Insureon Blog

How Small Businesses Can Avoid Employment Law Fines

21. July 2014 07:48

The Fair Labor Standards Act of 1938 (FLSA) established several employment regulations that many of us take for granted today: a 44-hour max workweek (and time-and-a-half overtime for certain jobs), a national minimum wage, and child labor laws.

Still, FLSA violations are not uncommon. Business News Daily cites a 2011 study that found 56 percent of surveyed business owners had been sued for FLSA violations in the past 10 years – and almost 27 percent of those business owners had been sued more than once.

Below, we summarize Business News Daily’s advice for avoiding these violations.

5 Ways to Avoid FLSA Violations

1. Try to sort out the issue through arbitration. Arbitration is a way to resolve a dispute before it goes to court. Much like a judge, a neutral third party listens to both sides of the argument and comes to a decision. The difference? Arbitration is usually much faster and cheaper than a court trial. You can include an arbitration clause in your employment contracts. When an employee signs, they give up their right to participate in a class-action or multi-party lawsuit.

2. Conduct regular wage and hour audits. Because job duties are constantly evolving, it’s a good idea to have regular audits to ensure you are in compliance with FLSA guidelines. What do you need to look out for? Exempt and nonexempt employee classifications, overtime calculations, and compensable hours.

3. Properly classify workers. Business News Daily reports that there are two common types of misclassification: classifying employees as interns or independent contractors when they aren’t and classifying an employee as exempt from minimum wage and hour payments when they aren’t. We’d like to add that in addition to FLSA fines, misclassifying employees can lead to Workers’ Compensation Insurance fines, too.

4. Know what “compensable hours” are. When employers don’t understand what the FLSA means by “compensable hours,” they can get into trouble. Employers must pay employees for “all time spent in physical or mental exertion.” This can include lunch breaks. If you don’t keep track of all these hours, you may violate minimum wage or overtime regulations.

5. Swiftly address complaints. Communication is key. If an employment complaint is brought to your attention (or to a supervisor’s attention), it should be addressed immediately. You should have established protocol for addressing such complaints – including seeking legal counsel when necessary.

What Happens When You’re Served with an Employment Lawsuit?

Despite taking precautions, there’s still a chance your business might one day face an employment lawsuit. That’s just the nature of the game. Fortunately there is something you can do about it: carry small business insurance.

Most employment lawsuits can be covered with Employment Practices Liability Insurance (EPLI). This policy covers wage disputes, wrongful termination claims, workplace discrimination and harassment claims, and more.

As we mentioned above, FLSA claims related to employee misclassification may overlap with Workers’ Compensation Insurance violations. As you likely know, Workers’ Comp regulations vary from state to state. You can avoid these violations by following your local laws. (Check out our guide to Workers’ Comp laws for more information.) However, most Workers’ Comp Insurance policies come with Employer’s Liability Insurance, which pays for the cost of lawsuits over workplace injuries.

If you are interested in purchasing these policies, you can receive free, customized insurance quotes by submitting an online insurance application.

know your business risks


EPLI | Risk Management | Small Business | Small Business Risk Management | Workers' Compensation Insurance

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