Author, Sam Brown, Vice President, Human Services Group, Rancho Mesa Insurance Services, Inc.

It was June, 86 years ago, when Congress and President Franklin D. Roosevelt (FDR) signed into law the Fair Labor Standards Act of 1938 (FLSA). In the words of FDR, the FLSA ensured “a fair day’s pay for a fair day’s work.”

While the FLSA immediately raised wages for hundreds of thousands of workers and improved working conditions, it has also given rise to a specific type of costly allegation, wage and hour claims.

Wage and hour claims arise when non-salaried or non-exempt employees make a formal complaint stating they were unfairly compensated for work performed.

In 2021, about 19,000 California workers filed unpaid wage claims for a total of more than $330 million, according to Cal Matters.

Wage and Hour Liability Allegations include:

• Underpayment of overtime

• Miscalculation of wages

• Refusal to allow employee breaks

• Expecting off-the-clock work

• Not paying employees regularly

• Refusal to pay exempt employees for absences

• Not paying for time required to put on or remove protective gear or clothing

• Adhering to federal minimum pay guidelines when state guidelines warrant higher pay

Prevention is always the best line of defense against wage and hour claims. Beyond purchasing insurance, which will typically provide $100,000 to $200,000 of defense costs, employers can mitigate risk by:

• Assessing the risk within the company, starting with the State and Local Government Self-Assessment Tool available from the U.S. Department of Labor’s Wage and Hour Division.

• Review employee classification as to “exempt” and “non-exempt” status to ensure compliance with guidelines under the FLSA and applicable state laws.

• Consult with an attorney or consultant regarding job descriptions and how overtime is calculated.

• Review and confirm proper classification for independent contractors.

• Keep payroll records for all employees and establish a mechanism for tracking non-exempt employees’ hours.

• Review practices and procedures to ensure compliance with meal and rest periods as applicable to state law.

• Allow an outside HR firm to conduct an external audit of the employer’s wage and hour practices.

• Enacting policies that prohibit off-the-clock work

Navigating employment law and the FLSA will help employers earn good favor among workers and help to avoid costly wage and hour lawsuits. Understanding common wage and hour allegations is a critical step in this process, but may not be enough.

If you have questions about how insurance policies may supplement your existing risk management plan, contact me at sbrown@ranchomesa.com or (619) 937-0175.