The Fair Labor Standards Act (FLSA) was enacted in the U.S. in 1938 to establish basic employment guidelines, like minimum wage and payment for overtime work. Specifically, FLSA stipulates that non-exempt employees must be paid time-and-a-half for all hours worked over 40 in a given week.
At the time the FLSA was enacted, it was a radical change for the government to set standards for private industries, impacting companies in all sectors to this day, including lodging and hospitality. Hoteliers are vulnerable to class action lawsuits; for failing to compensate hotel employees overtime pay at one and one-half times their regular rate of pay for all hours worked over 40 hours in a workweek.
Under this act, small hospitality enterprises with annual gross sales of more than $500,000 are required to comply with the current federal minimum wage, and the payment to non-exempt employees of appropriate overtime compensation. If the business falls under the $500,000 test, the hotelier may still be subject to this law if the business’ activities include interstate commerce or an occupation closely related to such commerce.
As times change and technology evolves, lodging professionals and executive teams must address the current employee engagement landscape and how best to build a wage and hour compliant organization. With clear communication from the top down, FLSA issues can be avoided. While hoteliers should always seek legal council if they have concerns, the following are important elements for hoteliers to consider.
1. Properly Classify Staff
A challenging issue for hospitality management is the proper classification of employees as exempt or non-exempt. To qualify for the exemption, employees must meet all of the following criteria, according to federal regulations:
● The employee must be compensated on a salary basis at a rate not less than $455 per week
● The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise
● The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent
● The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight
2. Create FLSA Compliance Policies and Programs
Hoteliers should make compliance an essential policy. They should share it with fellow business leaders, add it to organizational objectives, and monitor practices that need to be changed.
To aid communication between hoteliers and their staff, hotel managers should ensure all employees have read and understood the latest policies. Using a platform that enables the organization to communicate and engage at all levels—including guest-facing staff and non-exempt employees who may not have an email address—can add significant value.
3. Utilize Technology
To avoid non-compliance, lodging professionals should adopt technology to aid in wage and hour compliance efforts. Compliance tools can help with payroll audits and determine employee classifications. It’s important to pay attention to how employee work hours are tracked. Cloud-based tracking and mobile applications can help accurately track hours and ensure compliance, particularly for distributed workforces.
4. Avoid Common Pitfalls
According to the U.S. Department of Labor, typical lodging establishment problems causing non-compliance include:
● Employees placed on salary and classified as exempt without regard to the duties performed
● Failure to maintain records of, or pay overtime to, non-exempt salaried employees
● Failure to record and pay employees for all hours suffered or permitted to be worked
● Illegal deductions from pay for items like cash register shortages, uniforms, errors, bad checks, etc.
● Failure to pay the correct overtime rate to tipped employees, or failure to pay the correct overtime rate that includes all service charges, commissions, bonuses and all other remuneration
● Tips not sufficient to make up the difference between the employer’s direct wage obligation and the minimum wage; employees receiving tips only; and sharing a portion of tipped employees’ tips with employees who are not eligible because they do not normally receive tips
● Paying straight time for hours worked beyond 40 per week instead of required overtime pay, or averaging the number of hours worked over two or more weeks to avoid overtime pay
● Failure to pay minimum wage/overtime to temporary help or employee leasing firm workers who are jointly employed by the hotel.
5. Adopt New Habits
Transforming workplace behaviors is perhaps the toughest challenge. Of course, managers and employees should be given relevant information and training. When hospitality leaders communicate consistent messaging around how to implement serious changes in the name of compliance, their organizations will overcome comfortable behaviors and the related liability will disappear.
Lodging industry leaders should address FLSA compliance with the same focus they give to other important strategic, financial, and cultural matters.