Posted on 06-Dec-08 by The Timekeeper

Well, with the news last week of another half a million jobs lost, employment issues are top of mind for a lot of business owners and their employees. Payroll is the largest expense for many businesses, so it’s one place business owners almost invariably look when trying to cut costs.

Some unscrupulous business owners might think now is the time, when employees may be afraid of losing their jobs, to take advantage of the situation and shave a few bucks illegally off their payroll expenses. I’d strongly advise against this. Not only is it a really bad idea to avoid paying your employees money they’re legally owed, you may discover employees aren’t too scared to file complaints against you after all — or you may one day wake up to the Department of Labor knocking on your door to conduct an audit, even if your employees don’t complain.

Sadly, good intentions aren’t a guarantee of safety. Even well-meaning companies can inadvertently find themselves in hot water if they’re not careful.

According to the Ohio Employment Law blog a recent report on litigation trends reveals 47% of the companies surveyed reported they were sued in a labor or employment case in 2008. As one of the most “popular” types of labor and employment lawsuits, wage and hour lawsuits alone are up by 19%. And in tough times, it’s likely these types of suits will only increase even more.

If you’ve read here for any length of time, you know back wage awards and penalties in these types of suits can easily reach amounts that can swamp the budgets of a small business.

There are three main areas for you to look out for to help keep your business out of trouble. Of course, nothing is a guarantee, but focus on these three and you’ll be ahead of the game.

1. Independent contractor vs employee: It’s tempting to classify people as independent contractors for a number of reasons. There’s less paperwork and taxes to worry about — not to mention that you get yourself off the hook for that pesky employer portion of the FICA withholding. But be careful… there are specific Department of Labor and IRS rules about who can be considered a contractor and who cannot. Get on the wrong side of this and you can be facing big penalties.
2. Exempt vs non-exempt: As we’ve seen time and time again on this blog and elsewhere, it’s not the job title, it’s the actual job duties that determine if a person is exempt from overtime regulations. There are specific federal and state rules and criteria employees have to meet to be considered exempt. And even if your employees meet the criteria, if you have policies in place that treat them as non-exempt, you can still find yourself in trouble.
3. Local, state and federal wage and hour laws: Even after you get your employees properly classified, you’re still not out of the wage and hour woods. There are all sorts of rules and regulations covering how, how much, and when you have to pay your employees. For instance, did you know that in Massachusetts you can’t pay hourly workers monthly or even semi-monthly (twice a month)? Nope, you have to pay them every two weeks or more often. These rules are different from place to place, sometimes from one town to the next. Get them wrong and you could find yourself in court.

In times of layoffs and restructurings, these issues can be especially problematic. Even if someone was properly classified previously, if their duties change as they assume tasks other (laid-off) employees used to cover, their job classification may need to be revised. Some cost-cutting measures — such as flexible or alternative work schedules — might raise regulatory issues you haven’t had to deal with before.

Folks, I really don’t want to find myself writing about you in 2009 for having lost a big lawsuit or being hit with a big judgement. If you haven’t conducted an internal wage and hour audit lately, it’s time to talk to your lawyer about scheduling a review. Make sure your current procedures — and any new policies you might be thinking about — are in compliance with all applicable regulations. Check that your employee handbook isn’t potentially going to get you in trouble. Verify that everybody’s classification is still appropriate and that you’re paying them correctly.

Let’s be careful out there, mmmmkay?

Update: If you’re contemplating cost saving measures like reduced work weeks, shared jobs, salary reductions or layoffs, you might want to take a look at this document: Wage and Hour Perils of Layoffs, Reduced Workweeks and Other Payroll Reduction Measures (PDF format) prepared by the law firm of Vedder Price. Hope this helps!

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