Navigating Wage and Hour Compliance

Apr 1st, 2021

Does it feel like you are navigating a minefield when it comes to ensuring you are fulfilling all of your wage and hour obligations? It is no easy feat to comply with federal, state, district, county, and local requirements. While we certainly cannot cover all wage and hour hurdles, below are two critical areas to focus on within your organization.

Final Pay Laws

If you are a multi-state employer, paying wages, specifically final pay wages, can be a commonly overlooked area. Did you know that the laws and rules on final pay vary from state to state? Some states require payment to be made immediately, other states require payment to be made within a day to several days, and other states require payment to issue no later than the next regularly scheduled pay date. Vermont and Texas are examples of states where several days are allowed if the employee is fired, three days is the maximum in Vermont, and six days for Texas.

California final pay laws require an employer who involuntarily discharges an employee to pay all final wages immediately. This means that on the day of the involuntary termination, final wages must be paid to the employee! This requires the employer and manager to prep ahead for any involuntary terminations. As for California voluntary terminations (resignations), an employee who quits without giving prior notice, must be paid his or her wages within 72 hours. If the employee gives at least 72 hours’ notice of his or her intention to quit, those wages must be paid at the time of quitting (i.e., last day of work).

Furthermore, employers may not withhold a worker’s final paycheck, even if a worker is involuntarily terminated. Have you ever heard a manager say, “We didn’t receive our laptop back; therefore, we are not giving the employee their final paycheck until we get it back!”? Withholding an employee’s paycheck is a violation of federal law; therefore, illegal. Workers must be paid for all time worked!

FLSA Exemption Classification

Employee exemption classification, meaning classification as exempt (generally salaried) or non-exempt (generally hourly), can be very tricky. Determining who must be paid overtime under the Fair Labor Standards Act (FLSA) is critical to wage and hour compliance. If employees are misclassified, employers will be exposed to the potential for a wage and hour claim. Simply put, you could owe back wages for unpaid overtime. Below is a high-level overview of FLSA exemption classification.

Under the Fair Labor Standards Act (FLSA), workers must be paid 1 1/2 times their regular rate of pay for all hours worked beyond 40 in a workweek unless they fall under an exemption. (Note: California has state-specific overtime rules). The most used exemptions are the administrative, executive, and professional collectively called white-collar exemptions.

Job titles alone do not determine exempt status. For an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department of Labor’s regulations. Per the FLSA, to be exempt from overtime, a position must meet three criteria: salary threshold, payment on a salary basis, and a primary duty test that is specific to each exemption.

A minimum salary threshold: Employees who make less than $35,568 are now eligible for overtime pay under a final rule issued by the U.S. Department of Labor (DOL). The new rate took effect on January 1, 2020. Please note: State specific salary thresholds may vary.

Payment on a salary basis: Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to exceptions not listed, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.

A primary duty test that is specific to each exemption: Employers should take the time to review an employee’s job duties to ensure they satisfy the applicable exemption criteria. A commonly used reference is the Department of Labor Fact Sheet, #17A: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime

If you would like to discuss wage and hour compliance or need assistance navigating this issue at your organization, please reach out to us at info@tocgrp.com.