The rundown on wage law compliance: What organizations should know

Paying people properly is crucial to workforce management. But it goes beyond releasing pay on time. It’s about compensating workers according to the work they do and adhering to all the wage laws that apply — and there are many that organizations need to navigate. 

Andrew Stirling, head of product compliance at Workforce.com, sheds light on what companies need to know about complying with wage laws, the real cost of failure to comply and the different ways organizations can meet requirements under varying rules and regulations. 

Setting a compliance strategy

“To have a compliance strategy, you need to start by knowing what the rules are. That might sound trite, but you need a system for keeping current as the rules change,” Stirling said. 

Businesses are generally good at evolving their practices in the face of law and regulation changes. While there’s a level of adjustment when new laws are implemented, companies tend to adapt efficiently, he explained.

Identifying the type of employment relationship a business has with its workers is crucial to getting the rules right. This has become more important as the types of work relationships have multiplied.

“With the gig economy growing, more and more workers are being engaged to work in nontraditional ways. Generally, a worker in your business will be either an employee or an independent contractor. Businesses need to be careful to assign workers to the right category, because getting this wrong means that they may not meet all the wage laws that apply,” said Stirling. 

Once the rules are known, it’s time for the business to assess and implement solutions to comply with those rules. The solutions can be more than just the obvious.

For example, employee scheduling can play a key role in wage compliance. When creating schedules, managers need to be aware of when overtime will apply and how much the business must pay for those hours when it does. This becomes challenging for managers with a group of employees under different working arrangements. Without good solutions, things can fall through the cracks, resulting in underpayment or higher labor costs.

The real cost of noncompliance

Noncompliance can result in crippling financial repercussions, but it also can cause reputational damage.

“The financial costs of noncompliance are obvious,” Stirling said. “For example, if employees have been underpaid, the business might have to make large amounts of back payments in one hit. You need to have the cash on hand for that.” There are other financial costs, like penalties and legal costs to contest a court case.

But there’s also the real potential for reputational damage. That’s often a more significant motivation for employers to comply.

“An underpayment scandal can bring companies to their knees. 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,” he said. 

Aside from a less favorable customer perspective, companies with underpayment issues can risk losing in the labor market, he said. When looking for a job, people tend to sort out who the good and bad players are, and wage compliance can be a huge factor.

Ensuring compliance at all levels

While wage compliance may mostly be seen as a job for payroll teams, HR and managers also play a crucial role. Payroll teams would primarily be responsible for the final pay outcome.

“From a payroll perspective, I would be focused on two things. One is making sure that I understand the complex wage rules that apply. The second thing is making sure that I have the correct data. Am I getting the information that I need to properly calculate pay? Are we capturing time and attendance accurately? Yes, knowing the rules are important, but the inputs need to be correct, too,” Stirling said.

HR has a leading role here. They need to have a good understanding of the business and the particular wage rules that apply. It’s also their responsibility to ensure that the right systems are in place for wage compliance. 

“In my experience, HR will often document the duties of a position and then help to assign those duties to a particular minimum wage,” Stirling explained.

Managers, meanwhile, have a role in ensuring that all inputs are correct. They monitor that employees are recording time correctly and that there are no discrepancies.

“If rules in a particular jurisdiction require employees to be paid more for doing particular types of work, managers are the ones who will know,” he said. The extra payments might include allowances, commissions, bonuses and tips to the extent that they are relevant in a jurisdiction.

Managers generally play less of a role in ensuring the amount on a paycheck is correct. Still, they follow processes and systems that ensure all the information passed on to payroll is accurate. 

Compliance challenges per industry

Different industries face varying compliance challenges. A lot of this difference comes from meeting customer demand or expectations.

If customer demand comes in after standard business hours and on weekends, that’s when employees need to be at work. Working outside standard business hours often will entitle an employee to overtime or other financial obligations.

“If you’re in retail or hospitality, you’d miss out on opportunities if you just open from 9 to 5. Efficient workforce management can meet these demands with cost-effective shifts without compromising service and wage law compliance,” he said. 

Similar issues arise in industries that make use of machines and equipment that are most efficiently run 24/7. Mining, oil and gas, and manufacturing companies often run this way. Stirling said that this scenario also puts businesses in a space where they pay different penalties that come with varying shifts and work hours.

On the other hand, there are many industries where working standard office hours is still the norm. “Calculating pay for people who get to work at 9 in the morning and leave at 5 in the afternoon is usually relatively easy,” he said.

Ways to stay at pace with labor law changes

There are many moving parts involved with wage law compliance, and staying on pace is crucial. 

“Going to the source is always best. That’s a good start,” Stirling said. He advised signing up for government websites that explain what the law is. Businesses can often sign up for alerts to be updated should any of the laws change.

There are also subscription services to stay abreast of the labor law, including publications and journals. Another option is to join employer associations that can help keep track of changes as well. 

Overcoming wage compliance challenges 

Having the right people, implementing the right systems, and investing in the right technology — Stirling believes that these things can help businesses comply with wage laws. 

Computers are binary and will give an output based on the input. Automated compliance is more efficient and effective than human-driven compliance. Companies must implement the right systems to make sure that both people and technology can function effectively. 

“I’m a big believer in technology as a solution to a lot of these problems,” he said. “That’s where the future is. As technology becomes more powerful, the types of work that people are doing will change. They’ll spend less time crunching numbers, for example, to make sure pays are right and spend more time checking that the inputs into the technology are right.”