Wage & Hour Coverage: The Hidden Costs of Overtime Pay

December 2, 2022

shutterstock_2071524194Image credit: mohdizzuanroslan/shutterstock.com

One way to identify risks for your company is to look at the insurance industry and what areas they have identified as threats. These are referred to as Emerging Risks and these days, there are plenty of them!
Of all the emerging risks that companies are facing, perhaps the fastest growing risk is the Wage and Hour risk that is caused by the failure to maintain proper administration of the Fair Labor Standards Act of 1938 (FSLA). If you are a company that has two or more employees and revenue in excess of $500,000, you are subject to the FSLA.

The FSLA is a Federal Labor Law that was signed by President Franklin Roosevelt. The law creates the right to a minimum wage, establishes “time and a half” overtime pay laws, and prohibits “oppressive child labor.” Most standard Employment Practices Liability Policies exclude this type of coverage and failure to adhere to these guidelines has proven to be costly.

The FSLA provides for Exempt (Executives and other salaried employees) and Non-exempt (hourly wage earners) employees. Any violation involving the FSLA are usually certified as class action lawsuits as they allege wrongful acts for:

Employment Litigation
Based on claims data, this type of employment litigation has increased by over 450% in the last 15 years. Claim settlements have reached hundreds of millions of dollars. This litigation has been further accelerated by the impacts of COVID as the lines between home and office are blurred in a post-lockdown world.

Risk Management
From a Risk Management perspective, companies should consider options to insure these risks. For example:
  1. Implementation of sound employment policies.
    It’s recommended that you consult an Employment Attorney and request an FSLA Audit that will help define your “best practices,” properly classify your employees, and pay them their proper wages.

  2. Obtain a policy or endorsement to your current Employment Practices Policy.
    This provides you with a defense only sublimit that will pay to defend any lawsuit filed.

  3. Obtain a standalone Wage and Hour Liability policy.
    There are currently several markets that are providing Wage and Hour insurance coverage. They are able to provide limits up to $25 million and would have a high retention.
Have more questions about Wage and Hour Liability? Reach out to TSIB today and speak with one of our Risk Consultants.

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Topics: Claims, Construction Risk Management

Written by The TSIB Team

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