In light of the huge increase in wage and hour litigation under the Fair Labor Standards Act (FLSA) and related state law, employers must clearly outline policies addressing wage and hour issues, such as timekeeping, overtime, lawful deductions for exempt employees and “safe harbor” rules. Building on my last article on mandatory handbook policies, this article highlights the mandatory policies addressing various wage and hour issues that, if properly drafted and followed, can reduce the threat of litigation and/or provide defenses to a company if it is involved in wage and hour litigation.

Timekeeping Policy

Initially, the FLSA mandates that “non-exempt” employees be compensated at a rate of time and a half for all hours worked over 40 hours in a workweek. As a result, and because it is the employer’s burden to prove when an employee worked, it is important that every company have a clear way to track when employees come and go and otherwise perform compensable work. Without an accurate timekeeping system, including a timekeeping policy of how and when employees are supposed to record their time, employers are exposed to claims for unpaid compensation or overtime by current and past employees. Keep in mind that some states, like Illinois, require companies to track all employees’ time, both exempt and non-exempt employees, in some fashion, and a company’s failure to maintain such records not only exposes it to wage and hour liability, but it can also be subject to fines and penalties from the Illinois Department of Labor.

Lunch Break Policy

Lunch breaks and, specifically, a company’s failure to pay non-exempt employees who are obligated to work through their lunch breaks are increasingly becoming a liability for employers. As a matter of background, there are many states, like Illinois, that require employers to provide employees with an unpaid lunch break after working a certain number of hours. While those lunch breaks are unpaid, problems arise when the employee is not completely relieved of his or her duties. In fact, to the extent the employee is required to answer calls or respond to emails during a lunch break, such time must be compensated and also counts towards that employee’s overtime hours (if the total is in excess of 40 hours in a particular workweek). As a result, all employers should have a lunch break policy clearly outlining when to clock in and about for lunch, as well as procedures to notify management in the event employees are required to work during a lunch break.

Overtime Policy

Overtime can also be a thorny issue for employers. Depending on the industry, as well as other factors, an overtime policy may be needed. An overtime policy should clearly articulate when, and under what circumstances, overtime is allowed. For example, it is prudent to maintain a policy that provides that overtime is not allowed unless authorized in writing by a manager. This way, the company can easily and more efficiently track the use of overtime, as well as have a record of overtime so that improper FLSA overtime lawsuits can be defeated. However, do not forget that unauthorized overtime must still be compensated.

Lawful Deductions Policy

Under the FLSA and related state law, some employees are “exempt” from the payment of overtime. Many employers do not realize, however, that they can inadvertently eliminate the “exempt” status of an otherwise exempt employee, thereby entitling the employee (and potentially all others in that job category) to overtime. This is usually done when an employer improperly takes certain deductions from the “exempt” employee’s salary. For example, an employer is not allowed to take deductions from an “exempt” employee’s salary for certain absences from work for things such as lateness, some violations of company policy or damage to company equipment. Thus, a policy prohibiting improper deductions, identifying under what circumstances deductions can be made, and what an employee can do if an improper deduction is made, should be drafted in the employee handbook.

FLSA “Safe Harbor” Language

The U.S. Department of Labor has provided employers with a defense if improper deductions are erroneously made by the employer. Specifically, the employee will not lose his or her exempt status if the employer has a clearly communicated policy that prohibits improper deductions and sets forth a clear complaint procedure available to employees. This policy should also provide that the employer should promptly reimburse the employee for any improper deductions and should make a good faith commitment to comply with the FLSA in the future. Finally, anti-retaliation language should be inserted into this policy highlighting the company’s commitment not to retaliate against employees who bring good faith complaints to management about improper deductions (or any other alleged wage and hour violations for that matter).

Tune into my next Employment Law Essentials article detailing some necessary workplace safety and asset protection policies to maintain in an employee handbook.