Many people take comfort in the belief that there are no issues with their cars until a “check engine” light appears on the dashboard.
While mechanics and car enthusiasts may disagree, many of us give exceedingly little thought to issues with our vehicles until that warning light flashes.
That hands-off approach may work with cars. It does not work for wage-hour laws.
Wage-hour compliance offers no such dashboard warning. There is no flashing light when an employee has been misclassified, when payroll systems inadvertently calculate overtime incorrectly, or when meal and rest break practices begin to drift out of compliance.
For many employers, the first indication that they may not be in full compliance with complicated wage-hour laws is not a warning light — it is the service of a massive class action, collective action, or representative action complaint. By then, what could have been identified and corrected through a routine compliance audit has become the subject of costly litigation.
The worst time to evaluate a company’s wage-hour compliance is after a class action or collective action has already been filed.
By then, every payroll practice, timekeeping procedure, exemption classification, and meal and rest break policy is likely to be scrutinized through the costly lens of discovery. Any compliance issues that presumably could have been corrected through a proactive audit instead become evidence in litigation.
Although remedial measures may reduce future exposure in some circumstances (and in some jurisdictions), they rarely erase liability for past practices, and they come far too late to avoid the substantial costs, disruption, and business risks that accompany pending wage-hour litigation.
Regular wage-hour audits provide one of the most effective opportunities for employers to identify and address potential compliance concerns before they become expensive lawsuits. In-house counsel and human resources professionals are uniquely positioned to work together to review employee classifications, overtime practices, overtime calculations, timekeeping systems, reimbursement practices, off-the-clock work, payroll procedures, and meal and rest break compliance.
While no employer seeks to violate wage-hour laws, even employers acting in good faith can unknowingly drift out of compliance as these laws evolve, regulations change, technology advances, and business operations expand.
A well-executed audit does more than identify legal risks. It gives organizations an opportunity to correct problems before they affect hundreds or thousands of employees. It also enables companies to strengthen policies, improve manager training, bolster employee morale, and document good-faith compliance efforts, all under the direction of legal counsel to maximize applicable legal protections.
The cost of conducting a privileged internal audit is almost always a fraction of the expense associated with defending a wage-hour class action, collective action, or representative action. Proactive compliance helps avoid the disruption to management, the diversion of internal resources, damage to employee morale, and reputational harm that can accompany large-scale wage-hour litigation.
The best time to discover a wage-hour problem is before a plaintiffs’ lawyer does. Preventive audits cannot guarantee that every claim will be avoided, but they can significantly reduce the likelihood that routine payroll practices become the centerpiece of high-stakes litigation.
For in-house counsel and human resources professionals, regular wage-hour compliance reviews are not simply a best practice. They are one of the smartest investments an organization can make, knowing there will be no “check engine” warning.
