Expensive Mistakes: Assessing the Need for Wage and Hour Compliance | Practical Law

Expensive Mistakes: Assessing the Need for Wage and Hour Compliance | Practical Law

Wage and hour claims continue to pose significant risks to employers. This Update cites a recent study on those risks and highlights a Practical Law wage and hour audit resource that can help avoid costly compliance failures.

Expensive Mistakes: Assessing the Need for Wage and Hour Compliance

Practical Law Legal Update 2-578-9846 (Approx. 3 pages)

Expensive Mistakes: Assessing the Need for Wage and Hour Compliance

by Practical Law Labor & Employment
Law stated as of 26 Aug 2014 • USA (National/Federal)
Wage and hour claims continue to pose significant risks to employers. This Update cites a recent study on those risks and highlights a Practical Law wage and hour audit resource that can help avoid costly compliance failures.
US corporations continue to face significant legal and financial exposure because of wage and hour claims. According to a November 2013 study of wage and hour settlements by NERA Economic Consulting, companies paid an average of $4.5 million to resolve a wage and hour claim in the first three quarters of 2013. This number shows a decline from the average of $7.5 million reached overall between 2007 and 2012. However, the 2013 median settlement of $2.8 million is the highest the study's authors had seen since 2008.
The study notes that from 2010 to September 2013, the per-plaintiff settlement value of wage and hour claims has risen every year, with the 2013 average at just under $7,000. Cases with the largest class size of 1,000 members or more have been on the decline since 2007, but the most common class size of between 100 and 499 members still presents a costly risk to most employers, given the per-plaintiff settlement value estimate.
Wage and hour claims cut across industries. The study's authors found claims against businesses in financial services, insurance, food service, health care, manufacturing, retail, technology, telecommunications, transportation and others. The study looked at the kinds of claims alleged and the percentage of the total settlement assigned to each claim type. They found that between January 2007 and September 2013, the numbers broke down as follows:
  • Overtime: 40%.
  • Misclassification: 17%.
  • Off-the-clock work: 16%.
  • Missed meals and break periods: 16%.
  • Donning and doffing: 4%.
  • Minimum wage claims: 4%.
  • Tip pooling: 2%.
One takeaway from these findings is that wage and hour compliance is a dynamic obligation. It requires a broad range of compliance activities, not simply ensuring proper payment of overtime or for meal and break periods. Therefore, conducting an internal audit of wage and hour practices can help employers promote wage and hour compliance and avoid the significant financial risks the study highlighted.
Practical Law offers resources to help, including Practice Note, Conducting an Internal Wage and Hour Audit, which provides an overview of internal wage and hour audits under the FLSA, including:
  • Preliminary issues employers should consider before conducting an internal audit.
  • Common wage and hour issues to evaluate as part of the audit.
  • How to respond to compliance issues discovered during the audit.
  • Best practices for going forward after the audit.
The study, Trends in Wage and Hour Settlements: 2013 Update, is available on NERA Economic Consulting's website.