5 Common Ways Businesses Unknowingly Break The Law
You’re a business owner, which means you operate and manage your own business. Whether you have just one employee, fifteen, or fifty, regardless of the size of your operation, you’re responsible for complying with federal and state laws that apply to your business and your workers. We rounded up some of the most common ways businesses unknowingly break the law:
1. Misclassifying employees
As we’ve seen before, businesses that misclassify employees are at-risk for being taken to court.
When asked for feedback on the top mistakes employers commonly make, Mason Cole, founding partner of Cole Sadkin said, “Improperly classifying employees as independent contractors, and then getting hit by the Department of Labor for non-compliance. The DOL requires that employers who have assent, benefit, and control over their workers to be W-2 employees. Businesses try to avoid this obligation by hiring an army of independent contractors. Incredible tax consequences and penalties result.”
The same goes for misclassifying employees as exempt from overtime – in order to qualify as “exempt,” employees must meet the federal salary and job duties requirements stated in the Fair Labor Standards Act.
2. Providing workers’ compensation coverage to eligible employees
Workers’ compensation rules may not seem like an issue a lot of employers worry over, but it’s crucial that your business determines the rules that apply to your state and industry.
“Many employers ignore state statutes and attempt to avoid their workers’ comp obligations, resulting in potential audit penalties from the DOL,” remarks Mason. Maxime Rieman of CoverWallet notes that state requirements can be markedly different — “For example, in Arizona, the majority of businesses with just one employee will need to have workers compensation coverage. However, in Florida, workers compensation is mandatory for most businesses with at least four employees. As soon as you launch, it’s important to check your state regulations to make sure that you’re compliant.”
3. Complying with new local laws
Dramatically changing local laws can present significant challenges, such as the 2016 California Fair Pay Act. “The Act changes the law so that employers now have to justify disparities in pay between any two employees in jobs that a plaintiff’s lawyer could contend are ‘substantially similar’ as a composite of ‘skill, effort, and experience,'” says Arthur V. Lambert, Attorney at Law of Fisher & Phillips LLP. “This will be especially challenging for small to mid-sized employers as the reporting and compliance requirements can be burdensome and costly. Failure to follow the new rules can create liability issues in a venue where wage and hour issues are significant.”
4. Not paying minimum wage when paying by piece work
Wait staff, service workers, and cleaning staff — these workers, like all nonexempt hourly workers, must be paid minimum wage, regardless of whether or not they have completed sufficient piece work to earn that amount.
Charles Read, President of GetPayroll, frequently advises micro-businesses on their payroll practices, and has familiarity on the laws regarding paying by piece work. “We have a client that runs a hotel. She pays her maids by per room cleaned. If a maid is slow on a particular day she may not clean enough rooms per hour to make $7.25 per hour worked. The employer must pay the $7.25 per hour under Federal guidelines and perhaps more under Municipal or State laws. Failure to do so is a violation of the law. The employee cannot waive minimum the wage law and agree to a piece amount regardless of the per hour calculation.”
5. Not paying overtime properly
Overtime is calculated on a 40 hour overtime standard. Nonexempt employees who work over 40 hours in the standard 168-hour workweek are owed time-and-a-half of premium pay, which must be paid during their regular pay period check. There are no exceptions.
“If you work a person 80 hours in a two-week payroll cycle but work them 50 hours the first week and 30 hours the second week, you need to pay 10 hours of overtime if the employee is subject to FLSA; which most everyone is subject to,” says Charles. “If you pay your employees semi-monthly, overtime is still figured on a standard of a 168 hour workweek (7 full days). This can get tricky as you, the employer, don’t have exact hours by day and time because semi-monthly is usually running into three standard work weeks. You would have to go back to the start of the work week whether it is in this pay period or not to figure out overtime. Even though overtime is calculated on the employer’s standard 168-hour workweek it only needs to be paid on the next regular paycheck.”
Keeping in compliance with the constantly shifting laws can be difficult, but as Mason says, “The Department of Labor is always modifying its regulations, so many businesses are constantly falling in and out of their legal compliance. Ignorance is not an excuse.”