How Important Is Paying Employees “Correctly?”

SPB Paying Employees Correctly

In all the talk the last few years about raising the minimum wage to $15/hour, you might start off thinking that I was referring to that when I say you have to pay employees “correctly”…you would be wrong. I’m referring to the legal obligations your company has in regard to payments. If you ignore the laws, there are penalties…which a couple Tennessee companies found out recently. Let’s start with an example up near Knoxville…

Resolution: On April 6, 2023, Judge Clifton L. Corker of the U.S. District Court for the Eastern District of Tennessee at Knoxville issued a consent order and permanent injunction in a case that the U.S. Department of Labor filed against Pigeon Forge Hospitality, LLC and Nimesh Patel, operator of a Comfort Inn in Pigeon Forge, Tennessee. The order requires the hotel operator to pay $27,296 in back wages and an equal amount in liquidated damages to six workers.

An investigation by the department’s Wage and Hour Division found the employer willfully failed to pay workers at least the federal minimum wage, as well as overtime rates of at least time-and-one-half for hours over 40 in a workweek. Investigators also found that Pigeon Forge Hospitality engaged in oppressive child labor by employing two minors under the age of 12.

Even more recently, the Department of Labor recovered $270,000 in back wages after an investigation into Cilantro Five Points in East Nashville. They were found to have failed to pay overtime, force shared tips with dishwashers, and even neglected to pay minimum wage for all hours in a work week. (The Tennessean)

Do you want your employees to hate you? Not paying them correctly is one of the best ways to achieve that! But here’s the thing…it may end up as the least of your worries as other problems start to mount up.

Call In the DOL

One of the worst things that will happen if employees believe you haven’t paid them is a Department of Labor investigation into “wage and hour violations.” The laws the DOL enforces encompass minimum wage requirements, overtime provisions, and regulations governing other aspects of employee compensation. Take the time to read over the two cases above and you’ll find that the DOL doesn’t leave stones unturned once they start an investigation…what started out in Pigeon Force as a dispute over wages ended up as a child labor case, as well.

If you are found to have underpaid employees, your company will be forced to pay the affected individuals the wages you owe them…simply put, you’re not going to get away without paying them, so maybe just pay them in the first place! Especially because if you’re found to be in violation of the law, you are likely going to be on the hook for penalties imposed by the DOL or courts.

Keep It Classy

If you have a larger company and have made a practice of shoddy payment practices, they may end up joining forces and filing a class-action lawsuit against you. This may significantly increase the potential for payment of back wages…and penalties…not to mention all the legal costs you’re going to incur to fight a class-action.

You don’t want this to happen for more than just the monetary issue, though…class-action suits tend to attract a lot of negative attention for the defendant. That’s something no company wants as it can cause permanent harm to your reputation, making it incredibly difficult to recruit good employees in the future.

And reputational damage isn’t just limited to class-action-sized cases. While those may garner news coverage and get out in front of large numbers of people, these days reputational damage can be done just as effectively through social media with the right people making noise.

It Often Goes Deeper

If the Department of Labor or other enforcement agency gets called in with a complaint about incorrect wage payments, they have the authority to conduct an audit or call for a deeper investigation into your payroll practices. Non-compliance with the law in one case will often cause everything you do to be scrutinized in much more detail.

If the case is extreme, the violations of the law can result in criminal charges. This is normally reserved for outright theft of wages or intentional fraud, but penalties can include high fines or imprisonment.

What You Need To Do

First and foremost, make sure you are familiar with the relevant laws governing minimum wage, overtime, record-keeping, and other employee compensation details in all the jurisdictions you fall under…municipal, county, state, and federal. 

Next, make sure your payroll systems are current and up-to-date. Investing in a reliable, accurate payroll system will help you calculate wages correct, and ensure that your employees can see everything should they have any questions. You minimize the risk of errors and they get transparency. We at Southern Payroll & Bookkeeping recommend Gusto, an easy-to-use, but scalable, payroll solution. Call 423-207-2497 if you have questions or want to get started with Gusto.

Make sure you maintain good and detailed records of employee wages, hours worked, and other relevant payroll information. If you get audited and you can produce accurate, detailed records, you will go a long way toward dismissing any suspicion of wrong-doing on your part.

You should probably consult with a labor attorney. No one is going to know the laws pertaining to your business and in your jurisdictions like a local labor attorney. Ask them for help in interpreting complex regulations and reviewing your company’s policies.

And you should make sure to regularly review those policies with your employees, making sure they understand their legal obligations as well as yours…and update those policies when you need to.

Clear communication with your employees, accurate and detailed record-keeping, and transparency all work together to keep your company out of the crosshairs of law enforcement when it comes to wage and hour disputes…keeping your company moving forward and producing profit.

How Important Is Paying Employees “Correctly?”