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Navigating Labor Law: Here’s What Startups Need To Know
By Jia Wertz, April 29, 2018
According to recent reports, 25 gas stations in New Jersey are being forced to pay more than $2 million as part of a wage settlement for violating the Fair Labor Standards Act. The settlement is the result of violations found during a series of investigations by the U.S. Department of Labor’s Wage and Hour Division. The investigation found that the gas station failed to pay its employees the federal minimum wage and also failed to pay employees for overtime.
Incidents like this are not rare. Last month alone, a number of businesses around the country were found to be in violation of federal, state and local wage laws. Often times these violations aren’t the result of nefarious intentions on behalf of employers. They’re often the result of ignorance — employers simply aren’t well-versed in the country’s wage laws and run afoul unintentionally.
Startup companies are especially at risk for running afoul of employment laws. Startups tend to be low on financial resources and manpower and as a result, they often can’t afford to have a legal team or a human resources department. But being unfamiliar with employment laws can come at a cost. An understanding of regulations like wage laws is a critical component of hiring and managing a team. Here are a few laws startups should be aware of to avoid breaking them.
Fair Labor Standards Act
The FLSA is a federal law that sets regulations for the minimum wage, overtime pay, record-keeping, and child labor standards. The law relates to both full-time and part-time workers in companies ranging from the private sector to governmental organizations. The FLSA sets a benchmark for employment standards, but states and local governments can also have their own employment laws.
Revised in 2009, the FLSA mandates a federal minimum wage of $7.25 per hour for nonexempt workers. Employees must also be paid overtime at a rate of not less than one and one-half times their regular rates of pay if they work more than 40 hours in a workweek.
There are, however, some exceptions to the FLSA. “The top three exemptions include Executive Exemption, Administrative Exemption and Professional Exemption. Plus there is also a Computer Professional exemption, which is relevant for IT employees and therefore, often relevant for startups,” says Sergei Lemberg, Managing Attorney at Lemberg Law.
These basic regulations are important to know for any startup looking to hire employees. Violating the law can result in costly fines and settlements in the case of a lawsuit.
But startups should also know that the FLSA does not govern vacation, holiday, severance, sick pay, pay raises or fringe benefits. Nor does it govern the amounts of time employees receive for meals, rest periods, holidays, or vacations. The FLSA also doesn’t include regulations related to employee terminations such as requiring employees to provide a discharge notice, reason for discharge, or immediate payment of final wages. These are up to each company’s discretion.
Equal Pay Act
While the FLSA doesn’t govern the kinds of pay, vacation and benefits granted to employees beyond the minimum wage and overtime pay, the government does require that employees are paid fairly. The Equal Pay Act requires that employees receive equal pay for equal work, regardless of gender.
This means that employers must pay equal wages to men and women who perform jobs that require the same amount of skill, effort and responsibility, and that are performed under similar working conditions. In the case of a pay discrepancy, the law mandates that an employer cannot reduce another employee’s pay to resolve the disparity. Instead, the lower paid employee must receive a raise to bring them to the same level as their counterpart.
As more and more women are coming forward to speak out against sexism in the workplace, including sexual harassment and discrimination, it is vitally important for companies to position themselves on the right side of pay equity. Not only can wage discrimination lead to costly lawsuits, it’s also not good for a startup’s public image. For those companies just starting out, it’s important to signal to the public that you have a grasp of labor law and treat your employees fairly.
Economic Realities Test
Navigating labor laws can be a difficult task, but the government has developed additional resources to help employers. The Economic Realities Test was created to determine whether a worker is a contractor or an employee. The test is used to determines who is exempt from FLSA regulations.
Exemptions often apply to executives, administrators, professionals and information technology workers, most commonly the salaried employees at a company. For example, for many salaried employees, mandates regarding overtime pay do not apply because work is dependent on the completion of tasks, not the number of hours worked.
“One common misperception, even among some lawyers, is that salaried employees are automatically exempt. This is not correct; exemption is based on job duties,” adds Lemberg. The reason for part of this misconception is that federal guidance has shifted. In 2015 the Department of Labor issued informal guidance on what classified a worker as an independent contractor, exempt from the FLSA. But in 2017, the DOL withdrew that guidance. Now, these decisions are often left up to the courts to decide. For this reason, in order to protect themselves, startups should do their best to familiarize themselves with these laws and bring in professional help when issues arise.