Wage and Hour Violations That Cost Companies the Most

5 Common and Costly Wage and Hour Violations

Standard employment practices liability coverage doesn’t typically protect companies from these common wage and hour violations.

Click on the image above to explore B.A.D. Manufacturing’s facilities and learn about five common wage and hour violations. Warehouse workers, sales reps and truckers alike have sued this fictitious company for lost wages.

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Click on the image above to explore B.A.D. Manufacturing’s facilities and learn about five common wage and hour violations. Warehouse workers, sales reps and truckers alike have sued this fictitious company for lost wages.

1
Misclassification

B.A.D. Manufacturing classified some of their drivers as employees and others as independent contractors, prompting drivers from two states to file a class-action suit to recover overtime pay they were owed.

To determine whether an employer–employee relationship exists, the courts consider various factors including:

  • Permanency of the relationship
  • Investment in facilities and equipment by the alleged contractor
  • Independence of business operations
2
Off-the-Clock Claims

A group of customer service employees alleged that B.A.D. Manufacturing routinely failed to account for all their hours worked, resulting in lost wages and miscalculated overtime.

Specific violations included:

  • Taking work calls at home
  • Working through lunch breaks
  • Reporting early for meetings with supervisors
3
Underpaid overtime

A group of sales employees filed a class-action lawsuit alleging that their performance bonuses and commissions weren’t calculated into their overtime pay.

The bonuses had been misclassified as discretionary bonuses, which are awarded at the discretion of the employer and are not factored into an employee’s regular rate of pay.

The commissions should have been nondiscretionary because they were awarded for performance based on pre-established criteria. By law, nondiscretionary bonuses must be factored into employees’ regular rate of pay.

4
Donning and doffing

B.A.D. management instructed warehouse employees to clock in for their shifts on the warehouse floor, where they are required to wear safety gear and personal protective equipment.

A group of warehouse employees sued to receive compensation for the time spent putting on and removing their equipment each day as well as walking to and from the warehouse floor.

The Supreme Court ruled in IBP, Inc. v. Alvarez that if equipment is “always essential if the worker is to do his job,” then donning said equipment counts as a “principal activity” under the FLSA and is considered part of the compensable workday.

5
Unpaid meal breaks

Security guards at B.A.D.’s California facility found that the company’s payroll automatically deducted 30 minutes from each shift for meal breaks, even though they were expected to eat at their desks and were regularly interrupted.

Some of the guards filed a Private Attorneys General Act (PAGA) claim to recover their lost wages.

  • PAGA is a California statute that enables workers to file lawsuits against employers for labor law violations.
  • PAGA claims can be costly but are typically not excessive.
  • PAGA claims are more common than class actions because they’re easier for employees to file.

1. Misclassification

B.A.D. Manufacturing classified some of their drivers as employees and others as independent contractors, prompting drivers from two states to file a class-action suit to recover overtime pay they were owed.

To determine whether an employer–employee relationship exists, the courts consider various factors including:

  • Permanency of the relationship
  • Investment in facilities and equipment by the alleged contractor
  • Independence of business operations

2. Off-the-Clock Claims

A group of customer service employees alleged that B.A.D. Manufacturing routinely failed to account for all their hours worked, resulting in lost wages and miscalculated overtime.

Specific violations included:

  • Taking work calls at home
  • Working through lunch breaks
  • Reporting early for meetings with supervisors

3. Underpaid overtime

A group of sales employees filed a class-action lawsuit alleging that their performance bonuses and commissions weren’t calculated into their overtime pay.

The bonuses had been misclassified as discretionary bonuses, which are awarded at the discretion of the employer and are not factored into an employee’s regular rate of pay.

The commissions should have been nondiscretionary because they were awarded for performance based on pre-established criteria. By law, nondiscretionary bonuses must be factored into employees’ regular rate of pay.

4. Donning and doffing

B.A.D. management instructed warehouse employees to clock in for their shifts on the warehouse floor, where they are required to wear safety gear and personal protective equipment.

A group of warehouse employees sued to receive compensation for the time spent putting on and removing their equipment each day as well as walking to and from the warehouse floor.

The Supreme Court ruled in IBP, Inc. v. Alvarez that if equipment is “always essential if the worker is to do his job,” then donning said equipment counts as a “principal activity” under the FLSA and is considered part of the compensable workday.

5. Unpaid meal breaks

Security guards at B.A.D.’s California facility found that the company’s payroll automatically deducted 30 minutes from each shift for meal breaks, even though they were expected to eat at their desks and were regularly interrupted.

Some of the guards filed a Private Attorneys General Act (PAGA) claim to recover their lost wages.

  • PAGA is a California statute that enables workers to file lawsuits against employers for labor law violations.
  • PAGA claims can be costly but are typically not excessive.
  • PAGA claims are more common than class actions because they’re easier for employees to file.

Workers and employers lose over $200 million yearly to wage and hour violations

In the U.S., every business that generates $500,000 in income – or meets certain interstate commerce requirements – must operate in accordance with the Fair Labor Standards Act (FLSA) or risk class-action lawsuits that can cost them millions of dollars in defense costs and settlements.

In addition to lawsuits, companies who violate the FLSA can also face penalties from the U.S. Department of Labor’s Wage and Hour Division (WHD). The WHD reported in 2020 that over the previous five years, it recovered more than $1.4 billion in back wages for workers in virtually every industry.

Yet many businesses remain uninsured beyond their standard employment practices liabilities coverage, which often only covers legal costs.

“Many clients just take the defense costs coverage because they don’t realize that there is coverage for the actual loss,” says Kimberly Lewis, VP, Professional Lines, for Argo Insurance. “But there is.”

Argo offers a unique, tailor-made wage and hour product

Since 2017, Argo Insurance in Bermuda has offered stand-alone wage and hour insurance for small to midsize U.S. enterprises in any industry. Lewis says focusing on companies with 10,000 or fewer employees gives Argo a unique position in the market.

“Most of the Bermuda market will write wage and hour for all sizes, while we concentrate on the smaller corporations,” Lewis says. “We can also offer retention as low as $500,000, which a lot of the SMEs are looking for. Most other insurers in Bermuda start at $2 million.”

Argo Insurance writes wage and hour policies in all 50 U.S. states. While all states have the potential for wage and hour claims, employers in California and New York are at a particularly high risk.

Learn more about wage and hour coverage available through Argo Insurance Bermuda.

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