employers understand
that when the state and federal minimum wage laws differ, employers are
obligated to pay the minimum wage that is most favorable to the employee. In
other words, if your city passes a minimum wage of $14/hr, you can't pay the
federal minimum wage of $7.25.
The federal law allows an employer to pay a tipped
employee not less than $2.13 an hour in direct wages as long as all three of
the following conditions are met:
If an employee's tips combined with their direct wages
(at least $2.13/hr) do not equal the federal minimum wage, the employer must make up the difference.
Note that the federal minimum wage doesn't apply to all
young workers and full-time students. Get details on these exceptions on the Department of Labor website.
Wage and hour laws, especially those involving minimum
wage don’t exist in a vacuum. When you violate one law, there is a domino
effect.
For example, suppose you use paper timecards and one of
your managers isn't strict about employees recording their time. At the end of
the pay period, she gathers the timecards and notices several missed punches.
She's too busy to ask each employee when they worked,
so she estimates the shift times. Then she sends the completed time cards to
the payroll manager. When the checks are deposited, a minimum wage non-exempt
employee gets a paycheck that's based on inaccurate hours. The employee had
actually worked 43 hours that week but the timecard listed 38.
At this point, you have violated both minimum wage and
overtime. When you divide the check total by the time the employee actually
worked, the hourly rate had fallen below minimum wage, PLUS, you owe the
employee overtime for the 3 overtime hours.
Businesses that violate minimum wage laws routinely face
hefty fines. For example,
two Connecticut restaurants paid $137,465 in back wages and liquidated damages
to workers after the DOL ruled that they violated both minimum wage and
overtime.
https://www.dol.gov/newsroom/releases/whd/whd20210405
A Florida
restaurant had to pay $19,000 in back wages and penalties when they failed to
pay servers for their entire shift. The investigation found that the company
didn’t compensate for time worked prior to when the servers’ first customers
arrived.
https://www.dol.gov/newsroom/releases/whd/whd20210324
Automated time and attendance assures that your employees
are logging their hours and recording breaks and overtime.
With automation in place and multiple punch-in options for
your employees, automated time and attendance can help keep you clear of any
future trouble regarding minimum wage issues.
The following features protect you from violating minimum
wage laws:
●
Biometric
time clocks with schedule enforcement
●
Configurable
pay rates
●
Tip
tracking
●
Meals/breaks
prompts
The Fair Labor Standards Act has been around since 1938.
Regardless, thousands of employers fail to comply (either knowingly or unknowingly)
with the FLSA overtime rules. Some violators are well-known multi-million
dollar corporations.
Employers must pay overtime when hours worked by a
non-exempt hourly worker exceed 40 in a defined work week. The overtime pay
rate under the Fair Labor Standards Act (FLSA) must be at least time and
one-half the employee’s regular rate of pay. No limit is imposed on the number
of hours worked in a workweek for those over age 16. Overtime pay is not
required for work on weekends, holidays or regular days of rest, unless the
employee has exceeded the overtime hours limit in the workweek. State, local,
union and industry-specific laws may also apply.
Overtime violations usually result from either
misclassifying non-exempt employees or failing to track all employee time.
A Las
Vegas plastering company had to pay $137,174 in back wages owed to 156
piece-rate employees who weren’t paid overtime.
https://www.dol.gov/newsroom/releases/whd/whd20210319
An Ohio-based home health agency was fined $327,848 for
multiple violations including not paying overtime when travel time between
clients pushed aides over a 40-hour workweek.
https://www.dol.gov/newsroom/releases/whd/whd20210316-0
The first line of defense against overtime violations is to track all employee time for every shift!
In addition:
While we’re on the subject of overtime, it's worth pointing
out how unplanned overtime impacts your labor budget. A recent Deloitte study of over 800 U.S. employers
revealed an average of 31 unplanned overtime hours each week, per company.
Let's do the math: if your company has an overtime wage of $25, 31 hours a week
would add up to a yearly cost of over $40,000.
By limiting unplanned overtime, you not only reduce the risk
of a violation, but also save your labor budget.
Automated time and attendance can help you track employee
time and provides alerts and notifications when an employee is approaching
overtime status. With automation in place, you have more control over your
budget and all the right information for an accurate audit.
Automated time and attendance provides the following tools
for overtime compliance:
●
Alerts for overtime hours thresholds
●
Meal/break early punch lockout
●
Overtime calculation by job code
●
Tip reporting
●
Flexible scripting for state or local overtime
laws
●
Audit-ready recordkeeping and reporting
●
Mobile location management
Do you employ independent contractors? Are you sure they
qualify as “independent?” The DOL estimates that between 10% and 30% of
employers misclassify their employees and independent contractors.
Misclassification can result in minimum wage, overtime, and FMLA violations.
You can find the duties tests here: US Department of Labor.
Companies often misclassify employees because of the
additional costs and expenses typically related to employees. However,
misclassifying employees leaves the employer open to litigation, a tarnished
reputation, and costly fines.
An investigation by the DOL found Minnesota-based Cable Equipment
Services violated FLSA overtime, minimum wage, and recordkeeping requirements
when they failed to pay 41 market contractors and drivers overtime and minimum
wage. The company treated the workers involved as independent contractors
instead of employees. However, investigators found that the workers met the
definition of employees. The defendants agreed to pay $350,000 in back wages
and liquidated damages.
Employers should carefully review their independent
contractors to determine if any of the workers should be classified as
employees.
Automated time and attendance minimizes much of the
administrative and regulatory burden of classifying workers, tracking work
time, and maintaining compliant records.
Tools include:
●
Employee classifications
●
Automated timekeeping
●
Audit-ready recordkeeping
Our time and attendance solution provides an easy and effective
way to maintain compliance with a variety of challenges that cause trouble for
many employers.
Ready to up your game when it comes to compliance? Give us a
call.
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