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How to Avoid Employee Wage Claims

How to Avoid Employee Wage Claims


Employee wage claims are no fun, but they must be taken seriously as it may be costly. You will find yourself asking “How could this happen to me?” The truth of the matter is, wage claims are extremely common. Under Federal law, an employer can be held personally liable for failure to pay overtime. As a business owner, you may not be directly responsible for paying employees as you are trying to run the business, but you need to be aware and kept in the know about what is going on.

You may potentially be liable under State labor regulations and under Federal laws. State laws are more protective of employees and more restrictive than Federal law. For example, under State law an employee is required to get overtime for more than 8 hours a day AND for 40+ hours a week. However, under Federal law an employee is only required to get overtime pay for 40+ hours a week and you may be held responsible for double the overtime wages that are unpaid. In addition to State and Federal liability, Administrative Agencies like the US Department of Labor also handle claims of violations of the labor code. Having a system similar to CloudPay might make paying overtime a lot easier if you are in control of paying the wages in your work environment.

Dealing with the US Department of Labor is tough, you do not want to be in front of these agents – they are not employer-friendly! They will ask for all payroll records and may award unpaid wages plus additional penalties. Most State agencies will go out of their way to weigh in favor of the employee, and most employees in front of these administrative bodies will not have attorney representation. They understand the employee already has unfair bargaining power with regard to wages and are bias against employers in these situations where there is a failure to pay. Be very careful what you say as an employer as it is going to be a really unfriendly environment.


Avoiding Wage Claims

At the start of new employment you should always address payment of wages. You must first determine whether the employee is classified as exempt and can be paid on a salary basis or whether they are non-exempt and subject to the labor code and therefore should be paid on an hourly basis. To properly classify an employee under State law, you would look to the California Labor Code for a wage order. A wage order is substantially patterned after Federal regulations and applies to certain jobs. Do not focus on the employee’s title when determining classification, look to their duties and responsibilities. Law firm employees like paralegals, law clerks and office managers are non-exempt and eligible for overtime pay. You should require these employees to keep time sheets and check them regularly.

Create a position description that expressly states your employee’s job duties and responsibilities. This will help you analyze if an employee is expected to perform exempt or non-exempt duties and responsibilities and protects you from future claims against certain exempt or non-exempt duties. The Department of Labor Enforcement has lists of employees and professions you can cross-reference when drafting your employee descriptions.


Common Exemptions

There are 3 main, common exemptions: Executive, Administrative and Professional exemptions.

Executive Exemption: Applies to employees whose duty is to involve management of the enterprise, who customarily directs the work of 2 or more employees and has the authority to hire or fire other employees or their recommendations are given special weight with decisions regarding hiring or firing; one who customarily exercises discretion or independent judgment without checking in with the employer. How much time this employee spends on management type tasks depends on the relevant laws; under State law, nearly 50% of duties must be spent on exempt duties whereas Federal law allows for less than 50% but takes other factors into consideration. To qualify for the exemption, this employee must earn a monthly salary required to no less than double the State’s minimum wage for employment.

Administrative Exemption: The administrative exemption is the most complex and is the most difficult to meet. There is a multi-part test with 5 main criteria: (1) Duties / responsibilities must involve office or non-manual work or general business operations; OR (2) administration at a school-type setting; (3) customarily and regularly exercise discretion and independent judgment; (4) regularly assist owner or have general supervision, and you must be primarily engaged in those duties more than 50% of the time under State law; and (5) your monthly salary is greater than twice the minimum wage.

Professional Exemption: Attorneys and law firms tend to fall under the professional exemption. An employee is to be paid on a salary basis if: (1) They are licensed in the state; (2) primarily engaged in law, medicine, dentistry, optometry, accounting, teaching OR a learned or artistic profession (i.e. professor, artist, musician); (4) has independent discretion / judgment on these matters; and (5) has a monthly salary greater than twice the state minimum wage.


Common Issues

For all exemptions, focus on whether the employee has independent discretion or judgment. If the employer must constantly supervise their work, they are non-exempt and should be paid on an hourly basis. Another requirement general to all exemption categories is that all employees must earn more than twice the state minimum wage or they are non-exempt.

As far as hiring unpaid interns, you are allowed to hire them unpaid BUT the intern must be part of a recognized program of instruction through an accredited law school (or other graduate school) program, such that you’re safe in not paying them.

Employers love to use contracts. The fact is, they are not necessary and act only to bind the employer. You should avoid using employer/employee contracts if possible and utilize an employee handbook instead. A handbook subjects employees to rules and regulations and puts all employees on notice of such rules and performance expectations without contractually binding the employer to the employee and will serve as a record to protect against future wage claims. Creating an employee handbook is easy, you can go online to the California Chamber of Commerce to customize your handbook and choose which provisions to utilize that best serve your firm or business.


How To Earn CLE Credit on this Topic

For additional information on this topic, Attorney Credits offers a course titled “Avoiding Employee Wage Claims.”

The course is available for CLE credit in the following states: Alaska (AK) | Arizona (AZ) | California (CA) | Connecticut (CT) | District of Columbia (DC) | Georgia (GA) | Illinois (IL) | Maryland (MD) | Massachusetts (MA) | Michigan (MI) | New Jersey (NJ) | New York (NY) | South Dakota (SD)

James Nguyen
James Nguyen


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