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Heed Minimum Wage Rules or Else was the message from Labor Secretary Perez in a December 4 speech at the Center for American Progress in Washington, D.C. The U.S. Department of Labor (DOL) has increased its staff for enforcing minimum wage and overtime rules under the Fair Labor Standards Act (FLSA), indicating that DOL is very serious about enforcement.

A study from the Eastern Research Group found that 3.5% to 6.8% of workers are victims of minimum wage/overtime violations, so there are many businesses that fail to comply with the FLSA.

Small business owners I know want to do the right thing. Unfortunately, there are some traps that can snag owners in pay policies. Here are some that I found:

  • Giving comp time. Overtime pay cannot be avoided by private-sector employers by giving a non-exempt employee (an employee subject to minimum wage rules) comp time (time off at a later date in lieu of overtime pay). (There are only very limited exceptions in specific situations.)
  • Paying a salary. Figuring compensation on a yearly basis and calling someone a salaried employee does not make the person a non-exempt employee; minimum wage and overtime rules continue to apply if an employee’s wages and job classification make him/her a non-exempt employee.
  • Giving wage advances. Repayments to an employer of wage advances in many states are factored in for minimum wage purposes and can cause wages for the repayment period to fall below FLSA minimums.
  • Failing to factor in minimum wage increases for exempt workers. What? When California raised its minimum wage on July 1, 2014, it included a provision that effectively changed the definition of an exempt employee (one who is not subject to minimum wage rules). The definition says such an employee earns a monthly salary equivalent of no less than two times the state minimum wage for full-time employment (2080 hours per year). In other words, to keep an exempt worker exempt when the minimum wage increased, a worker’s salary also had to be increased to keep him/her above the 2.5 times threshold.

Check state law
The minimum wage rates and rules vary from state to state, and rates are set to increase on January 1, 2015, in nearly two dozen states. If your state’s minimum rate and other rules are stricter than the federal FLSA, then the state rules apply.

The federal minimum wage is still $7.25 per hour and applies in states that do not have a higher rate. However, the rate for payments by federal contractors rises on January 1, 2015, to $10.10 per hour. If you have questions about minimum wage and overtime rules, talk with an employment law attorney.