December 31, 2020 6 min read

What Employers Should Know About Wage and Hour Claims

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If there is one type of employee claim that businesses dread, it’s a wage and hour claim. In recent years, there have been a number of very high-profile wage and hour claims filed on a class-action basis, which have cost businesses a lot of money both in defense costs and settlements.

According to the U.S. Department of Labor’s Wage and Hour Division, it recovered a record-setting $322 million in wages owed to workers in the fiscal year of 2019.

Because of this, most insurers prefer to exclude wage and hours coverage from their employment practices liability insurance (EPLI) policies and if businesses want to have this coverage included in their policy, the cost of their EPLI can increase significantly because of it.

Whatever form they come in, wage and hour claims can be very frustrating for employers. To better understand wage and hour claims, let’s take a look at what types of employee complaints most commonly trigger these types of claims and what employers can do to limit their exposure.

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Examples of Wage and Hour Claims

The simplest way to define wage and hour claims is to say that they are claims that arise when non-salaried or non-exempt employees make a formal complaint stating that they were unfairly compensated for the work that they performed.

The key federal law that defines things such as minimum wage and overtime rules is the Fair Labor Standards Act (FLSA). According to the FLSA, wage and hour claims can only be formally settled through the Department of Labor or with court approval.

While there are certainly many more, here is a list of some of the most common examples of employment practices that violate the FLSA:

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Unpaid Meals and/or Rest Breaks: Every employee has a right to take time to eat lunch and take rest breaks during their shift. If the employer mandates employees to work through lunches and rest breaks, the employee should be paid for that time.

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Compensatory Time: Sometimes employers tell their employees to work overtime, stating that they will receive compensatory time off in the future for the extra hours they worked instead of giving them the overtime pay that the employee has earned.

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Unpaid Training, Meetings, and Lectures: If employees are mandated to spend work time at lectures, seminars, meetings, or training events, they need to be paid for the time they dedicated to these activities.

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Work Travel: An employer cannot count work-related travel time as unpaid. If the employee is traveling for work, they must be compensated for the time spent traveling.

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Minimum Wage Violations: The federally mandated minimum wage in the U.S. is $7.25 per hour. Employers sometimes charge employees for things that occur during the course of a work shift, such as customers leaving without paying, and a variety of other miscellaneous expenses that can bring the employee’s hourly wage down to under $7.25 per hour.

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Unpaid or Underpaid Overtime: According to the FLSA, if a non-exempt employee works more than 40 hours in a seven-day period, they are entitled to make an hourly wage of 1.5 times their normal hourly wage for each overtime hour worked. If an employer either doesn’t pay overtime wages at all or improperly calculates overtime pay in order to pay employees less than they earned, employees are entitled to back pay for those unpaid wages.

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Understanding Overtime Rules

As you’ve seen, there are quite a few reasons for which employees can file wage and hour claims, but a vast majority of the most expensive and complicated claims are related to overtime pay. That’s why it’s important for employers to be very familiar with what the FLSA specifies in relation to overtime.

These overtime rules determine which employees are eligible and which are exempt from overtime pay. If an employee is exempt, that means that the employer does not have to pay for the hours they have worked over the regular 40 hours a week. Most exempt employees are senior employees working in so-called “white-collar,” managerial positions.

The Department of Labor issued a new rule in September 2019 that increased the salary-level threshold for white-collar exemptions to $684 a week from $455 a week. According to this latest rule, employees that earn less than $684 per week should be paid for overtime hours, even if they hold a managerial or senior title.

This rule has been in effect since January 2020. The Department of Labor plans on updating this rule regularly to ensure that the level of exemption continues to make sense and provide a clear test that employers can use in order to make sure that they are paying non-exempt employees the overtime wages that they deserve.

It’s also important to note that the pay-level test is not the only factor that determines overtime eligibility. The Department of Labor also applies a job-duties test to determine eligibility, not to mention the additional rules that need to be followed on a state-to-state basis.

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What Employers Can Do to Limit Wage and Hour Claims

The reason there are so many wage and hour claims is that there are many rules that employers need to abide by, which can make it difficult to avoid such claims.

One thing employers must do in order to try and limit these types of claims is to keep meticulous records of employee behavior. Using some type of employee scheduling software, for example, could help employers keep accurate timesheets and maintain better records not just of hours worked, but breaks taken, time traveled for work, and a variety of other data that employers need in order to pay their employees properly and lawfully.

However, labor laws tend to change so frequently that it might not be a bad idea to hire a compensation consultant and a wage and hour attorney to help you sort things out, especially if you’re a business that employs 50 or more workers.

These types of professionals can be of great help to businesses when it comes to structuring wages and incentive programs. They are also vital in the process of performing classification audits, which businesses need to be doing regularly.

A classification audit serves to help your business answer questions such as which tasks and responsibilities should be delegated to employees and which should be handled by contract workers when adhering to the rules set by the FLSA compensation tests.

Classification audits should be performed every two to three years in order to keep up with the constant changes occurring in the field of labor law.

Putting Together the Right EPLI Policy

Business owners that educate themselves better on the FLSA and hire professionals to keep their businesses compliant with federal and state wage and hour laws will, naturally, have more success in avoiding wage and hour claims.

However, with the laws being so complex, nuanced, and ever-changing, it’s hard to avoid wage and hour claims entirely no matter how proactive and committed you are to making sure that all of your employees are being properly paid.

That’s why transferring some of that risk to a third-party, namely an insurance company, is highly recommended for businesses of all sizes and industries.

As most employers are aware, the go-to policy for protecting your business from employee lawsuits is EPLI. An employment practices liability policy protects against many kinds of employee lawsuits including sexual harassment, age discrimination, religious discrimination, gender discrimination, wrongful termination, failure to promote, and more.

However, as we mentioned earlier, wage and hour claims are so prominent and expensive that they are not covered by traditional EPLI usually. Businesses that want to be protected against wage and hour claims will have to purchase a separate endorsement to obtain EPLI coverage that will pay the legal costs, possible settlements, and any other expenses related to a wage and hour claim.

If you’re interested in purchasing EPLI and want to make sure that you have included a wage and hour claim endorsement that provides your business with the right level of protection, don’t hesitate to reach out to one of our expert brokers to discuss your options at any time.

 

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