Prior to the year 2000, the average number of Federal Fair Labor Standards Act (FLSA) lawsuits hovered near 1,500 cases annually.  Since that time, we have seen a fairly dramatic increase to over 7,000 lawsuits in 2012 alone.  The millions of dollars in penalties continue to pile up, and the list of affected companies is as impressive as it is long: Walmart, Staples, Merrill Lynch, JPMorgan Chase, Oracle, CVS, Tyson Foods, Lowe’s and AT&T, just to name a few well-known examples.

No specific type of company is targeted in an FLSA lawsuit; if you haven’t yet been faced with this challenge, it is becoming more likely that you will in the future.

Determining violations

Generally speaking, investigators look at five areas to determine violations:

• Earnings codes
• Deductions codes
• Earnings and pay stubs
• Time clock rules
• Time records

Earnings codes

Perhaps the easiest way to identify compensation which is being improperly excluded from the regular rate is a review of your company’s earnings codes. During an FLSA lawsuit investigation, these items are investigators tend to look at first:

• Safety
• Incentive
• Bonus
• Auto allow
• Operator incentive
• Per diem

Per diem amounts may reveal wage problems such as paying below minimum wage or needing to include the amount in the hourly rate.

Deduction codes

Looking at your list of deductions codes can also reveal existing issues.  Do you have the employee’s permission when needed? Are the deductions appropriate?  Do the deductions reduce wages below minimum wage?  Investigators will pay special attention to:

• Advances
• Laundry
• Safety glasses
• Tools
• Uniform fees and shoes
• Union dues

Remember to document anything that requires employee pre-authorization and avoid deductions that cause the employee to go below minimum wage.

Your time system

Wage and hour issues have several causes, but your time and attendance rules and the resulting employee time punches can be one of them.

• Rounding rules – make sure rounding is fair
• Automatic meal period deductions - single largest reason for litigation; if you require employees to punch out/in rather than auto deduct, you have proof of meal periods
• Time clock rules treat clocking in early or late the same for everyone
• Shift hours overlaps work weeks; this may cause underpay one week and overpay the next week

Time card dangers

There are a few areas which investigators focus on as possible clues to inappropriate time clock management.  These time record items are not necessarily accurate indicators, but they will focus on them as a possible smoking gun:

• Identical in/out and meal period times for almost every day – is the employee actually punching?
• No out/in and meal time punches - hard to prove if nothing is documented
• Exact time punches when shift begins
• Employee time punches are almost the same exact time - possibly buddy punching

Pay stub issues

• Paid for fewer hours than shown on time record
• Deductions for work required equipment (e.g., uniforms, tools)
• Employee was paid a shift differential or bonus instead of overtime pay

Paying special attention to these areas may help you avoid difficult, expensive and time-consuming business problems that are now a part of our reality with FLSA lawsuits.  Needless to say, proper record keeping and documentation is vital, along with a time and attendance system that operates with payroll and other business functions.

Don’t become one of the FLSA lawsuit numbers.  Make sure your systems have consistent rules across the board, maintain documentation, have easy data management and reports to prove your compliance.

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