Finance News & Insights

The cost of ignoring compliance during growth: $3.4 million

When your company is growing rapidly, it’s easy to ignore the less-pressing business issues, such as minor compliance tasks. But as a recent DOL settlement shows, doing so can prove very, very costly.
One company that learned this lesson the hard way is benefits and payroll software provider Zenefits.

The tech company improperly classified 743 account execs and sales reps as overtime exempt, and paid them a flat salary because of this classification, according to a DOL investigation.

The DOL said these improper classifications resulted in violations of the FLSA’s overtime provisions.

CFOs’ job to keep raising questions

A big reason for the misclassification:Rapid growth.

Zenefits didn’t have anyone dedicated to compliance because it was too focused on growth, the company said.

Of course, the DOL didn’t have much sympathy for the growing software firm. In the end, Zenefits agreed to pay the 743 affected employees $3.4 million in unpaid overtime.

As the DOL Wage and Hour Division’s regional administrator in San Francisco, Ruben Rosalez,  put it:

“We have put money back in workers’ wallets while also working with Zenefits to ensure future compliance with federal labor law. This case allows us to level the playing field for all of the employers who play by the rules …”

This settlement offers a very timely lesson for CFOs of all stripes, especially those in the tech sector: As finance chief it’s on you to make sure you keep raising questions about the impact of any growth initiatives on your business’s compliance processes.

Print Friendly

Subscribe Today

Get the latest and greatest finance news and insights delivered to your inbox.