From the archive: Which industries do you think are hit the hardest by FLSA violations?

by Michael Haberman on December 3, 2018 · 0 comments


Wage and hour violations cost some industries more than others.

Wage and hour violations cost some industries more than others.

This two-year-old post is still relevant. Wage violations occur in these industries as much today as they did two years ago. 

With the December 1, 2016 deadline for changes in the new overtime regulations a great deal of attention is being focused on the Fair Labor Standards Act. A recent study conducted by TSheets, using Department of Labor data, looks at industries that are hardest hit by wage and hour violations.

Top industries

Not surprisingly the biggest wage and hour violators are not what might be considered standard “corporate America.” Many of the biggest violators are companies that are small companies with single locations or they are larger companies with multiple small locations, perhaps even franchise locations. Here is the list.

#1 Restaurants

Nearly 1 in 5 of all wage and hour violations brought by the DOL is against a restaurant. There are probably several reasons this industry is the hardest hit. These may include:

  • The restaurant is started by someone whose passion is food and not employment law. They cook a great meal but don’t do a very good job of even understanding the law as applies to paying people and keeping track of time.
  • If they have been successful they are part of a big chain and the restaurant is run by a manager who has been taught the food and financial aspects of running the business but little about the people compliance side. Many companies do a poor job of teaching managers things about the importance of accurate timekeeping, tip credits, tip pooling, or even minimum wage. Things like dealing with sexual harassment also fall by the wayside.
  • Many restaurants are franchises. Again it is a training issue with people whose passion is running a food business and not dealing with the necessities of wage and hour compliance.
  • Restaurant workers are generally younger, transient and in many cases minority and even immigrant. There is little to no knowledge on their part to recognize when things are being done incorrectly until they do learn and then go complain.

According to TSheets data, the cost per prosecution has been $8, 684 per location and a total of almost $235 million since 1985. That is just the back pay cost. The legal fees may be 5 times that.

#2 Healthcare and social assistance

We are not talking big hospitals here. We are again looking at smaller businesses. These include childcare facilities, doctors’ offices, dental offices and nursing care facilities. Most of these are not big conglomerates but small facilities started by someone with a passion to own a business in a field that they are passionate about. Generally, the data shows that the costs of back pay are over $10,000 per location. Again legal fees pump up the costs even higher.

#3 Retail

As you might have guessed, seeing a potential trend, the biggest violators are gasoline stations with convenience stores, followed just by stand-alone convenience stores. More and more some of these locations are run by major chains, but many are still the “mom and pop” variety. This category also includes grocery stores and car dealerships. What makes this category standout is that, unlike the categories above, the payout for retail is a huge $840,000 per case.

Geography

The states that get the most cases are also states that have higher populations, so there is no surprise. The top states are California, New York, Pennsylvania, Florida, and Texas, with the latter leading the way with almost 18,000 prosecutions.

How to remedy

How do you remedy this situation? Training is the answer. Every book and seminar on starting a small business should emphasize the importance of an HR education. Every franchise sales should make sure that the new buyer has been educated on wage and hour education. At least that way you know that if a business is being prosecuted by the DOL for wage and hour violations it was not due to ignorance. Unfortunately, due to ignorance of the law, many business owners get an expensive education. You can get a lot of training for $10,000.

What does the future hold?

With the new overtime regulations, I wonder what kind of change we may see in these numbers. Will there be more corporate America violations? Probably not. Most companies of any size have been paying attention. It is still the small company, the small restaurant owner, who doesn’t realize these new regulations will impact them because of the pay their assistant manager a salary.

We will have to see what numbers look like at this time next year.


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