What are Essential Things to Know About Wage and Hour Compliance for Your Business

Guest Post

August 29 2023

Maintaining wage and hour compliance is crucial for businesses to provide fair and legal employment practices. Whether you calculate employee pay yourself or hire an external accountant, the simple fact is that breaking labor laws can negatively impact your business’s image and profitability.

 If you’re looking for an overview of the current legal landscape, you’ve come to the right place. This article will explore critical aspects of wage/hour compliance for employees and employers alike, from overtime classification to timekeeping measures for remote workers.

Essential things to know about wage and hour compliance

Put simply, wage and hour compliance is the adherence and fulfillment of legal requirements related to paying wages and regulating working hours for employees.

This area of law is crucial to providing fair compensation for employees, mitigating legal challenges, and safeguarding your brand’s reputation with employees and regulatory authorities.

So, let’s dive into the essential aspects you should know.

Classifying exempt and non-exempt employees

Every employee is either “exempt” or “non-exempt,” so understanding what each category means and how to classify your employees is a crucial first step.

Exempt employees meet specific criteria related to job duties, salary level, and exemption categories defined by the Fair Labor Standards Act (FLSA). They tend to work in executive, administrative, professional, or highly skilled roles and are paid a predetermined salary regardless of the hours worked per week.

Crucially, exempt workers cannot claim overtime pay. An office manager responsible for strategic planning and organizational success would likely fall into this category.

On the other hand, non-exempt employees are typically paid on an hourly basis and must be compensated at a rate of at least one and a half times their regular hourly wage for overtime hours.

They often perform non-managerial, clerical, or manual tasks. Unlike exempt employees, they can claim overtime under the FLSA regulations. It’s essential to note here that “overtime” counts for any hours worked beyond the standard eight hours per day (which equates to 40 hours per week).

A receptionist who works a regular 9-to-5 schedule but occasionally stays late to handle additional admin would be classified as non-exempt and eligible to claim overtime.

Federal, state, and local minimum wage laws

You’ll undoubtedly be familiar with the need to pay staff minimum wage. But in legal terms, it’s crucial to understand your area’s different policies to ensure you comply with each.

Federal Minimum Wage

Federal minimum wage forms the basis of minimum compensation nationwide. As of writing, the US federal minimum wage is $7.25 per hour (that applies to non-exempt employees). Again, this is determined by the FLSA.

It’s been at this level since July 2009, and may increase in the near future, so it’s your responsibility to stay updated with any changes.

State Minimum Wage

Many states enforce minimum wage laws that surpass the federal rate. These figures vary state by state and can differ significantly from the federal rate. As an employer, you must adhere to the higher of the federal or state minimum wage requirements.

Local Minimum Wage

Within each state, local minimum wages can differ in specific counties or cities. This is particularly noteworthy for businesses that operate different branches within a state.

It’s extremely important that your company understands how minimum wage laws work and that you pay workers the highest applicable rate.

Establishing criteria for overtime pay

As we’ve explained, non-exempt employees are entitled to overtime pay once they hit the 40 hours/week threshold. But on top of this, you need to be aware of how much they can claim.

Here are three essential factors to consider:

  • Overtime pay must be at least 1.5x their regular hourly rate. So, an employee on $15/hour must be paid $22.50/hour as their overtime rate.
  • Businesses must clearly define these policies and communicate them to staff, outlining the eligibility criteria, calculation method, and specific rules or exceptions.
  • On top of this, make sure you accurately track and record overtime hours. This is vital for compliance with wage and hour regulations, which we’ll explore more in the next section.

A final thing to bear in mind is that keeping on top of overtime and overtime payments can be a crucial part of staying on top of your cash flow. So, remember to take it into account together with your other accounts payable solutions. That way, you can get an accurate impression of your business and your cash-flow availability. 

Monitoring your overtime payments in this way can also help to indicate where inefficiencies lie within your business. By looking at your accounts payable system and your overtime payments, it helps you spot any issues with vendors or suppliers, where teams are always working overtime, and where to investigate further and make future changes. 

Utilizing reliable timekeeping systems

To comply with wage and hour laws, you need to know how long your employees actually worked for.

Many businesses use biometric time clocks that require employees to scan their fingerprints upon arrival and departure. This reduces the risk of underpaying or overpaying employees and provides concrete evidence in case of a business audit or dispute regarding work hours. 

But for hybrid or remote workers, you could use a software application that detects user activity, such as mouse movements, when logged into a work laptop. 

The important thing to remember with timekeeping is that it should work to protect both you and your employees rather than just monitor staff. By focusing on protection, you ensure that you comply with labor laws without creating a poor working atmosphere.  

Adherence to documentation retention periods

Keeping accurate records is crucial for legal compliance with the FLSA. The ‘bare minimum’ requirement means you must hold the last three months’ information on employment records.

On top of this, you should maintain documentation regarding employee classification, overtime calculations, and any modifications made to employment terms. In doing so, your business demonstrates compliance and protects the company in the event of legal claims or audits.

Did you know? The bare minimum FLSA compliance requirement is holding the last 3 months of information on employee records.

Ensuring appropriate employee breaks as mandated by law

Unsurprisingly, employment regulations protect workers’ rights to take breaks and access meal areas.

The standard rule is that workers receive a 30-minute unpaid break in a regular shift. Failure to comply with this rule isn’t just inviting legal action, – it’s also indicative of poor management. Most serious leaders know their workers’ minds and bodies need rest to function properly!

Cultivate a positive workplace culture around break times, and you’ll see higher staff productivity, morale, and retention. You may also want to offer staff the opportunity of taking their break in two 15-minute chunks if that’s what they prefer.

Timely and accurate payroll practices

As a compliant business, you must always pay employees on time and provide accurate wage calculations, with separate sections that display regular pay rates, overtime, bonuses, and deductions. 

Consider using accounting software like Sage to automate this process and reduce the risk of human errors, leveraging advanced tools to integrate this with your enterprise apps. You can also combine this with tools like Asana, which will help you to stay organized and communicate across your team.

Allowable work hours and duty restrictions when employing minors

Employing minors comes with specific regulations regarding work hours and duty restrictions. As an employer, it’s crucial that you understand federal and state laws pertaining to child labor and comply accordingly.

From the federal level down, special limits are placed on the number of hours a minor can work. Duty restrictions can also include prohibitions on minors performing hazardous tasks. Likewise, under-21s are prohibited from selling alcohol, nicotine, or gambling services – just as they can’t buy these things themselves.

Consequences of non-compliance

In short, failing to adhere to wage and hour compliance will have severe consequences, whether it was done intentionally or not. Understanding the potential ramifications is vital for avoiding legal trouble and keeping employees happy. Let’s explore some of these consequences in detail.

Legal penalties and loss of government licenses

Financial penalties, such as fines and sanctions, are commonplace for wage and hour breaches. Employers can expect frequent and severe violations to be met with a much heavier response. In extreme cases, a business permit could be revoked, forcing your company to shut its doors for good.

Lawsuits and back-wage financial liabilities

Non-compliance exposes businesses to lawsuits from employees seeking unpaid wage, overtime, and damages. If you lose one of these cases, you’d have to pay out a settlement and cover the cost of legal proceedings. 

That’s not to mention potential class-action litigation, which could result in a range of unpaid back wages being claimed by multiple employees. So, make sure you address wage and hour violations promptly or risk the financial burdens that could impact your business’s stability and resources.

Heightened scrutiny and government monitoring

Non-compliance triggers increased scrutiny from regulatory agencies such as the Department of Labor. Once your organization has been flagged as untrustworthy, you can be sure more frequent audits and inspections will follow.

This heightened scrutiny can disrupt your business’s operations, consume valuable time and resources, and result in further penalties or corrective actions. This can be particularly detrimental to small businesses with limited budgets and resources.

Damage to business reputation and relationships

Not paying your workers paints a poor picture of your business – not just to prospective staff, but also clients, customers, and the general public. Negative publicity surrounding violations is likely to decrease customer loyalty, make it more challenging to attract top talent in the future, and strain relationships with stakeholders.

Key takeaways

In short, wage and hour compliance is essential for your business to operate legally and maintain profitability. It’s the responsibility of every manager to be informed about employment regulations, – if not for the well-being of employees, then at least for the grave consequences of non-compliance.

In practice, you should consult a lawyer for specific advice on how your business operates and writes employment contracts. After all, labor laws and regulations aren’t the same for every jurisdiction, and they may be applied to varying levels depending on the intricacies of individual cases.

Looking for more ways to boost compliance at your organization? Consider working with a background screening company that’s run by FCRA-certified experts. At InfoMart, we use over 30 years of experience in the industry to advise your company on best practices on staying safe, secure, and compliant. We even offer an ATS, which helps you manage your employees’ information seamlessly. Got questions? Reach out to us here or check out our FAQ.

Disclaimer: Please note that the content shared in this article is not intended to serve as legal advice and should be treated as general information provided for educational purposes only.

Contributed by Sage.HR

About Tammy Cohen

Tammy Cohen, an industry pioneer and expert in identity and employment screening, founded InfoMart 30 years ago. Deemed the “Queen of Screen,” she’s been a force behind industry-leading innovations. She was most recently the first-to-market with a fully compliant sanctions search, as well as a suite of identity services that modernizes talent onboarding. Tammy revolutionized the screening industry when she stepped into the field, developing the first client-facing application and a due diligence criminal search that has since become standard for all background screening companies. Cohen has received national awards and honors for her business and civic involvement, including Atlanta Business Chronicle’s Top 25 Women-Owned Firms in Atlanta, Enterprising Women Magazine’s Enterprising Women of the Year award, the YWCA of Northwest Georgia’s Kathryn Woods Racial Justice Award, and a commendation in the 152nd Congressional Record.

About InfoMart

InfoMart has been revolutionizing the global background and identity screening industry for 30 years, providing businesses the information they need to make informed hiring decisions. They develop innovative technology that modernizes talent onboarding, including a first-to-market biometric identity authentication application and a verified sanctions search. The WBENC-certified company is a founding member of the Professional Background Screening Association, and they have achieved PBSA accreditation in recognition of their consistent business practices and commitment to compliance with the FCRA. The company is dedicated to customer service, speed, and accuracy, and it has been recognized for its success, workplace culture, and corporate citizenship with over 45 industry awards. To Get the Whole Story on InfoMart, please visit, follow @InfoMartUSA, or call (770) 984-2727.

Pin It on Pinterest