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Are You Underpaying Your Employees?

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Let’s face it: there are a lot of regulations to follow when it comes to owning a business. Following all the applicable laws can be tough. Although it can be time consuming, you should make sure that you are always following the latest legal protocol. The best way to avoid these pitfalls is to hire an HR consultant to keep you on the right path. However, not every business can afford someone like that, so you should know where to go if you’re the self-help type of business owner. A good place to start is the Fair Labor Standards Act (FLSA) website. The FLSA establishes standards for minimum wages, overtime pay, record keeping, and child labor. So, what are some common pitfalls employers run into that lead to underpaying employees?

1. Not paying employees minimum wage

Federal law sets the base wage for all workers in the United States. Additionally, minimum wage can vary by city and state. Now, which wage should you follow to ensure that you are not underpaying employees?

There are three different wages (Federal, State, and City), but you will always apply the higher standard rate. For example: California’s minimum wage is ~$11.00/hr, But San Jose’s minimum wage is $15.00/hr. Therefore, if an employee worked in San Jose, the minimum wage would be $15.00/hr.

If you are curious about your state’s minimum wage, you can check with the United States Department of Labor or you can speak with your local labor board.

2. Not paying overtime or not calculating overtime

There are things you should know about overtime to ensure that you are following correct procedures. The federal government and state governments have different overtime laws. Some employees are subject to both the state and federal overtime laws, but the employee is entitled to the higher standard.

According to the FLSA you need to pay your non-exempt employees overtime after 40 hours in a work week; even if you think that the time isn’t necessarily a primary duty, like turning on the computer, loading programs, getting into uniform, or setting up a workstation.

3. Making employees exempt when they shouldn’t be

The FLSA establishes standards for salary, hourly, exempt, and non-exempt employees. As an employer, you will want to place your employees in the correct category. This is incredibly important to ensure that you aren’t underpaying employees. Some states, like California, have additional overtime regulations.

There are some exceptions to being exempt: taxi drivers, announcers, news editors, and farm workers. Additionally, executive, administrative, teachers, administrative personnel, sales employees, and computer professionals are considered exempt.

It’s a great idea to check the Department of Labor’s regulations to ensure that your employees are categorized properly.

4. Requiring employees to work for free

Your employees want to get compensated for the hours they are putting into your business. Capturing accurate time will help make sure that you’re compensating your employees correctly. Additionally, this will protect you from accidentally paying them for time that they aren’t on the clock.

What about volunteering?  

Let’s say that your company is having an event and you’re looking for volunteers to help. The FLSA has specific requirements with the use of volunteers. According to the FLSA, in general, covered, nonexempt workers working for private, for-profit employers have to be paid at least the minimum wage and cannot volunteer their services. Check with DOL for the rules in which volunteering in the public and private, non-profit sectors may be allowed.

5. Failure to pay for time off

As of now there are no federal laws or laws covered by the FLSA that require paid sick leave or vacation leave. However, some states have passed sick leave laws that you must implement. For example, New Jersey passed the ‘New Jersey Paid Sick Leave Act,’ which requires employers to provide one hour of sick leave for every 30 hours worked.

If you choose to implement a paid time off policy at your workplace, you should always try to follow your own protocol so that all employees are treated equally. There are many benefits to employees and employers when you allow employees to take time off. Giving employees sick time and paid vacation time will improve morale, productivity, will lower stress among employees, and will lead to fewer accidents.

6. Making employees independent contractors

Many employers prefer making their employees independent contractors rather than employees because they do not have to pay taxes on payments to those workers. This strategy, however, has consequences. The IRS and the DOL have laws regarding employee classification. According to the IRS, “Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”

Defining a person as a contractor or employee depends on the nature of each individual situation. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, auctioneers, or other such professions in which they offer their services to the general public are generally independent contractors.

How can this hurt you?

Employment classification mistakes can result in lawsuit damage and other potential legal penalties, so you will want to avoid the common mistakes employers make. If you aren’t following proper protocols and do not have good audit trails and accurate timestamps, you may face penalties in the future. You should try to protect yourself as best you can.

How can we help? allows your employees to track their time using a real-time clock or a manual time entry form. We provide accurate time tracking, time off tracking, accrual calculations, with customizable overtime settings. Additionally, each time stamp is saved in the audit trail for record-keeping purposes. All of these tools are extremely helpful to make sure that you aren’t underpaying your employees.These and other benefits are good ways to limit your risk when hiring and paying your workers.

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