Here's Why You Want to Avoid Back Pay Issues

Here's Why You Want to Avoid Back Pay Issues

Federal and state laws require employers to fairly compensate their workers for the work they do. For hourly workers, this means an hourly wage at least equal to the minimum wage, along with any overtime pay that may be due. Failing to properly compensate employees could open a company up to litigation.

As an employer, you really do not want to find yourself in a situation where employees are seeking back pay. It is far better to make sure your payroll remains on the up-and-up so that every worker gets what he or she has earned with every pay cycle.

Is your payroll department serious about maintaining compliance and accuracy? If not, on overhaul may be in order. Check out these reasons for avoiding back pay issues, all of which are related to the remedial options available to employees who believe they have not received all their pay:

1. The U.S. Department of Labor Could Get Involved

An employee who believes he or she has not been properly compensated can always contact the U.S. Department of Labor for assistance. If that happens, watch out. It is never a good idea to have federal regulators poking around your business – because one thing can always lead to another.

Should the Department of Labor get involved, they would supervise the paying of back wages according to the findings of their investigation. If their findings disagree with yours, it will not matter. Theirs will prevail.

2. The Secretary of Labor Can Sue You

There are plenty of instances of the U.S. Department of Labor getting involved and eventually leading to a lawsuit filed by the Secretary of Labor. Such lawsuits are rarely brought with any compassion on the employer. 

A lawsuit brought by the Department of Labor could hold your company liable for both back wages and liquidated damages. By the way, liquidated damages are the employment contract equivalent of punitive damages in a personal injury award.

3. Your Employee Can Sue You

There are times when employees go right to their own private attorneys rather than getting the Department of Labor involved. This may seem like a better deal, but it rarely is. Your employee can sue you to recover back pay, liquidated damages, court costs, and even attorney’s fees. You can bet that any fees assessed by a private attorney are not going to be cheap.

Just know that civil litigation in back pay cases rarely goes well for employers. It is extremely hard to defend against such cases unless you keep meticulous records covering years’ worth of your company's payroll.

Not All Bad News

At the risk of being a harbinger of only bad news, all the details relating to back pay and its recovery are not negative. For example, an employee cannot bring a private civil suit against you if the Department of Labor is already involved in settling a back-pay dispute.

Also be aware that there is a statute of limitations on back pay claims. Under the provisions of the Fair Labor Standards Act, employees only have two years to file back pay claims if they feel their employers are in violation. However, there is one caveat: the two-year statute of limitations only applies to errors made in ignorance. Willful violations of federal wage laws are subject to a three-year statute of limitations.

We make it our business to fully understand federal and state laws involving employee compensation. If you need help maintaining compliance in any area of payroll, you are invited to contact us to learn more about our cutting-edge payroll and benefits solutions.