27 July 2021
Labor laws are a potentially lethal minefield for companies, particularly in today’s turbulent labor market, as the cost of labor law compliance failures can be enormous.
Labor law fines tend to stack per infraction so with large employee numbers the financial risk can grow exponentially, as with the recent high profile example of New York City suing Chipotle (https://edition.cnn.com/2021/04/29/business/chipotle-nyc-lawsuit-labor-law/index.html) for $151 million over 600,000 labor law violations accumulated within the city. In Tennessee, a home health care provider misclassified fifty workers as independent contractors rather than employees and was hit with a $358k penalty (https://www.workforce.com/news/worker-misclassification)by the Department of Labor to make up back wages and overtime.
Ignorance of the law is no defense, so even in situations where labor law compliance is complicated by different federal, state, and city rulings, it’s up to companies to stay on top of what is required. In situations where federal and local laws differ (i.e., the state minimum wage is higher than the federal), companies are expected to adhere to whichever is most stringent (i.e., they would have to pay the higher state minimum wage, not the federal).
It’s all too easy to make labor law compliance mistakes, but awareness of your responsibilities and impeccable record keeping will help to protect your company. Here are the key areas to keep in mind.
Minimum wage laws are getting a lot of attention at the moment, with President Biden’s executive order raising the salary for federal workers to at least $15 per hour being seen by many as a prelude to a nationwide rise in minimum wage levels. Compliance with these laws can seem cut and dried, but there are aspects unique to some industries that you should be aware of if they affect you.
For example, industries where workers earn tips have a unique minimum wage law to follow, called Minimum Tipped Wage. “Minimum tipped wage makes it quite a bit more complicated,” says Workforce’s chief strategy officer Josh Cameron. “In hospitality or anything where you earn tips, you can pay the staff a minimum wage much lower than the normal one. So it would be $7.50 an hour if they’re not tipped, but it’s $2.50 if it’s tipped. As long as they get enough tips to get them over that—it’s called the tip credit—then they can receive the lower $2.50 per hour from their employer.”
There are reasons to keep on top of minimum wage laws beyond the threat of fines. For example, 29 states currently require a minimum wage higher than the federal standard, and you are obliged to pay the higher sum. Underpaid workers are unlikely to show any loyalty to a company, and underpayment can cause PR problems as well. “An underpayment scandal can bring companies to their knees,” says Andrew Stirling, head of product compliance at Workforce.com. “Customers can decide to take their business elsewhere. People are less likely to visit a restaurant or shop that has been reported for underpaying their people.”
One of the areas of labor law compliance with the least clarity is breaks for workers, making it especially important for companies to err on the side of caution. The legal requirements can be found on the Department of Labor website, but there are significant areas of ambiguity to watch for:
“There’s this gray area,” says Josh Cameron. “Say you take a break for 21 minutes, is that paid or unpaid? Is it okay to make that unpaid? If you’re a lawyer looking at this, it’s really an opportunity because you can say, ‘This employee always had a 23-minute break, always had an 18-minute break, and they never got paid for it. Maybe they should have been.’ That’s something that employers should really be aware of and keep an eye on.”
This is an area where accurate and exhaustive employee data can really help, and if your company still relies on timecards and manual spreadsheets or pen and paper logs to track breaks, you could be leaving yourself open to big problems in the future.
Thirteen states, plus Washington DC, currently require private companies to offer paid sick leave. The Families First Coronavirus Response Act added an additional responsibility for companies with less than 500 employees to allow workers to take paid time off if infected with COVID-19, to isolate following contact with an infected person, or to care for a family member. The same act also introduced a tax credit to offset the loss for affected companies.
California, New Jersey, Rhode Island, and Washington have all passed laws that also require paid family leave, and President Biden’s administration has set its sights on a federally mandated period of 12-weeks paid leave that would allow, for example, parents to take time off to care for newborn babies or other family needs.
For now, the only federal law involving medical and family leave is the Family and Medical Leave Act, which requires employers with more than 50 staff to offer 12 workweeks of unpaid, job-protected leave in a 12-month period for:
This is an area of labor law compliance that is only going to become more prominent in the coming years, so shrewd managers should ensure they are on top of current requirements, which are largely dependent on where you operate and how many staff you have, and be prepared for change.
Another area of labor law that has been fraught with political debate, the Affordable Care Act requires that if an employee works more than 30 hours a week over any single year look-back period, then the employer must provide health insurance. While the ACA is a federal law, the portion of the medical insurance that the employer has to pay is determined by the state. In New York, for example, the employer must pay 80%.
The 30 hours a week cut-off requires particularly careful management where shift workers are concerned, as their hours may fluctuate over time. “This whole area is a big pain point,” explains Josh Cameron. “It’s a very difficult conversation to have with an employee that has become eligible for healthcare, then loses that eligibility the next year. Taking it away from someone feels very harsh to the employee.”
Keeping track of employee hours and keeping accurate records is yet again a vital part of compliance for companies here. Qualifying for healthcare is a strong motivator for retaining staff, but for those companies that are concerned about shouldering the additional costs, Workforce.com can be calibrated to warn managers when employees reach the 30 hours threshold and can even prevent managers from publishing schedules that extend past 30 hours.
A recent addition to the labor law conversation, predictive scheduling laws – also sometimes known as “fair workweek” – place restrictions on how shifts are assigned and require companies to give advance notice of new schedules.
Two states – Vermont and Oregon – and eight municipalities – San Francisco, Berkeley, Emeryville, San Jose, Seattle, New York City, Chicago, and Philadelphia – have passed such laws, and more states and cities are considering legislation in this area. The specifics of the laws vary from region to region, but the core principles are:
Failing to maintain compliance with these laws is expensive. The Chipotle example mentioned earlier, in which NYC sued the fast-food chain for $151 million, was caused by hundreds of thousands of predictive scheduling infractions across its many locations in the city.
Even if your business is not based in a state or city with predictive scheduling laws, it is still worth adopting the principles behind them. Partly because these laws may yet impact your business, but also because they have had a notable improvement on staff retention and job satisfaction.
There are thankfully few employers looking to openly discriminate in their hiring processes these days, but you should still be aware of which groups the law applies to when hiring and firing, as well as setting the terms of employment and how much people are paid.
If this all seems like a lot to keep track of, you’re not alone. The USA has relatively light-touch regulations for businesses compared to Europe, for example, but that doesn’t mean the task of staying compliant with labor laws can’t feel overwhelming—especially if you’re new to management and dealing with all of this legislation for the first time.
Regardless of which law is involved, one of the recurring causes of labor law breaches is poor record keeping. There’s one surefire way to ensure that your labor law compliance is rock solid, and that’s to keep excellent data. While it’s possible to maintain your records the old-fashioned way, with paper and pen or spreadsheets, the potential for human error is high.
When the cost of non-compliance can be so steep, using dedicated staff management software like Workforce.com to track staff hours and automatically flag labor law compliance issues offers much-needed peace of mind.
Written by Dan Whitehead
We build robust scheduling & attendance software for businesses with 500+ frontline workers. With custom BI reporting and demand-driven scheduling, we help our customers reduce labor spend and increase profitability across their business. It's as simple as that.
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