WAGE AND HOUR COMPLIANCE: WHY IT MATTERS AND WHAT IS ON THE LINE
Most businesses pay employees the correct amounts, and often give bonuses and incentives for performance over and above the wages each worker has earned. Most wage and hour violations are in inadvertent and unintentional. However, an abundance of caution is warranted when calculating worker payments, because the consequences can be serious, both for small and large businesses.
As a small business, especially within the first year, it is difficult to weather unexpected liabilities. 8 out of 10 startups fail, according to Bloomberg and Richard Branson, and Forbes lists lack of employment documentation as number 5 out of 10 reasons why startups fail. As a large business with many employees, even small wage and hour violations add up to large damages because of your large workforce.
Now, more than in years past, oversights in employment compliance have drastic consequences. Since April 9, 2011, New York’s Wage Theft Prevention act has been enacted, and is regularly amended to create more severe penalties for compliance failures.
Under New York’s Wage Theft Prevention Act, 100% of wages can be liquidated. This means that in addition to paying back wages to employees who were paid sufficient amounts in preceding weeks, the back wages are “liquidated”, or doubled. In some cities, such as Miami, they are tripled. For small employers, this usually is not a very effective deterrent, and most gladly pay back wages and consider the liquidated amounts as interest. It was not their intent to violate the law, and they are happy to make amends and pay their employees correctly. However, in addition to liquidated damages, the Department of Labor may assess civil penalties per violation. Violations are assessed per employee per week. The first violation can result in a penalty up to $1,000. Second violations are assessed at $2,000. And for the third violation, and each violation thereafter, the penalty is $3,000. If you have ten employees and each employee suffered a payment deficiency for three weeks, you are looking at potential liability of approximately $87,000. As you can see, this adds up quickly. Furthermore, if the Department of Labor issues certain orders, such as to post a bond or produce a list of assets of the company, and the order is not complied with, the department may assess another penalty of up to $10,000, and failure to comply with orders or judgements can result in an additional 15% added to the damages. Perhaps the single most important thing to consider, as a consequence of a wage and hour violation, is that the corporate shield does not protect business owners or shareholders from claims for unpaid wages. Therefore, the business owner may, herself or himself, be personally liable for these damages.
Therefore, although wage and hour law can seem simple, it is often complex, and having competent, experienced counsel is essential in avoiding a potential tidal wave of liability.