Key Takeaways
- Wage and hour claims can be filed as class actions, meaning one claim can cover all similarly situated employees, multiplying the exposure.
- Misclassification of exempt employees is the single most common wage and hour violation.
- The statute of limitations is two years, or three years for willful violations, meaning back pay can accumulate for years before a claim is filed.
- Accurate timekeeping records are your primary defense, and missing records shift the burden of proof to the employer.
What Are Wage and Hour Claims
Wage and hour claims allege that an employer failed to pay employees correctly under the Fair Labor Standards Act. The most common claims are for unpaid overtime, minimum wage violations, misclassification of employees as exempt or as independent contractors, and off-the-clock work.
Unlike discrimination claims, which typically involve a single employee, wage and hour claims can be filed as collective actions. If one employee claims they were misclassified, every similarly situated employee can join the claim. A single misclassification decision can expose a business to back pay for all affected employees, plus liquidated damages that double the amount.
Misclassification Is the Biggest Risk
The most common wage and hour violation is classifying a non-exempt employee as exempt to avoid paying overtime. This happens when a business pays a salary and assumes the employee is exempt, without verifying that the employee meets the duties test. An "office manager" who does not supervise two or more employees and does not exercise independent judgment is likely non-exempt, regardless of salary.
The second most common misclassification is treating an employee as an independent contractor. The IRS and Department of Labor both aggressively pursue worker misclassification, because it results in unpaid taxes and lost wage protections. If you control when, where, and how the work is done, the worker is likely an employee, not a contractor.
Off-the-Clock Work
Off-the-clock work is any work performed for the employer's benefit that is not recorded or paid. This includes arriving early to set up, staying late to close out, answering work communications at home, and time spent changing into required uniforms. If you know or should know the work is happening, it is compensable.
The problem is that off-the-clock work is hard to prove after the fact, because there are no time records. This is why the FLSA places the burden of recordkeeping on the employer. If an employee claims they worked off the clock and you have no time records to contradict them, the court may accept the employee's estimate. Accurate timekeeping is your defense.
How Damages Are Calculated
Wage and hour damages include back pay for unpaid overtime or wages, plus liquidated damages equal to the back pay amount, effectively doubling the total. For willful violations, the statute of limitations extends from two to three years. Attorney fees are also recoverable, which is why plaintiff's attorneys take these cases on contingency.
For a collective action with 20 employees who were each underpaid $5,000 per year in overtime for two years, the back pay is $200,000, liquidated damages add another $200,000, and attorney fees can add $100,000 or more. The total exposure for a single misclassification decision can exceed $500,000 for a small business.
How to Prevent Wage and Hour Claims
Prevention starts with correct classification. Audit every position to confirm that exempt employees meet the duties test, not just the salary test. Track hours for all non-exempt employees accurately, even if they are salaried non-exempt. Prohibit and enforce against off-the-clock work. Pay overtime correctly, including the regular rate calculation with all required components.
A PEO partnership provides FLSA compliance support, classification review, and payroll administration that reduces the risk of wage and hour violations. The PEO also maintains the timekeeping and payroll records that serve as your defense if a claim is filed. For businesses without a PEO, an annual classification audit by an HR professional or employment attorney is a worthwhile investment.
- Audit every exempt position against the FLSA duties test, not just salary level
- Track hours for all non-exempt employees, including salaried non-exempt
- Prohibit off-the-clock work and enforce the policy through scheduling
- Calculate overtime using the regular rate, including all required components
- Review independent contractor classifications for proper employee status
- Maintain accurate timekeeping and payroll records for at least three years
Frequently Asked Questions
Can a single employee file a wage and hour claim for the whole company?
Yes, through a collective action under the FLSA. One employee files a claim and asks the court to conditionally certify a class of all similarly situated employees. Other employees can then opt in. This is why misclassification is so dangerous: one claim can expand to cover your entire workforce.
What if I do not have time records for a former employee?
Under the FLSA, the burden of recordkeeping is on the employer. If you do not have records, the employee can provide their own estimate of hours worked, and the court may accept it. This is why accurate timekeeping is essential. Without records, you cannot defend against a claim, and the employee's estimate becomes the basis for damages.
How long can an employee wait to file a wage and hour claim?
The standard statute of limitations is two years from the date of the violation. For willful violations, it extends to three years. This means an employee can seek back pay for up to two or three years of unpaid overtime, even if they no longer work for you. The long lookback period is what makes these claims so expensive.