Employers must be careful not to take deductions that drop wages below the minimum wage.
With all the talk about minimum wage and minimum salary, a company ignores at its own peril their obligation to pay people the proper hourly wage. So Life Time Fitness found out. They were ordered to pay Corporate-wide back wages of $476,329 due to 15,546 employees at locations in 26 states. They had to pay an equal amount in liquidated damages, for a total of $976,458. That is a pretty expensive lesson.
What was the mistake that cost so much?
You would thing that a company that size would be aware of that the minimum wage was $7.25 It turns out they did. But what they were not aware of is the fact that you cannot make deductions from an employee’s paycheck that drops them below the minimum wage and that was what Life Time Fitness was doing. They were deducting for uniforms. The Department of Labor said “While employers are allowed to take deductions for the cost of uniforms, those deductions cannot bring an employee’s earnings below the federal minimum wage.”
The cost did not end with back pay or the liquidated damages. The company was also fined $99,825 for violating the Fair Labor Standards Act. They were also ordered to conduct formal training on FLSA requirements with general managers who hire, oversee, manage and develop employment and pay practices at its locations nationwide.
Be careful with deductions
Companies deduct for many things, such as uniforms, tools, and other expenses the company requires employees to pay. I occasionally get asked “Can we deduct for materials in an employee’s last paycheck?” The answer to that question is “yes” up to the point where that deduction would then drop that last paycheck below minimum wage for the hours the employee worked. So be careful about the deduction you make and be conscious of the wage you end up paying as a result of the deductions you take.