Chances are, you lack the expertise and tools to navigate the intricate details. Here's how your business might be at risk.
Last year, retail chain Dick's Sporting Goods agreed to a $15 million settlement of a class action wage and hour lawsuit under the laws of 36 states. A big number, and the type of labor lawsuit that gets big press.
But don't think that most targets of lawsuits over claims of missing wages under the Fair Labor Standards Act and state laws are big companies. According to Seyfarth Shaw partner Noah Finkel, one of the editors of the book Wage & Hour Collective and Class Litigation, 90 percent of the filings he sees are against small- and medium-sized businesses.
"Although the cases don't see the multi-million dollar settlement or judgment, potential exposure is enormous," Finkel says. "A several hundred thousand dollar case could be crippling to a company. And these cases can be very expensive to defend."
The problem for smaller companies is that wage and hour law is horrendously complex, with state variations on federal standards only further complicating the situation. For example, you want to reward all your employees with a bonus. It's a nice thing to do. Unfortunately, you don't realize that legally mandated time-and-a-half wage figures are based not just on the hourly rates you pay but total compensation that includes the bonus, amortized over time worked. "If I'm a small company without human resources support, I'm not going to know that," Finkel says. "And there's a wage violation."
Unfortunately, the software packages that many small businesses use for accounting and to track hours often lack the features to handle the intricacies.
Companies that make use of computer technology can easily find themselves running afoul of legal definitions. A computer programmer could likely count as a salaried employee exempt from overtime calculation. And yet, a database administrator might not. "If you design a system, you're likely exempt," Finkel says. "But if you work with those systems, you're not going to be." The administrator is considered to be operating, not designing, the system.
The complexities get worse. A support person at a large corporation probably isn't exempt. However, a person in a similar position in a small company might also be a jack-of-all-trades who specifies what software the company uses. Such a person probably would be exempt.
A big area of danger is when employees get tips, like at a restaurant. Tip credit allows an employer to pay less than minimum wage to waitstaff who more than make up the difference with gratuities. But employers can use tip credit only when scrupulous with the details.
"If you're a tipped employee, you can't spend more than 20 percent of your time on non-tipped duties," Finkel says. "It's not like someone follows them around with a stopwatch. It's easy for an employee, especially in a class action, to say, 'I spent 21 percent of my time on non-tip duties.'" Once employees hit that magic 20 percent—which can be easy at a restaurant, when a rush gives way to down time on a long shift—the extra hours now come under minimum wage. Along with the FLRA-mandated relief that doubles the amount of back pay owed.
What can a small company do? Get help. "Either make sure an outside attorney is well-versed in the issues or have a savvy human resource person on staff or a consultant," says Finkel. "People said initially that the wage hour litigation boom [would be] the flavor of the month. Well, it's been the flavor of the month for 10 years now."
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