As a small business owner, you know that failing to pay your employees in accordance with the Fair Labor Standards Act (FLSA) can lead to trouble with the Internal Revenue Service (IRS). But it’s easy to make mistakes, especially when it comes to hourly employees. To help, we’ve laid out five common mistakes — and the best ways to avoid them. First, what is the Fair Labor Standards Act (FLSA)?
The FLSA first went into effect in 1938. Employers often complain that it’s complex, cumbersome, and changes too frequently for them to fully understand. One major thing the FLSA does is require employers to pay most employees a minimum hourly wage.
As of late 2021, that federal wage is $7.25 per hour. States also set an hourly minimum wage, and employers must pay employees the higher of the two.
Another component of the FLSA is that it distinguishes between exempt and non-exempt employees. Exempt employees must have a job classification of administrative, computer repair or information technology, executive, outside sales, or professional. They must also receive a minimum weekly and annual salary since they are not eligible for overtime pay.
Avoid these common wage and hour mistakes
When it comes to paying employees, the most common mistake employers make is misclassifying non-exempt employees as exempt or regular employees as independent contractors.
The mistake is typically not intentional. Usually, it’s due to the employer not understanding that the job title of non-exempt employees must fall into one of the accepted categories.
Since the FLSA created exempt job categories decades ago, current job titles don’t always fit neatly into one of the law’s descriptions. If you need help understanding the laws, Homebase HR Pro can help you understand and apply FLSA correctly to avoid fines and other sanctions for misclassification.
This includes deciding whether a person who works for your business on a part-time or occasional basis should receive the classification of regular employee or independent contractor. You must follow an IRS checklist regarding control of the worker’s time, who pays for supplies, and other factors when making this determination.
Deducting money from an employee’s paycheck for poor job performance
You may feel like you shouldn’t have to pay employees who don’t perform their job duties to expectations. But federal laws are on the side of employees in this matter. You can’t withhold any funds for attendance or performance issues if the employee has worked even a portion of a week. The following exceptions apply:
- You may withhold pay when employees miss two consecutive days of work for reasons not pertaining to disability, illness, or pre-planned time off.
- Deductions can take place when employees commit a major safety violation and when the employer imposes them in good faith.
- You don’t have to pay employees when they have suspended them from work without pay for serious misconduct. Common examples include reporting to work under the influence of drugs or alcohol, sexual harassment, violence on the job, or violation of a federal or state law. You must have a written policy regarding unpaid suspensions in place before they can withhold pay from employees.
- Employees do not receive pay when they take the voluntary Family and Medical Leave Act (FMLA) unless they use their personal time off or sick leave to cover a portion of it.
Deducting pay for short rest periods
The FLSA states that employers do not need to pay employees for meal breaks 30 minutes or longer, but shorter break periods of 15 or 20 minutes must be paid so long as employees work a certain number of hours per day.
Employers should avoid using timekeeping software that automatically deducts for meal periods. The reason for this is that employees may not get to take the allotted time for lunch or dinner due to the company being short-staffed or an urgent work matter. Rather than requiring employees to prove how much time they took away from work for a meal, you should have them clock in and out instead.
Not paying employees for training time, travel time, or meetings
Federal law requires employers to pay employees for attending meetings and completing training unless they meet all four of the following criteria:
- The event takes place outside regular working hours
- Attendance is not mandatory
- The training or meeting is not related to an employee’s job
- Employees do not complete any productive work while completing a training session
Common timekeeping and recordkeeping mistakes
You must maintain a hard copy of all timekeeping records for two years — and demographic and other data related to pay for three years. Here are some examples of data government agencies expect employers to keep on all employees:
- Full name, mailing address, and social security number
- Job title and salary
- Date of birth for employees under age 19
- Hours worked each day and week
- Overtime pay
- All mandatory and voluntary deductions from an employee’s paycheck
Using a single timekeeping system and conducting periodic audits of payroll records can both go a long way to helping small businesses stay on track with work hours and wage payments. Homebase makes it easy to not only automate your payroll process but also maintain required records in an easy way.
Get started with Homebase today to see how easy paying your employees can be.