As an employer, you have responsibilities towards your employees. Many of these responsibilities are explicitly outlined in labor laws. These are laws about how to compensate employees, what you need to pay in overtime, and how to properly categorize employees.
There are many laws to keep track of, and to add to the confusion there are separate federal and state labor laws. Read on for a starting guide on complying with wage and labor laws.
How to Comply With Wage and Hour Laws
What Are Wage and Hour Laws?
The Fair Labor Standards Act is a set of federal laws that establish minimum wage, overtime pay, youth employment standards, and recordkeeping obligations.
These laws apply to most private and public employment. For a full list of the current laws, check out the Department of Labor’s Employment Law Guide.
In addition to federal labor laws, each state has its own set of labor laws. Read on to learn about some of the main wage and hour laws, as well as guidance on whether to follow the federal or state laws.
What is the Current Minimum Wage?
As of February 2024, the current federal minimum wage is $7.25 per hour. The last increase to the federal minimum wage was in 2009. For employees who receive mostly tips, the federal minimum wage is a $2.13 per hour base, with tips having to equal or exceed the regular federal minimum wage of $7.25 per hour.
Every state has its own minimum wage. If a state’s minimum wage is higher than the federal minimum wage, then employers must comply with the state minimum wage. In contrast, if the federal minimum wage is higher than a state’s minimum wage, then the employer must comply with the federal minimum wage.
For example, Massachusetts’ minimum wage is $15 per hour. This means that all employers in Massachusetts must pay their employees a minimum of $15 per hour. It’s important to know what your state’s minimum wage is.
Does it Matter if Employees Are Considered Exempt or Non-exempt?
Classifying employees as exempt or non-exempt can be a strategic business move, but there are also state and federal guidelines that determine the minimum salary an employee must earn before being considered exempt.
When an employee is classified as non-exempt, it means that employers must pay that employee overtime pay for hours worked over 40 per workweek. Currently, federal overtime is calculated at one and a half times the regular rate of pay. For example, if you pay a non-exempt employee $20 an hour, then you must pay them $30 an hour for every hour beyond 40 that they’ve worked in a week.
Exempt employees, on the other hand, do not need to be paid overtime. When an employee is classified as exempt, it means that they get paid the same amount each paycheck, regardless of the quantity or quality of work.
It may be tempting to classify all employees who work 40 or more hours a week as exempt, to avoid paying overtime. However, there is a minimum salary requirement an employee must make to be legally classified as exempt.
Federal law states that the current minimum salary an employee must receive to be eligible for exempt status is $648 per week, or $35,568 per year. This number may be going up soon, so keep an eye out for any future changes.
Some states have different minimum salary requirements for exempt employees. In Maine, for example, the minimum salary for exempt employees is $813.35 a week, or $42,294 a year. In this case, employers should comply with the state minimum salary for exempt employees, as it is higher than the federal minimum.
What Meals & Breaks Do You Need to Provide as an Employer?
Federal labor laws do not require employers to provide any amount of breaks during a work day. If you do provide employees with a break, however, there are laws that dictate whether or not that break counts as time that you compensate employees for.
According to federal labor laws, when you offer employees a short break (under 20 minutes), that break is considered compensable work hours, meaning that you as the employer are paying for that break.
On the other hand, breaks that are 20 minutes or more – a lunch break, for example – are not considered work hours. This means that you do not need to pay employees for this time. Some employers opt to automatically deduct this time daily from employee’s paychecks. This ensures that your employees do take their break, but they are not compensated for it.
Federal labor laws also state that employers must keep accurate records for each employee. This includes basic information, like what is typically found on an I-9 form. In addition, employers are obligated to record the hours an employee works, the total wages paid each pay period, and the date of payment of wages. This requires accurate time keeping for each hourly employee.
The Cost of Not Complying With Wage and Hour Laws
Violating the federal minimum wage law or laws pertaining to overtime pay can also carry a hefty fee of $1,000 per violation. Willful violation of the Fair Labor Standards Act can incur a criminal prosecution, up to $10,000 fee for the first violation, and imprisonment for subsequent violations.
In some recent cases of wage and hour law violations, employers have had to pay hundreds of thousands of dollars in back wages and other compensation. In Michigan, a security company misclassified security guards as independent contractors, and failed to pay overtime rates. Similarly, a staffing agency in Illinois failed to pay their workers overtime, and failed to maintain complete and accurate time and pay records for their employees.
Most employers have good intentions, but can accidentally violate wage and hour laws. Employees may mistakenly believe that any salaried employee isn’t due overtime, when in fact it’s only salaried employees that are classified as exempt (and therefore meet the minimum salary for exempt employees) that do not need to be paid overtime.
Another common mistake employers may make is either not compensating employees for short (under 20 minute) breaks, or not completely releasing an employee from work duties during longer, uncompensated breaks.
While setting up an approval process for overtime is a good idea, some employers may believe that only approved overtime should be paid at the overtime rate. Federal law does not distinguish between approved and unapproved overtime, and employers must pay all overtime hours, regardless of approval status.
Complying with federal and state labor laws is a win-win for both you and your employees. Wage and hour laws exist to protect employees, but they benefit employers as well. These laws ensure a safe workplace, and that employees are not undercompensated. This in turn can help employers retain quality employees.
Stress-Free Wage and Hour Compliance With Commonwealth Payroll and HR
We understand that as a business owner, you are juggling multiple plates. At Commonwealth Payroll and HR, we want to set you up for stress-free compliance with both federal and state labor laws.
Our payroll processing and employee time management solutions make complying with record-keeping laws automatic and stress-free. With Commonwealth Payroll and HR, answers to your questions are only a phone call away. We’re here to help you navigate compliance, so you can focus on your business.
Contact us to learn more about our Human Capital Management system and customizable plans.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article may contain links to other third-party websites provided only for the convenience of the reader.
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