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How to Avoid Two Types of Payroll Lawsuits


Posted on Friday, July 21, 2017


Time & Attendance Software | Avoiding Payroll Lawsuits | Time Rack

Zenefits just had to pay $3.4 million for denying salespeople overtime pay and Victoria's Secret had to pay $12 million for its "on-call" practices.

Here's how you can avoid these mistakes, including the role of time tracking solutions.

Overtime Pay

According to the Department of Labor, Zenefits violated the Fair Labor Standards Act by misclassifying 743 account executives and sales development representatives as independent contractors and exempt from minimum wage and overtime. The company incorrectly paid the workers a flat salary for all hours worked, regardless of overtime or training time.

Many employers are at risk of suffering the same fate as Zenefits if they misclassify hourly, non-exempt employees as independent contractors. Here is a handy guide for how someone is considered an employee vs. an independent contractor. In a nutshell, if a person shows up to your office every day, doesn’t work for anyone else and works under your control and direction – they're an employee and are subject to FLSA minimum wage and overtime rules if paid hourly vs. salaried.

On-Call Scheduling

This practice has been used by retailers for many years to ensure full staffing and requires employees to call in 1-3 hours prior to a call-in shift to see if they are needed. A legal issue arises because the retailer requires them to be available – making them unavailable to other part-time jobs – but reserves the right to tell the employee that they are not needed for the shift and then not be paid.

California now requires employers to pay half of the call-in shift if the employee is not called in, which is referred to as reporting time pay. Since this law was enacted and with 15 retailers being notified that nine attorneys general had initiated an inquiry into on-call scheduling in 2016, many major retailers have terminated the practice.

The Role of Time Tracking Software

Once non-exempt, hourly employees are categorized properly, it's crucial that employers track their hours so that overtime and on-call pay can be calculated automatically and properly every pay period. This will help avoid lawsuits and other costly mistakes.

Time Rack time tracking solutions, both software and time clock hardware, offers employers a headache-free way to track hours of both non-exempt employees as well as for exempt employees. Tracking hours of exempt, salaried employees ensures that they are putting in their minimum hours and makes it easy to calculate the hours they work on specific projects to determine project profitability.

Contact us to learn more about avoiding lawsuits with time tracking solutions