Labor Compliance: One Of The Biggest Challenges In 2018

By Vivek Gopalpuria | August 21, 2018

Last year, American restaurant chain TGI Friday’s settled a $19.1 million wage theft lawsuit for failure to pay its tipped hourly food service workers the correct minimum wage, overtime pay, and tips.

While 19.1 million dollars may seem difficult to miscalculate, Friday’s is in expensive company: popular cosmetics retailer Lush recently announced that it has underpaid over 5,000 Australian employees more than 2 million dollars after discovering a significant error in their manual payroll system. Claiming that the company’s payroll systems were “just not sophisticated enough” to correctly interpret the retail and manufacturing awards, situations like the aforementioned are far from uncommon across the globe, even in 2018 – because if labor law compliance was simple, we wouldn’t hear about incidents like these with such regularity.

And in this case, success can be frustratingly paradoxical – the more locations a multinational organization establishes, the more complicated compliance gets, globally and locally. Without real visibility or proper assistance managing the evolving laws of labor compliance, numerous issues end up falling on someone high up in HR, finance, or payroll.

Several specific issues can arise here, some more common than others. Among the top offenders:

1. Minimum Wage Regulations

A notoriously complicated facet of compliance, state and local minimum wages are far from standardized. They can differ by city, county, size of employer, zip code, industry, and even whether the employer provides health benefits. What’s more, state and local minimum wages can increase at different times of the year without much warning. Without an effective system in place to monitor minimum wage increases at all levels, maintaining compliance can begin to feel hopeless.

2. Misclassifying Employees

It is surprisingly difficult to define who counts as an employee. For example, employers often improperly classify workers as exempt, and neglect paying them overtime wages. Another is the misclassification of workers as independent contractors or interns when they aren’t – this prevents those employees from receiving their entitled benefits. Employers can expose themselves to potentially expensive penalties or litigation when employees aren’t classified accurately in the system.

3. Accurate Time-Tracking

Employer or employee, we’re only human, and anyone can make mistakes. As a result, however, plain old human error can open the door to numerous compliance violations. Whether it’s paying a mix of office and mobile workers, differing overtime policies, compiling data for compliance audits, or simply keeping track of continuous changes in policy, the potential for trouble lurks in many places when it comes to maintaining compliance.

To add to the complexity, timekeeping regulations can vary by location and employee type, making it tricky to standardize systems and processes. It’s no wonder that even with a few thousand employees, we see companies with close to a dozen systems managing global time.

4. Leave of Absence

Time-off liabilities directly tie into the company’s bottom line, so employers should always make it a habit to familiarize themselves with global and local leave laws, and establish policies and procedures for handling employee leave requests. Federal laws aside, most states and localities have their own family and medical leave laws as well, and many states have other laws that allow employees to take leave in specific situations, such as leave for parents to attend school events, or helping out with a newborn – which can get complicated if companies don’t stay up-to-date. Employers should also be aware of the risk of legal claims for interference and discrimination when managing employee leaves.

In short, we know the most common pitfalls – but how do we avoid becoming the next TGI Friday’s blunder?