Liquidated Damages For Overtime Violations: What They Are, & How To Avoid Them

The U.S Department of Labor’s Wage and Hour Division (more commonly known as the WHD) is the federal agency charged with administering and enforcing the Fair Labor Standards Act (“FLSA”), among other federal laws. The FLSA has been around since 1938, although its interpretation and enforcement has evolved over the years. And, while the FLSA has always permitted liquidated damages (i.e., additional fines for wage violations equaling the amount of backpay due to an employee), traditionally the WHD had only pursued compensation via backpay alongside administrative investigations. Inquiries into liquidated damages were typically reserved for litigated cases, usually introduced by an employee or several on behalf of the WHD. More recently, however, the WHD appears to impose liquidated damages right away as part of its standard operating procedure – costing employers double the amount in the event they are determined to have violated the FLSA.

Liquidated Damages & FLSA Investigations

What is the best strategy in the case of liquidated damages being assessed during an FLSA investigation? The answer is to establish what’s called a “good-faith defense”. This means that an employer must be able to sufficiently demonstrate that they acted in good faith and had reasonable belief that they were acting in compliance with the FLSA. This includes relying upon the advice of legal counsel or a CPA. This defense, however, is rather narrow and cannot be established simply by showing that the employer did not intend on breaking the law, or that the employer was not aware that they were breaking the law. Ignorance is not a defense in matters regarding the FLSA.

Liquidated Damages As An Employer

So what can employers do? The answer is this: be proactive rather than reactive. The best way to prevent a WHD investigation is to conduct periodic internal audits to review payroll, compensation, and recordkeeping. We recommend you start now, if you haven’t already, to ensure that you maintain compliance with WHD laws and allow an opportunity to correct areas of concern before receiving an FLSA investigation notice.

What should these audits look like? We suggest they should include reviews of employee classifications as well as your payroll practices. These practices can include: how salary is paid, how you go about recording and tracking the wages of your employees; how you calculate overtime pay (if any), what deductions you are making from pay, and your classification of employees of as exempt or non-exempt from the FLSA. As we often like to say, “an ounce of prevention is worth a pound of cure” (or in this case, a brief audit can save you thousands in back pay and liquidated damages).

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