What Employers Should Know About Wage & Hour Claims
Employers carry a lot of different risks. This risk means that there is always the chance of an insurance claim arising. Year after year, the most expensive type of claim employers face is for wage and hours disputes from employees.
According to the U.S. Department of Labor’s Wage and Hour Division, it recovered a record-setting $322 million in wages owed to workers in the fiscal year of 2019.
Because this is an expensive claim, every employer must make sure they have a wage and hour insurance coverage endorsement as part of their Employment Practices Liability Insurance (EPLI) policy.
According to IRMI, the International Risk Management Institute in the United States, a wage and hour insurance endorsement “covers the cost of defending claims alleging that an employer failed to pay overtime to a non-exempt employee.”
In this article, we will go over examples of what a wage and hour insurance claim is and explain how you as an employer can work to prevent this type of claim.
What is a Wage & Hour Claim?
So, let us start from the beginning. A wage and hour insurance claim arises when a non-salaried or non-exempt employee makes a claim that they are not fairly compensated for their work.
The Fair Labor Standards Act (FLSA) defines minimum-wage and overtime requirements for these workers. Because the FLSA is a federal law, the Department of Labor must settle a wage and hour claim. Otherwise, there must be court approval for the settlement.
Because of the way a wage and hour claim reach settlement, they are time-consuming and expensive for employers.
When an Employee might File a Claim
There are many violations employers must look out for with employee pay. Here are a few of the most common situations that lead to a claim:
- Unpaid Training & Meetings: If an employee is required to attend a training session, meeting, or other similar events, compensation is necessary. Employers cannot make employees attend these events unpaid. This includes work-related travel and business trips.
- Overtime Compensation: If an employer works out a deal with their employees that reimbursement for their overtime is a non-monetary payment, they must follow through. This payment comes as extra time off. Keep in mind that an employee does not have to accept this form of payment in replacement of required overtime pay.
- Breaks: Employees may take a break during their shift. If an employee takes a break, the employer has a right to make it unpaid. If an employee works through their break, they must receive payment for the time they worked.
- Minimum Wage: All employees have a right to the federal minimum wage of $7.25 an hour. If employers pay employees less than this, it is a minimum wage violation and employees can file a claim.
- Overtime: When an employee works over 40 hours in a week, they qualify for overtime pay. If an employee is non-exempt, this means for each hour they work over 40 hours they receive 1.5 times the amount they make in an hour. If the employer falls short of this or does not pay overtime at all, employees can file a claim.
As you can see, there are many potential violations employers face with a wage and hour claim. Now that you are aware of these situations, here is how you can avoid these situations.
Best Practices to Avoiding a Claim
There are many possibilities for a wage and hour claim to arise. Here is a list of suggested best practices you can apply right now:
- Follow Rules: Be aware of the rules to follow for employee pay.
- Track Time: One of the best ways to protect yourself and your Company from a wage and hour claim, is to require employees to clock their time. This could mean employees have to sign in and out for shifts. It could also mean employees have to clock time for tasks they are working on. Following this system keeps employees and employers honest with hours worked.
- Hire a Consultant: If you employ over 50 employees and travel, breaks and events are common in your organization, hire a consultant or attorney trained in wage and hour claims. They can make sure changes in regulations do not require you to change payment plans or incentives. If changes must be made, they have the knowledge to help you restructure.
The Importance of an EPLI Policy
No matter what steps you take to protect your organization from a wage and hour claim, there is always a chance of one occurring. This is why you will need an EPLI policy with a wage and hour endorsement.
If this makes you think, “oh no, not more insurance,” do not worry, we are here for you! Check out SmartCompliance to learn how we can help you make sure you have the right coverage in place to ensure protection for your organization.