Ensuring compliance with wage and hour laws is a cornerstone of responsible business management and employment law risk mitigation. This article, forming part of our ongoing series on employment practice self-audits, serves as the first installment of a two-part discussion on best practices for wage and hour compliance.

Defining Work Schedules and Payment Cycles

A crucial initial step involves the explicit definition and communication of work schedules and payment cycles to all employees. In California for example, employers have the flexibility to designate a workday as any consistent 24-hour period and a workweek as any fixed seven-day cycle, provided it is consistent for each employee.

Adherence to Payday Schedules

It’s imperative that paydays adhere to legal deadlines that follow the end of a pay period. Employers are required to establish a consistent payday schedule and, in places like California, must also display a notice detailing the pay schedule’s day, time, and location.

Detailed Wage Statements

Providing employees with comprehensive wage statements each pay period is a legal requirement. In California, for instance, these statements must encompass a range of specifics including gross wages, total hours worked (for non-exempt employees), piece rates if applicable, deductions, net wages, pay period, employee and employer identification details, applicable hourly rates for the pay period, accrued sick leave, and for piece-rate employees, detailed information on rest and recovery periods and nonproductive time. It’s advisable to retain these records for four years and not rely solely on third-party payroll services for record-keeping.

Accurate Employee Classification

Correctly classifying employees as exempt or non-exempt from overtime, and ensuring independent contractors meet certain criteria (like the ABC test in California), is vital to avoid expensive misclassification claims. Proper classification hinges on an actual assessment of an employee’s duties, beyond what’s listed in their job description, and meeting the minimum salary and salary basis requirements.

Overtime Compensation

For non-exempt employees, overtime compensation must align with legal standards, which, in states like California, tend to be more employee-friendly compared to federal law. Remember, overtime is calculated based on a nonexempt employee’s “regular rate” of pay, which means that production bonuses, attendance bonuses, commissions, shift differentials and other forms of non-discretionary compensation must be included.

Preventing Uncompensated Work

It’s essential to explicitly prohibit uncompensated work (i.e., off-the-clock work) as part of the company’s policies, with a focus on training managers to recognize and rectify any such occurrences. Regular audits of timekeeping records are necessary to verify the accurate recording of all hours worked.

By concentrating on these key areas, employers can lay down a robust foundation for legal compliance and mitigate against wage and hour and PAGA claims. Look forward to part 2, where we will explore additional strategies for ensuring wage and hour compliance.