Human capital related labor costs represent a significant organizational expenditure. Labor costs are often the largest expense for many organizations and can have significant cash flow implications.At the same time, human capital also represents a significant organizational asset.Human capital is the engine and the wellspring of innovation, production, and revenue.Thus, your organization’s decisions concerning the control of labor costs and the management of its human capital directly impacts the bottom line and provides valuable insight into the importance it gives this asset. Numerous external and internal factors influence and affect your organization’s wage and hour decisions and policies, including: the economy, industry practices, competitive factors, financial resources, business objectives and imperatives, corporate culture and values, diversity and EEO goals, the use of performance management systems, and actual and perceived risks.Your organization must consider these factors in formulating a compensation policy that achieves external and internal pay equity. While your organization is generally unfettered in its compensation decision making, in the “war for talent,” an uncompetitive compensation plan makes hiring and retention more difficult, increases hiring and retention costs, increases turnover costs, and increases per position payroll taxes. In addition to marketplace forces, federal, state, and local wage and hour laws and regulations are constantly changing, limit some of your organization’s decision-making prerogatives, and represent a significant financial risk. These laws, while simple and straightforward in appearance, contain numerous qualifications, exceptions, exemptions, and other restrictions that make them complex, make compliance often difficult, and require your ongoing attention.

The IRS, the Department of Labor, the EEOC, state agencies, and trial lawyers have put employers on notice: Wage and hour issues are a “significant problem with adverse consequences”. To address this problem, federal and state agencies have hired additional auditors and committed additional resources to identify noncompliance. As a result, employers’ exposure to liabilities associated with wage and hour issues is increasing. Of particular concern are employers’ classification of employees and independent contractors, employers’ determination of employees’ exempt and nonexempt status, the payment of wages for “non-work time,” and the issue of pay equity.To prevent wage and hour violations and reduce their exposure compensation related liabilities, employers must take proactive measures to properly classify workers, ensure that managers and supervisors are knowledgeable of wage and hour requirements, correct pay errors when they occur, publish a notice that they are committed to compliance, and demonstrate that commitment through effective governance and risk management practices, including internal audits.