Wage and hour law compliance is not one of the “juicier” topics to delve into, but employers, ignore this subject at your peril. Last year, Radio Shack and Starbucks alone settled Fair Labor Standards Act (FLSA) claims totaling approximately $38 million. The potential for problems under the FLSA is not limited to the corporate giants. Increased general scrutiny by the Department of Labor and the profitability of class action suits for plaintiff’s attorneys make any non-compliance situation a potential nightmare for employers.

Employers can help to avert the risk of lawsuits by ensuring that they are doing things right in the first place. Conducting an audit of your organization’s wage and hour practices will help you pinpoint and correct problem areas before they lead to legal damages. Certain aspects of wage and hour law are complicated. If you are unfamiliar with the requirements of the FLSA, it is advisable to seek some expert advice. Here are some of the common areas where many employers run into trouble:

Employee classification. Under the FLSA, employees working over 40 hours a week are entitled to overtime, unless they fall into certain specified exemptions. A company cannot avoid paying overtime by misclassifying employees as “exempt” and paying them a salary. In conducting your audit, review not only all job descriptions of exempt employees, but also the way each job is actually performed to ensure that only those employees who are legitimately exempt are classified and paid that way. It is not enough that the job has a managerial-sounding title. It is the actual duties of the worker that count.

Maintaining a salary basis of pay. Exempt employees generally must be paid their salary for each week that they perform work, regardless of the quantity of work performed or availability of work. With limited exceptions, an employer cannot take deductions from an exempt worker’s pay because of partial day absences or jury service. Taking deductions from the salary pay of exempt employees may cause them to lose exempt status and entitle them to back overtime pay.

Payment of non-exempt employees. Non-exempt employees must be paid for time worked, whether or not the work was on-the-clock and whether or not any off-the-clock work was voluntary. It is not enough to have a policy stating that overtime must be approved by a manager—if your employees were working, with or without manager permissions, they are entitled to pay. You will want to be sure that you have accurate methods to keep records of actual time worked by your non-exempt workforce, and to ensure compliance with company overtime policy.

Correct calculation of overtime. Companies frequently make the mistake of calculating overtime using the employee’s base rate of pay. In fact, the FLSA-mandated standard for determining overtime payments is the employee’s “regular” rate of pay. This regular rate is generally higher than the base rate, as it includes allowances for bonuses, commissions, and certain discretionary compensation such as payments for good attendance or high work quality.

General payroll record keeping. If your organization does not keep accurate records, it will not be easy to impress the Department of Labor should you face an audit. Mandate stricter adherence to record keeping standards by your employees. For those employees clocking in, it is unwise to let them clock in long before their workday starts or stay around the office for lengthy periods after clocking out. Employees filling out time cards should be cognizant of actual time worked, rather than filling in hours such as “9 to 5” each day by rote.