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2-Step Approach to Avoiding Wage Claims: Internal Audits & Insurance Coverage

By Jill Weinberg, Esq.

Wage ClaimsEmployee wage and hour claims, usually for unpaid overtime, can be financially draining to companies big and small. Unfortunately, they have been on the rise. A good example is MetLife who was recently sued in federal court, in the Southern District of New York for $50 million dollars in unpaid overtime for insurance claims specialists.

Under the federal Fair Labor Standards Act (FLSA) (29 USC section 201 et seq.) a company with just one (1) employee may be exposed to liability. Damages can be substantial because an employee can recover unpaid overtime for up to three (3) years, plus liquidated (double) damages for willful violations. Indeed, in the case mentioned above, MetLife faces possible liquidated damages of an additional $50 million! Further, the FLSA mandates that employers must pay the prevailing plaintiffs’ legal fees. This is on top of a company’s legal fees for defending against such cases. New York City and New York State have their own wage and hour laws that are even more protective of employees. For example, an employee has six (6) years to file a wage and hour claim under New York law.

To minimize liability for wage and hour claims, a 2-step approach is best.

  • Step 1: Audit.Each year a company should perform an internal audit of its pay practices for all employees. An internal audit may involve interviewing employees who are responsible for processing time records and paychecks. This review should include how work time is recorded, how overtime rates are calculated (rounding up or down may be an issue), and whether bonuses are properly added to the hourly base rate for calculating overtime. Also, the job duties of salaried employees must be examined to determine if they were properly classified as exempt from overtime pay. Simply paying someone a salary does not automatically exempt them from receiving overtime. Further inquiry may also be needed to assess if workers have been properly classified as independent contractors not entitled to overtime.

Keep in mind that internal audit documents may be discoverable as evidence in litigation unlessan attorney is involved, and an attorney-client privilege properly applies to sensitive documents.

  • Step 2: Insurance.In response to increased litigation for unpaid overtime, some insurance carriers are offering policies that cover “wage and hour” claims. This is different from Employment Practices Liability (EPL) insurance. EPL insurance covers claims for employment-related violations such as wrongful termination, discrimination, harassment, and retaliation. Companies should be mindful that many standalone EPL policies explicitly excludewage and hour claims. For this reason, it’s important to confirm whether such additional coverage is available with your carrier before any claims are made.

Wage and hour insurance coverage would include misclassifying employees (exempt vs. nonexempt from overtime); misclassifying employees as independent contractors; failing to pay employees for “off the clock” work; failing to pay minimum wage, overtime, break or mealtime wages; and irregular time recordkeeping.

If you are interested in an attorney-supervised wage and hour audit of your company, please contact Denis O’Learyat Neufeld, O’Leary & Giusto.

Ms. Weinberg is licensed in New York and Texas. She is an employment law specialist and has been providing businesses with practical advice for minimizing exposure to litigation for over 20 years. Ms. Weinberg can be reached at Her website is

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