3 (More) FLSA Errors to Avoid

It's easy to run afoul of the Fair Labor Standards Act. But violations are entirely avoidable.

The Fair Labor Standards Act (FLSA) isn't always straightforward—and it is frequently infringed upon unknowingly. In some circumstances it may be beneficial to consult with an employment lawyer.

To review the FSLA basics, I talked with Thomas Shorter, a healthcare employment attorney and shareholder at Godfrey and Kahn, in Madison, WI. He had shared these three common FLSA errors with me in February:

• Misclassification of employees as exempt
• Time-tracking errors
• Comp time blunders

This week I'll share three more areas where employers must be careful, according to Shorter:

1. Classifying Employees as Independent Contractors or Consultants
It can be tempting to classify an employee as an independent contractor, especially if he is new and no decision has been made on whether to hire him full-time or permanently.

But this would be a violation of FLSA, says Shorter.

"You can only do that if the individual legitimately meets the definition of an independent contractor. In more than half the cases that are brought to me with that scenario, it does not qualify. They're your employee. To attempt to classify them as an independent contractor is taking on major risk as a healthcare system."

What qualifies someone as an independent contractor? Does he have his own company or an LLC? Are you being billed by a consultancy for his services? Does he carry insurance that covers him for acts of negligence on the job? "Real consultants are part of a company," says Shorter.

"If the answers to these questions are no, then these are markers to me that the organization is thinking, 'I want them to be a temp that I don't have to worry about FLSA for.' And that is a big risk," Shorter says.

Many organizations have misused the independent contractor or consultant classification to avoid paying for benefits, sick time, vacation time, or unemployment insurance, but Shorter warns that it is a very risky proposition. "States have gone after many employers, including healthcare systems," he says.

Bottom line: Understand the law, and make hires accordingly.

2. Overtime and Stand-by Errors
Here's another easy FLSA error to make, especially now as the industry continues to consolidate.

Frequently, says Shorter, a healthcare system will operate multiple hospitals or other facilities. Each may even be its own separate legal entity, yet still part of the same corporation.

The problem is this: "You find scenarios with a nurse, CNA, or other non-exempt employee working at two locations, but HR fails to connect the dots." It most commonly occurs when a healthcare system buys a hospital where a nurse or CNA was working extra hours nearby.

Frequently, no one notices that the employee is working 40 hours weekly at the primary hospital, and 15 in the second and getting paid at the nominal rate.

Is it a problem? "Yes, unequivocally. The employee is working 55 hours collectively, and getting paid at a base rate. It's almost a joint employment situation—and so easy to fall into in a multiple hospital system."

Stand-by compensation is also frequently forgotten in healthcare—if you tell someone to watch his pager or stay by his phone, he should be earning stand-by pay.

3. Abominable Side Agreements
Many employees are asked by misinformed managers to work off the clock, to forgo overtime, or to work on a day off in exchange for extra pay the next month, a catered dinner, a gift, or a day off later in the month (also known as "comp time") in lieu of overtime pay.

But these are all violations of FLSA law.

While some managers think it's alright to "work something out" with an employee if there isn't any overtime left in the budget, overtime hours stretch on longer than expected or an employee chooses to work off the clock to finish something up they couldn't get done during regular business hours, that is incorrect, says Shorter.

"Payment must be in cold, hard cash only," says Shorter. While the employee might say he would prefer to leave early on Friday, receive a gift certificate for a favorite store, or enjoy an expensive dinner paid for on the company credit card, those options are simply not legal.

It's also not legal to agree to pay an employee in the future for work performed now. If an employee works overtime during this week's pay period, he must be paid for those hours when he is paid for the other hours worked this week—you cannot defer them or make them up in at a later date.

It's easy to run afoul of the FLSA—but avoidable with better awareness and understanding of the law.