This post is part of a new series that specifically discusses employment law issues for startups and small businesses operating in New York State and New York City.
I have seen a lot of posts in recent months warning employers that prosecutors are getting tougher on wage theft. From a preventative counseling perspective, I find the term “wage theft” troublesome because most employers don’t think they are stealing wages from their employees.
So what exactly is wage theft?
Wage theft occurs when employers do not pay employees according to the law. Common examples include:
- paying less than the legally-mandated minimum wage,
- failing to pay non-exempt employees time-and-a-half for hours worked in excess of 40 hours per week,
- allowing employees to work off-the-clock before or after their shifts or normal work day, and
- taking unauthorized or impermissible deductions from an employee’s pay.
These are common errors for employers who may not know the applicable law and how to apply it. Here are my quick tips for employers looking to audit their payroll practices for possible wage theft violations:
- Exempt vs. Non-exempt
There are two categories of employees: exempt and non-exempt. These categories are important for purposes of determining whether an employee needs to be paid in accordance with the minimum wage and overtime laws.
Under the federal Fair Labor Standards Act (FLSA) and state wage-and-hour laws, employees will be considered non-exempt unless the employer establishes that an employee’s position meets specific exemption criteria.
Common exemptions include the Administrative, Executive, and Professional exemptions. The FLSA sets forth very specific tests with criteria for these exemptions. Some states also have their own exemption tests. If your business is employing an employee in a state with its own exemption test, then the employee must meet both criteria under the FLSA and state law in order for the employee to be considered exempt.
Employees who do not meet the exemption test criteria are considered non-exempt and are covered by wage-and-hour laws regarding minimum wage, overtime pay and hours worked.
- Minimum Wage
Once an employer knows which of its employees are non-exempt, it will want to make sure that it is paying its employees at least the minimum wage. The minimum wage is an hourly wage set by federal law (currently, $7.25/hour) and, in most cases, state law. Some cities may also have their own minimum wage. Employees are entitled to be paid the more generous hourly minimum wage, which is typically the minimum wage set by state/city law.
Employers paying non-exempt employees a salary must make sure that these employees are receiving at least the applicable minimum wage for each hour that they work.
This brings us to overtime pay. The general rule is that non-exempt employees must receive 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. The federal Department of Labor has a fact sheet discussing how to calculate an employee’s regular rate of pay.
Businesses need to keep in mind that some states require that employees be paid overtime when hours worked exceed a certain number in a workday (for example, 8 hours in a workday) and even double the regular rate of pay in other circumstances (for example, when working 12 or more hours in a workday).
For employees working remotely, the wage-and-hour law in the state where the employee works is what applies.
- Off-the-Clock Work
Most employers have policies that prohibit employees from working “off-the-clock”. Despite the existence of those policies, many employees continue to work off-the-clock. If an employer has knowledge or reason to believe that the employee is performing off-the-clock work, the employee must be paid for this time, even if it violates the employer’s policy against off-the-clock work. Why? Because of the concept of “suffer or permit to work.”
The FLSA defines the term “employ” to include the words “suffer or permit to work.” Suffer or permit to work means that if an employer requires or allows employees to work, the time spent is generally hours worked, and must be paid. The same holds true if an employer knows, or has reason to believe, that employees are doing work that has not been requested.
Common off-the-clock work scenarios include working during meal breaks, pre-shift and post-shift work, re-work (when employees re-do the project or fix project errors without recording their time), and checking email or instant messages, taking phone calls, and the like, all outside of the employee’s normal work day, when such hours of work are not recorded.
- Unauthorized or Impermissible Deductions from Pay
Lastly, businesses should keep an eye out for unauthorized or impermissible deductions from employee pay. Some businesses will deduct breakages and losses from employees’ pay, but some states like New York prohibit employers from deducting anything beyond common wage deductions. Common wage deductions include income tax withholdings, social security (FICA) taxes, state disability and/or family leave insurance contributions, health insurance premiums, union dues, and deductions required by wage garnishment or child support orders.
Again, when employees work remotely, the wage deduction law in the state where the employee works is what applies.
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