by Joshua B. Rosenzweig (Winter 2016)
A primary concern among business owners is fiscal responsibility. When practicing fiscal responsibility, it is common to search for ways to keep expenses low while maintaining productivity. Why would any employer want to spend more money if it will only result in the same amount of revenue had less money been spent?
While fiscal responsibility is essential to the success of small businesses, business owners must make sure that fiscally responsible decisions are not in violation of any state and/or federal law.
One of the most costly aspects of running a small business is employee wages. Naturally, this would be a great cost to cut while maintaining the same level of productivity – if possible. After all, why pay more to generate the same revenue?
Some small businesses cut the cost of employee wages by finding ways to avoid paying overtime wages to their hourly employees because of the significant additional expense overtime hours can cost. The Illinois Minimum Wage Law (820 ILCS 105/1 et seq.) (“IMWL”) prohibits employers from avoiding payment of earned overtime wages. The IMWL states that “no employer shall employ any of his employees for a workweek of more than 40 hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than 1 1/2 times the regular rate at which he is employed.” 820 ILCS 105/4a.
At the federal level, the Fair Labor Standards Act (“FLSA”; 29 USC §201 et seq.) also restricts an employer’s ability to avoid paying earned overtime. The FLSA provides that no employer shall employ any of his employees for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above 40 specified at a rate not less than one and one-half times the regular rate at which he or her is employed. 29 USC § 207
To avoid the additional expense that comes with paying overtime wages, small businesses sometimes utilize a tactic known as “banking” hours. The concept of banking allows an employee to hold onto the hours worked in excess of 40 hours in a given week for use during a future pay-period. When the employee’s hours drop below 40 hours at a later date and time, the employee can draw from the banked hours to keep his or her paycheck steady. In seasonal industries, such as the construction industry, this can be a huge help to an hourly worker that is trying to maintain a steady income stream. And, the benefit is obvious to the employer – significant savings on the additional wages paid.
While the concept is simple and the benefits are clear for both employer and employee, there is one problem with this practice – it is illegal. It does not matter if a company has been doing it for years. It does not matter if other employers in the same industry are banking. It does not matter if the employee consents, or even requests, to having her hours banked. It is still illegal and, there is no defense.
Under the IMWL, if any employee is paid by her employer less than the wage to which she is entitled, the employee may recover in a civil action the amount of any such underpayments together with costs and such reasonable attorney’s fees as may be allowed by the court, and damages of 2% of the amount of any such underpayments for each month following the date of payment during which such underpayments remain unpaid. 820 ILCS 105/12(a). Any agreement between the employee and the employer to work for less than such wage is no defense to such action. 820 ILCS 105/12(a).
Moreover, the IMWL imposes criminal penalties for violations thereof. Any employer or its agent, or the officer or agent of any private employer who pays or agrees to pay to any employee wages at a rate less than the rate applicable under the IMWL, is guilty of a Class B misdemeanor.
Under the FLSA, a person found to have willfully violated its provisions shall, upon conviction thereof, be subject to a fine of not more than $10,000, or to imprisonment for not more than six months, or both. 29 USC § 216(a). Any employer who violates the provisions of Section 207 shall be liable to the employee affected in the amount of his or her unpaid overtime compensation and in an additional equal amount as liquidated damages. 29 USC § 216(b).
Both statutes impose significant penalties for violations, and there are no defenses to a lawsuit filed under these statutes. For example, even if an employer and an employee have a written agreement that is accepted by the employee, the employee could turn around and sue the employer, and she would win.
One other important point: the businesses’ owners are individually liable. If you own a small business, and you are banking employees’ hours for time worked in excess of 40 hours in a particular week, and that employee sues, you will be personally liable for the damages proved by the employee. The money saved will be pennies when compared to the money you will have to spend resolving a claim brought under either or both statutes.