Why Compliance Matters

Why Compliance Matters

With the US Department of Labor (DoL) stepping up enforcement of Fair Labor Standards Act (FLSA) violations in recent years, organizations of all sizes are paying a lot more attention to compliance with labor regulations. When the FLSA was passed, labor groups had leveled accusations that the new regulations were too soft on businesses, and didn’t go far enough to safeguard workers’ rights. Hence the DoL has been tough on violators to prove that it was treating violations very seriously.

DoL statistics reveal the scope of non-compliance

Recent surveys have shown that a clear majority of companies were unknowingly violating various labor regulations under the FLSA. The DoL estimates that 7 in 10 companies are non-compliant with wage and hour laws, and that since 2001, there has been a 400% increase in the number of wage and hour lawsuits. Employees who discover that they were not paid the correct wages owed (either due to a misclassification of their status or some other reason) can take recourse by alerting their payroll and HR managers about the errors made, and try to settle the matter internally within the organization. However, not every employee may be able to amicably settle claims of underpayment. Others may resort to legal action, which may also trigger a DoL audit.

The cost of non-compliance

Violations of FLSA and DoL regulations can be very expensive to settle. Lawsuits and DoL audits can pose major difficulties to any organization, not only because of the negative publicity involved, but also by the cost of litigation, penalties levied, and harm to the company’s relationship with its workforce. An error of a few hundred dollars in salary owed could snowball into many thousands of dollars in legal fees and penalties, not to mention adverse publicity and harm to the company’s reputation.

This is why companies need to ensure that their payroll and HR departments are well aware of the consequences of compliance errors made—even if they may be unwitting errors. One of the most complicated (and often misunderstood) sections of the FLSA is the one that delineates rules on how employers must categorize employees to decide who’s eligible for overtime pay—a “nonexempt” employee—and who isn’t—an “exempt” employee. Payroll and HR managers must be especially cognizant about how they categorize employees, based on their eligibility for overtime pay and other benefits. We will be covering the differences between these categories, as well as other important compliance tips and updates, in upcoming posts.

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