These days there is a lot of chatter about fair compensation for employees or compensation systems that will incentivize and retain workers. However, many businesses still struggle to understand the legal requirements for paying employees. Indeed, according to Forbes, companies paid a record-breaking $3.62 billion in 2021 to resolve class action lawsuits by employees who had alleged were paid incorrectly by their employers.
The federal law regulating how employees get paid is the antiquated 1938 Fair Labor Standards Act (FLSA). Many states, like New York and California, impose additional requirements on how employers must pay employees. Thus, there are layers on layers of regulation that govern how, when and what to pay workers. Due to the complexity of the laws, most employers are ill equipped to identify or sort through the technical wage and hour requirements.
Employers that are audited or sued for noncompliance with wage payment laws may be required to pay all the unpaid wages (multiplied by two), interest of 9%, and their employees’ attorney’s fees. For large companies with many employees, this liability can add up quickly.
The following are the top three reasons companies are sued for violations of the wage and hour laws:
1. Misclassification of workers as 1099 independent contractors
Unlike 1099 contractors, W2 employees are entitled to all the privileges of employment such as: benefits, overtime pay for overtime work, protection by workers’ compensation law,...
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