Wage and Hour Claims: A Growing Risk for SMBs

For small and mid-sized businesses (SMBs), one of the most common—and costly—employment disputes comes in the form of wage and hour claims. These disputes often fly under the radar until they snowball into lawsuits, regulatory investigations, or even class actions. With federal, New York State, and New York City laws all in play, the risks are significant.

Here’s what every SMB owner should know about wage and hour claims, and how to avoid them.

1. What Are Wage and Hour Claims?

At their core, wage and hour claims involve disputes over how employees are paid. Common allegations include:

• Unpaid overtime: Non-exempt employees working more than 40 hours in a week without time-and-a-half pay.

• Off-the-clock work: Employees asked (or allowed) to perform tasks before clocking in or after clocking out.

• Misclassification: Treating employees as exempt salaried workers or independent contractors when they should be non-exempt hourly employees.

• Failure to provide required breaks: Especially under New York Labor Law, which requires meal breaks and, in some cases, shorter rest breaks.

Even minor payroll mistakes can add up to big liabilities once penalties and attorney’s fees are factored in. In fact, the U.S. Department of Labor and the New York Department of Labor both report that wage and hour violations are among the most frequent compliance issues for businesses of all sizes.

2. Why SMBs Are Especially Vulnerable

• Limited HR infrastructure: Small businesses often lack dedicated compliance teams to keep up with evolving wage laws. Payroll is often handled by a single person who wears many hats, increasing the chance of mistakes.

• High reliance on contractors or gig workers: The rise of the gig economy means many SMBs classify workers as contractors. Misclassification is one of the fastest-growing sources of claims, and enforcement agencies are increasingly aggressive in challenging it.

• Industries with long hours: Retail, hospitality, healthcare, and construction are frequent targets for wage claims because employees often work beyond the 40-hour threshold.

• Class and collective actions: Plaintiffs’ attorneys often group multiple employees together, turning a single claim into a lawsuit worth hundreds of thousands of dollars.

Because New York law allows employees to recover liquidated damages (essentially doubling the unpaid wages), exposure can be steep. Employers may also be on the hook for the employee’s attorney’s fees, which incentivizes workers and their lawyers to bring claims.

3. Legal Framework

Federal Law: FLSA

The Fair Labor Standards Act (FLSA) sets the baseline for minimum wage, overtime pay, and recordkeeping. It covers most businesses engaged in interstate commerce, which in practice means almost all SMBs.

New York State Law

New York Labor Law (NYLL) is stricter than federal law. It includes:

• A higher state minimum wage (varies by region and employer size).

• Spread-of-hours pay: Employees working more than 10 hours in a day may be entitled to an extra hour of pay at minimum wage.

• Detailed recordkeeping and notice requirements.

  
  

New York City Ordinances

NYC adds additional layers, particularly in industries like fast food and retail:

• Fair Workweek Law: Requires predictable scheduling and premium pay for last-minute changes.

• Local minimum wage and paid sick leave laws.

The overlapping laws create a compliance maze for SMBs.

4. Common Mistakes Employers Make

• Assuming salaried means exempt: Not all salaried employees are exempt from overtime. Exemption depends on both salary level and job duties.

• Failing to track hours of remote workers: In a hybrid or remote environment, it’s easy to overlook overtime worked outside normal hours.

• Ignoring “working time” rules: Tasks like checking emails, donning safety gear, or waiting for assignments may count as compensable time.

• Improper deductions: Docking pay for damaged equipment, uniforms, or cash register shortages can run afoul of New York law.

5. Preventing Wage and Hour Claims

Audit Your Payroll Practices

Conduct annual audits of your classifications, pay practices, and recordkeeping. A proactive audit often costs far less than defending a lawsuit.

Keep Accurate Records

Federal and state law require employers to keep detailed records of hours worked and wages paid. Electronic timekeeping systems can reduce errors and provide a defense in litigation.

Train Managers

Supervisors are often the weak link. Train them to:

• Prohibit off-the-clock work.

• Approve overtime properly.

• Enforce meal and rest breaks.

Use Clear Contracts

When using contractors, put agreements in writing. Clearly define the relationship, scope of work, and independence of the contractor. Be prepared to defend the classification if challenged.

6. Responding to a Claim

If you receive a complaint, DOL inquiry, or lawsuit:

• Do not retaliate: Terminating or disciplining an employee for raising a wage claim can lead to separate liability under anti-retaliation laws.

• Preserve records: Immediately gather time sheets, pay stubs, schedules, and communications.

• Consult counsel quickly: Early engagement often allows for quicker resolution, whether through settlement, mediation, or defending the claim.

• Evaluate systemic issues: A single claim may be a signal of broader problems. Fixing policies promptly can reduce exposure to future claims.

7. Real-World Example: Target Warehouse Walking Time Litigation

In August 2025, a class-action lawsuit was filed in U.S. District Court in Albany, alleging that Target warehouse workers in Wilton and Florida, NY, were not compensated for walking long distances—from the facility entrance to their assigned work zones—before clocking in. These warehouses span up to 1.8 million square feet, and employees reported walking nearly half a mile each shift off-the-clock.

Lawyers estimate this unpaid walking time could amount to $1,000–$2,000 annually per worker. The lawsuit leans on New York State labor law, rather than federal law, showing how workers are finding new legal avenues to challenge wage practices.

The case highlights how seemingly small increments of unpaid time can create massive liability when multiplied across a workforce. For SMBs, it’s a reminder that every minute counts—and that compliance requires vigilance.

Final Thought

Wage and hour claims may seem like minor administrative issues, but for SMBs, they can spiral into major financial and reputational risks. The best defense is prevention: audit your practices, train managers, and document everything. But if a claim arises, responding quickly and strategically can limit the damage.

In today’s regulatory and legal climate, SMB owners can’t afford to treat wage compliance as an afterthought. It’s not just about payroll—it’s about protecting your bottom line.

This blog is for informational purposes only and not legal advice. If your business is facing wage and hour issues, consult experienced employment counsel to protect your interests.