Startups Can Avoid Trouble with Labor Laws If They Know How to Navigate Them

25 gas stations in New Jersey are being required by law to pay out over $2 million according to recent reports. This payout is part of a wage settlement for Fair Labor Standards Act (FLSA) violations. A series of investigations led to the settlement after the U.S. Department of Labor’s Wage and Hour Division found that these gas stations failed to pay federal minimum wage and overtime to its employees These are not rare events. Only last month, many businesses were found to be in violation of local, state, and federal wage laws nationwide. Many times, employers violate these laws out of ignorance rather than trying to get away without paying employees. These employers lack an understanding of the nation’s wage laws and unintentionally violate the law. Startup companies run an exceptionally high risk of violating federal laws due to their low funding. These companies can struggle to put together a legal team or hire a human resource department capable of ensuring the company does not violate federal regulations, and the results can be expensive mistakes. It is critical for any company that will hire and maintain a team to make sure they have a thorough understanding of wage laws and other federal regulations. Startups should be aware of these laws to keep from breaching them. Fair Labor Standards Act The federal law that regulates minimum wage, overtime pay, record-keeping, and child labor standards is known as the FLSA. This law covers full and part-time workers in private and public sectors and also serves as a baseline for other state and local governments to follow. Should they choose, these governments can add their additional laws onto the FLSA. The federal wage was set to $7.25 by the FLSA in 2009 for nonexempt workers. The FLSA also covers minimum pay for overtime workers, setting the rate at time and a half the regular hourly rate for any hours over 40 worked in a workweek. Some exceptions to the FLSA include, “Executive Exemption, Administrative Exemption and Professional Exemption. Plus, there is also a Computer Professional exemption, which is relevant for IT employees and therefore, often relevant for startups,” lists Sergei Lemberg, Managing Attorney at Lemberg Law. Violating these laws can lead to costly fines from lawsuits; therefore, it is in any startups best interest to make sure they have a full understanding of these basic regulations when hiring employees. The FLSA does not govern the time employees have for holidays, rest period, vacations, or even meals. They also do not regulate anything related to the termination of employees: paying of last wages immediately, providing employees with a discharge notice, or providing a reason for the discharge. Startups should also know that vacation, sick, severance, holiday pay, fringe benefits and pay raises are not regulated by the FLSA either. The company is in charge of these policies. Equal Pay Act The government requires all employees receive equal pay. This means that while businesses are responsible for providing benefits, the types of pay, and the amount of vacation, the FLSA ensure that along with enforcing the minimum wage and overtime pay, it also makes sure that regardless of gender, employees all receive equal pay for equal work. This occurs through the Equal Pay Act. If there is a pay discrepancy between two employees, the higher paid party cannot be paid less. Instead, the employer must raise the salary of the lower paid employee. Employers must pay women and men who complete the same jobs with the same effort, skill, and responsibility and in similar working conditions, the same wage. As women continue to speak out against discrimination, sexism, and sexual harassment in the workplace, companies need to now, more than ever, stand in support of pay equity. An expensive wage discrimination lawsuit can destroy a company’s image. Startups must make sure they form a positive public image by illustrating to the community that they value their employees through a clear grasp of the labor laws. Economic Realities Test The difficulty of understanding and navigating labor laws is alleviated with resources like the Economics Realities Test. This test helps employers examine whether or not their workers are employees or contractors to help determine if they are exempt from FLSA regulations. Exemptions apply to professionals, administrators, executives, information technology workers, and quite commonly salaried employees who work for a company. Many salaried employees are exempt from overtime pay, for example, because their job rests on completing tasks, not working hours. “One common misperception, even among some lawyers, is that salaried employees are automatically exempt. This is not correct; exemption is based on job duties,” states Lemberg. These misconceptions are in part because of a recent switch from the Department of Labor. In 2015, the Department of Labor provided guidance noting that independent contractors were exempt from protection under the FLSA, but retracted that opinion in 2017 in favor of allowing courts to decide. Startups should protect themselves by familiarizing themselves with the FLSA for this very reason, and they should seek counsel when issues arise.