When it comes to managing payroll, even the most well-intentioned employers can make costly mistakes. Overtime and wage laws are complex, and violations—whether accidental or not—can lead to penalties, lawsuits, and damage to employee trust. Understanding common pitfalls can help businesses stay compliant and avoid unnecessary risks.
1. Misclassifying Employees
One of the most frequent errors employers make is misclassifying employees as exempt from overtime when they should be eligible. Just because someone is paid a salary doesn’t automatically mean they’re exempt. Job duties, not just pay structure, determine whether an employee qualifies for overtime.
2. Failing to Track All Hours Worked
Hourly employees must be compensated for all hours worked, including time spent:
- Answering emails after hours
- Attending mandatory training sessions
- Performing prep or wrap-up work outside scheduled shifts
Overlooking these hours, even unintentionally, can result in wage violations.
3. Ignoring State and Local Laws
While federal laws set the baseline, many states (and even cities) have stricter overtime and wage rules. Employers who only follow federal guidelines may inadvertently violate state or local regulations, leading to compliance issues.
4. Not Paying Overtime Correctly
Overtime isn’t just “time and a half” of base hourly pay—it often must include other forms of compensation, like bonuses or shift differentials, when calculating the overtime rate. Employers sometimes overlook this requirement, leading to underpayments.
5. Improper Meal and Rest Breaks
Some states require specific meal and rest break periods, and employers must ensure these are provided and properly recorded. Failing to follow these rules—or automatically deducting meal breaks regardless of whether they were taken—can create wage law violations.
6. Poor Recordkeeping
Accurate and thorough records are an employer’s best defense in wage and hour disputes. Missing timesheets, incomplete payroll records, or sloppy documentation often make compliance problems worse.
Best Practices for Employers
- Regularly review job classifications to ensure accuracy.
- Implement reliable time-tracking systems to capture all work hours.
- Stay updated on state and local wage laws, not just federal ones.
- Train managers on overtime and wage compliance responsibilities.
- Conduct periodic audits of payroll practices to catch mistakes early.
Overtime and wage laws can be complicated, but employers who take a proactive approach can minimize risks and build trust with their workforce. By avoiding these common mistakes and prioritizing compliance, businesses can protect both their bottom line and their employee relationships.