Wage and hour compliance is a crucial aspect of payroll. Because they serve a variety of industries and business types and often operate in multiple states, staffing agencies face distinct challenges when striving to ensure fully compliant payroll processes. In this article, we’ll discuss the importance of wage and hour compliance, problems that agencies encounter, and how you can best protect your agency against compliance-related risks.
Why Wage & Hour Compliance Matters
Wage and hour compliance is essential for multiple reasons. Perhaps the most obvious is the risk of legal penalties. Failing to comply with wage and hour laws can lead to costly fines from the local, state, and/or federal government. Repeated infractions carry heavier penalties and can even lead to loss of the right to be in business. Additionally, employees who are paid incorrectly could bring lawsuits, including class-action suits when large numbers of workers are affected.
Wage and hour noncompliance also damages a company’s reputation. Paying employees correctly and on time every time shows basic respect and is essential to recruiting and retaining top talent. If your company develops a reputation for unreliable payroll procedures, qualified job seekers are likely to pass you over. Likewise, customers may hesitate to do business with employers that are found to have run afoul of workers’ wage and hour protections. On the other hand, a reputation for reliably timely and correct payment supports employee morale and company loyalty.
Compliance Challenges for Staffing Agencies
Minimum Wage
Because minimum wage laws vary by state and in some cases, by location within a state, it can be challenging for staffing agencies to ensure they’re paying employees correctly in diverse locations. Additionally, many states make annual adjustments to their minimum wages, making it critical to continually keep up with evolving requirements.
Overtime
The Fair Labor Standards Act (FLSA) requires employers to pay employees at least 1.5 times their regular rate of pay for hours worked in excess of 40 during the workweek. Not all employees are subject to this rule, however, depending on the type of work they do and the pay they receive. The federal rules governing overtime pay are in flux, so which employees are exempt changes over time. Additionally, some states have overtime rules that vary from federal requirements.
What constitutes a workweek varies from one employer to the next. Staffing agencies serving multiple employers must keep track of each one’s workweek, which can be any consecutive 7-day period. If this weren’t complicated enough, some states’ laws allow for overtime pay after a certain number of hours worked in a single day or consecutive days worked during the week.
Paid & Unpaid Breaks
Several states require employers to provide short rest breaks with pay in addition to longer meal breaks, which are often unpaid. When working with timecard information, staffing agencies must differentiate between paid and unpaid breaks and compensate employees accordingly. Staffing agencies must familiarize themselves with the various break provisions of employers in different jurisdictions.
Payroll Deductions
Payroll deductions can be complex even for traditional employers. Correctly calculating and applying state and federal tax withholding, insurance premiums, retirement contributions, and other payroll deductions is a complex task—even more so when operating in multiple states and various industries that can have a wide range of benefit structures.
Recordkeeping
Paying employees correctly isn’t enough. You also need to retain the paperwork to prove it. It’s essential to maintain detailed records that document employees’ Social Security numbers, pay rates, hours, paid time off, deductions, and more. The FLSA requires employers to keep payroll records for a minimum of three years.
Maintaining Compliance
Fortunately, staffing agencies don’t have to manage payroll compliance on their own. Employer Solutions Staffing Group (ESSG) provides cutting-edge compliance tools and resources and access to HR experts who can offer guidance on complex wage and hour issues. Our back-office solutions streamline payroll processes, allowing agencies to reduce noncompliance risk while enhancing efficiency and supporting a satisfied and motivated workforce.
Learn more about ESSG and our comprehensive workforce solutions, or see our blog for more tips on streamlining back-office tasks and reducing risk in your organization.
