Employee Management

Five mistakes to avoid when paying employees

Learn five mistakes to avoid when it comes to employee payment practices.

Published: January 20, 2014
Updated: February 22, 2017

By HR360

The Fair Labor Standards Act (FLSA) is a federal law that sets rules for minimum wage and overtime pay. It seems simple, but it can be easy to make a mistake. The following are common pay practices that may violate the law.

Note: When both the FLSA and a state law apply, the employee is entitled to the most favorable provisions of each law. Be sure to check your state wage and hour laws for applicable requirements.

1. Assuming that salaried employees are not entitled to overtime pay

Paying an employee on a salary basis is only one factor in determining whether the employee is exempt from the federal overtime pay protections. Among other requirements, being paid on a "salary basis" means an employee regularly receives a predetermined amount of compensation that generally may not be reduced due to variations in the quality or quantity of work.

For an exemption to apply, the employee's salary and specific job duties must meet all the requirements of the law for the particular exemption claimed. Remember that an employee's job title (for example, manager) is not sufficient to determine exempt or non-exempt status.

2. Allowing employees to volunteer for unpaid work time

Non-exempt employees must be paid for all hours worked, including time spent "off the clock" on work that is allowed, but not necessarily requested, by the employer. Be especially careful with respect to:

  • Rework. Time spent by an employee correcting mistakes in his or her work product counts as compensable hours worked.

  • Waiting for work. An employee who is waiting for work to do while on duty (for example, waiting to answer the phone) is working and must be paid for that time.

  • Place of work. The location where work is performed, whether on the employer's premises or at the employee's home, is not relevant for determining hours worked.

As an employer or manager, it is your responsibility to exercise control and make sure your employees are not spending time on work you do not want performed. Merely making a rule against such work is not enough — the employer has the power to enforce the rule and must make every effort to do so.

3. Hiring employees as independent contractors

Employers who misclassify employees as independent contractors may be liable for back wages and damages. Before treating a worker as an independent contractor, the nature of the relationship must be analyzed in light of all relevant factors, including:

  • The extent to which the services rendered are an integral part of the employer's business

  • The permanency of the relationship

  • The amount of the worker's investment in facilities and equipment

  • The nature and degree of control by the employer

  • The worker's opportunities for profit and loss

  • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the worker

  • The degree of independent business organization and operation

4. Failing to comply with requirements regarding vacation and sick pay

The FLSA does not require that non-exempt employees be paid for time not worked, such as vacations or sick leave (these benefits are a matter of agreement between the employer and employee).

However, employers that offer paid vacation days may be subject to specific requirements under state law. For example, some states consider vacation pay to be a form of wages and require that unused vacation be paid at the time of an employee's termination. A number of states and localities also require employers to provide a certain amount of paid sick leave to employees per year. It is best to consult with a knowledgeable employment law attorney to determine the specific paid sick leave requirements that may apply to your business.

Employers with 50 or more employees may need to provide unpaid time off for employees who meet specific requirements under the federal Family and Medical Leave Act. In addition, the law in some states (and cities) allows certain employees to take leave from work, either paid or unpaid, due to specified family and medical circumstances. These laws may apply to employers with fewer than 50 employees.

5. Not following the rules for meal and rest breaks

Meal and rest breaks are not required for non-exempt employees under federal law (except for break time for nursing mothers), but employers that do provide breaks must follow certain rules:

  • Rest breaks (usually 20 minutes or fewer) must be counted as hours worked for which the employee is entitled to be paid.

  • Bona fide meal breaks (typically lasting at least 30 minutes) are generally not considered work time, so long as the employee is completely relieved from duty during the meal period.

Many states require that employers provide meal and rest breaks (paid or unpaid), and some specify a particular time when breaks must be given, so check with your state's labor department for specific requirements. 

Be sure to treat employees equally and avoid any actions that could be construed as discriminatory. If you have specific questions regarding permissible pay practices or how to properly classify employees, please consult a knowledgeable employment law attorney.


HR360 is the award-winning online HR library featuring easy-to-understand guidance on federal and state labor laws and Health Care Reform along with interactive HR tools and hundreds of forms and posters. HR360 also features step-by-step guidance in key HR areas such as hiring, performance reviews, disciplining, and termination. Reviewed and maintained by a team of attorneys, HR360 helps employers nationwide successfully manage their employees while complying with changing employment laws.

The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a 'covered opinion' or other written tax advice and should not be relied upon for any purpose other than its intended purpose.

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