There’s nothing sinister about most FLSA violations. Routine errors in record-keeping or communication breakdowns are the main causes.

But with a record number of FLSA being filed each year, i’s more important than ever to avoid these three easily made mistakes:

1. Breaks in the paper trail

The biggest mistake employers of all sizes make is to over-rely on time cards or time sheets to record hours for their non-exempt employees.

As Wal-Mart has learned the hard way in class-action suits that it has lost, FLSA requires all employers to record (and pay applicable overtime for) all off-the-clock work activities. In Wal-Mart’s case, courts ruled the wage-and-hour violations were a deliberate (and illegal) strategy for cutting OT costs.

More commonly, employers get tripped up because they lack a system for recording “borderline” work time spent by non-exempt employees. The errors need not be intentional to violate FLSA.

These errors can occur either on the front- or back-end of your compensation system.

The biggest front-end danger area: FLSA requires employers to log and pay for time non-exempt employees spend logging onto computers or donning safety equipment.

The second most common front-end error is lack of a tracking system for work-related travel time by non-exempts. The price is steep for non-compliance: One employer got hit by the DOL with a $72,664 fine for back wages and penalties because it failed to account for OT-eligible travel.

On the back end of record keeping, FLSA requires you to track total compensation (not just base pay) when calculating overtime. Case in point: An online recruiter failed to include the commissions and other bonuses it paid to non-exempt employees when figuring overtime pay rates. The damage: $524,216 in fines.

2. Faulty OT-authorization policies

What can do you to stop employees from working unwanted overtime? To many employers, the answer is, “Require employees to get supervisor approval before working overtime.”

That policy is OK under FLSA, but be careful how you apply and communicate it.

What you can’t do: refuse to pay someone for unwanted OT or dock pay in retaliation. Once it’s worked, you have to pay it.  Under FLSA, your organization must pay even unauthorized OT in full.

What you can do: Create a written authorization procedure, and set disciplinary steps for its violation.
Supervisors (and, to a lesser extent, Payroll) will likely need education on their roles in this process.

The central message to get across: “Unwanted overtime is a thorny legal issue, due to FLSA. Never handle the case yourself – refer it directly to HR.”

3. Outdated job descriptions

Is your organization doing more with less these days? Have employees’ job responsibilities changed?
If so, their overtime-eligibility status may have changed, too.

Common example: Due to under-staffing, exempt employees perform clerical duties formerly delegated to hourly employees. Remember, a salaried employee isn’t automatically OT-exempt. You must still determine:

• if the employee spends 20% or more of the day on non-exempt tasks, and
• whether at least 50% of the day is still spent on primary job duties.

One area where many employers unknowingly risk violating FLSA is when they offer employees a paid time off (PTO) buy-back program. Two compliance keys:

• Your total hourly wage calculations for overtime purposes must include all bought-back hours.
• OT hours must be counted toward the employee’s accrued PTO banks and buy-back eligibility.

Typical scenario

Here are two real-life example of how problems can spring up. A group of non-exempt city employees in Missouri won a class action overtime suit tied the city’s buy-back benefits.

What happened: Employees with a lot of accrued PTO took advantage of a program that let them sell back some of their unused time to the city.

These employees then claimed the money they made through the program should be added to their total-wage calculations – thereby raising their overtime pay.

Meanwhile, employees at a company in New York claimed benefits discrimination and sued because their OT hours weren’t counted toward their PTO, reducing the hours they could sell back.

In both cases, the employers lost. The city was forced to pay additional back wages with interest to cover the bought-back hours. And the company had to credit all OT hours toward the buy-back banks, greatly increasing the cost.

Another cause for pause

In addition to higher OT costs, there’s another reason you may want think twice about a buy-back plan: Employees who never take time off often have lower productivity.

Are your policy and procedure manuals a lawsuit waiting to happen?

There’s no law that require you provide employees a benefits handbook or manual. But best practice is to have one, so long as you follow some basic rules for what needs to be in there, and what should never be in there. Three sections to review immediately:

• pay policies (especially overtime)
• FMLA, and
• paid leave.

Your choice of wording in these sections could make or break your company’s case if an employee sues. Following are three of the biggest red flags that many firms ignore.

Handbook Taboo #1: Overtime policy violates FLSA

Many handbooks contain the following dangerous statement: “Authorized overtime is paid at 1.5 times the hourly rate.”

From a legal standpoint, that’s the same as saying “Our organization is non-compliant with FLSA’s wage and hour laws.” Under FLSA, if a non-exempt employee works overtime – whether it’s authorized or not – you must pay the overtime rate. No exceptions.

What’s legal is to create policies designed to prevent unwanted OT before employees work it. For example, it’s fine for a hanbook to say, “All overtime must be authorized by your supervisor.”

For such a policy to be effective, however, it’s necessary to have formal procedures for OT-authorization. Your handbook must describe these steps (e.g., written permission from a supervisor), as well as any disciplinary procedures for breaking the rules.

But once the hours are worked, it’s too late not to pay for it. Even if you pay for OT (whether authorized or unauthorized), the mere suggestion in the handbook that you may be withholding pay for unapproved OT could get you sued under FLSA.

Taboo #2 : Vague language on FMLA coordination

Writing FMLA policies in your manuals is one the toughest challenges in creating a compliant handbook.
Federal law says that if you have a benefits manual, you must describe how FMLA overlaps with other company benefits.

Example: Do you require people to use available paid leave and FMLA concurrently? If so, you must include this info in the FMLA section of the handbook.

Otherwise, the employee is entitled to “save up” their 12 weeks of FMLA until after paid time is used up. The result is your organization’s benefits manual accidentally gives away extra family or medical leave that is now protected by the law.

What happens under these circumstances if you terminate an employee for attendance policy violations? Assuming that the excessive leave was the reason for termination, the chances are that court will look at what’s written in your manual and rule in the worker’s favor. 

Taboo #3: Unclear paid time-off policies

Whether you have separate sick time and vacation policies or a single paid time off bank, your manual should be crystal clear on how leave is accumulated, and when and how it may be taken. 

Example: If you expect employees to file written vacation requests signed by a supervisor, but your manual only says “written request” and neglects the need for supervisor approval, a request denied for lack of a supervisor signature may not hold up if the employee challenges it.

When reviewing your paid leave policies, make sure the manual is clear on its descriptions of:

• Eligibility. Do part-timers and/or temps qualify? If so, when?
• Accrual. How do you calculate the banks (e.g., one year of service = 18 PTO days per year)?
• Use. How soon can an employee take leave? Do unused days roll over to the next year or are they calculated on a use-it-or-lose-it basis?

Policies versus procedures

In re-reading any section of your manual, ask yourself, “Is this a policy or is it a procedure?”

Here’s the difference: A policy is where your company stands on a certain issue, such as a policy banning employees from smoking. A procedure is how you get things done. Example: Employees who participate in a smoking cessation program must submit for reimbursement through your Payroll department.

The sections in your manual that describe policies must contain:

• specific descriptions, such as, “Employees may not wear shorts to work,” and
• enforcement details, such as what will happen if an employee violates the dress code?

Meanwhile, sections describing procedures should also be as specific as possible.

For example, compare these two handbook statements for requesting family leave:

1. “If an employee is aware of a need for family leave 15 days or more before it is to begin, the worker must file a request for leave within 15 days of the start date.”
2. “If there’s a foreseeable need for leave, the leave request must be filed ahead of leave within a reasonable time. ”

The first statement is clear and protects your firm if the manual is challenged in court. The latter is open to debate – and possibly lawsuits.

In many cases, hourly or non-exempt salaried employees consider a switch to exempt salaried status to be a step up in prestige. While exempt/non-exempt status is a legal issue – not a professional one — employee perception can be a surprising ally to management.

Meanwhile, fixing payroll overtime mistakes needn’t be ultra-expensive in the long term.

Some short-term pain is unavoidable. In order to comply with FLSA and minimize lawsuit risks, your firm should voluntarily offer to pay re-classified employees back wages for any overtime that was missed. Don’t forget to base the OT rate on total compensation, not just base salary.

Going forward, however, many firms adjust salary or hourly wages, bonuses, and other compensation accordingly so that the future cost to the company is similar to past costs.

Be sure to avoid one of the most common blunders employers make in trying to correct missed overtime. Managers often have the mistaken belief that paying employees an end-of-year bonus makes up for unpaid OT.

What this practice actually does is brings up a non-exempt employee’s total compensation without satisfying a penny of the overtime thats owed. In other words, you still owe time-and-a-half for the overtime, but now the OT pay rate you owe has gone up.

There are millions of illegal aliens working in the U.S. today. There’s also a record number of FLSA wage and overtime lawsuits. It was inevitable the two issues would overlap.  

Remember: The same FMLA rules apply to illegal aliens who are hired inadvertently (i.e., the employer makes a mistake in I-9 verification) or knowingly.

In the last few years, several courts have given even illegal immigrants the right to sue employers for violations of FLSA’s reasonable hour, working condition and payment requirements.

First shoe dropped in ‘06

Two years ago, a New York appeals court ruled that even undocumented workers may be entitled to benefits and lost wages in disability cases. In that case (Balabuena v. IDR Realty, LLC), a Mexican man who sneaked into the U.S. illegally, later sued his construction-industry employer.

The company never attempted to verify his status and learned after the fact the employee wasn’t legally entitled to work in this country.

So the firm argued U.S. immigration laws (the Immigration and Reform Control Act, or IRCA) trump state labor laws, which allowed injured employees to claim benefits and wages.

But the appeals court ruled IRCA doesn’t cancel out state disability laws if an employer fails to follow federal immigration status-checking laws.

More recently, a second shoe dropped.

A federal court recently permitted 14 illegal immigrants to join a class-action wage-and-hour lawsuit filed against Florida-based janitorial firm Rosenbaum-Cunningham. The illegal immigrants – like the other plaintiffs – were subject to collect back pay and overtime.

Prosecutors claim the firm hired hundreds of illegal workers without job applications, W-4 tax withholding or I-9 employment eligibility forms, W-2 wage and tax statements. In addition, the firm allegedly failed to pay $18.6 million in Social Security, Medicare, and federal employment taxes on wages — both for its legally and illegally employed workers.

Staying protected

As long as you make a good-faith effort to verify immigrant employees’ work status and act according to FLSA regulations, the law is on your side if it turns out an employee is an illegal immigrant and he or she attempts to sue your firm. Best practices:

• Require originals or certified copies of IDs and work-permit documents
• Have job seekers fill out and sign written applications, with a section outlining your policy of hiring only documented aliens, and
• Retain the paperwork three years.