Best Practices for Reducing Wage and Hour Claims

Wage and hour claims are a significant legal concern for employers, with complex laws at both federal and state levels governing how employees are classified and compensated. Even unintentional errors can lead to lawsuits, financial penalties, and damage to a company’s reputation. To help mitigate risks, employers must implement clear policies, maintain accurate records, and ensure compliance with the Fair Labor Standards Act (FLSA) and other applicable regulations.

Below, we outline key best practices to reduce the likelihood of wage and hour claims, safeguard your business, and foster a fair and transparent workplace.

1. Proper Employee Classification

One of the most common sources of wage and hour disputes is the misclassification of workers. Employers must ensure that all employees are correctly categorized as either independent contractors or employees, as well as exempt or nonexempt under the FLSA.

• Employee vs. Independent Contractor: The classification depends on the economic realities of the working relationship. Employers should evaluate factors such as control over work, financial dependency, and the worker’s investment in the business.
• Exempt vs. Nonexempt Employees: The FLSA mandates overtime pay for nonexempt employees. Employers should confirm that any exempt employee meets the salary basis, salary level, and duties test for exemption.

2. Establishing Compliant Payment Practices

To prevent wage and hour claims, employers should ensure they are paying employees correctly and on time.

• Track employee hours accurately and pay for all time worked, including overtime.
• Ensure employees receive at least the required minimum wage and proper overtime compensation.
• Establish a consistent payroll schedule and provide employees with clear, itemized pay stubs.
• Conduct regular payroll audits to identify and correct potential discrepancies.

3. Developing Clear Wage and Hour Policies

A well-documented set of policies helps prevent misunderstandings and ensures compliance with labor laws.

• Define work hours, overtime policies, and break times.
• Clarify time-tracking expectations, especially for remote employees.
• Regularly review and update policies to align with changing regulations.

4. Employee Training

Ensuring that employees and managers understand wage and hour policies is essential for compliance.

• Communicate wage and hour policies clearly to all employees.
• Train managers to enforce policies consistently and recognize potential violations.
• Provide ongoing training to stay updated on regulatory changes.

5. Implementing Strong Recordkeeping Practices

Maintaining accurate records is crucial in defending against wage and hour claims.

• Track employee work hours and retain detailed payroll records.
• Ensure compliance with FLSA recordkeeping requirements, including documentation of wages, hours, and employee classifications.
• Conduct periodic audits of wage and hour records to identify and correct issues before they become legal liabilities.

6. Managing Internal Wage and Hour Complaints

Having a structured approach to handling complaints can prevent disputes from escalating into lawsuits.

• Establish a clear reporting process and encourage employees to voice concerns.
• Investigate complaints promptly and document findings.
• Consult legal counsel when necessary and take corrective action when appropriate.

Final Thoughts

Compliance with wage and hour laws is an ongoing responsibility that requires diligence and proactive management. By implementing best practices in employee classification, payroll procedures, policy development, training, recordkeeping, and complaint resolution, businesses can significantly reduce their legal risks while fostering a fair and productive workplace.

Price & Ramey is committed to helping you and your business. For additional risk management guidance, contact us today.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Employers should consult with legal counsel to address specific compliance issues.