A drywall contractor in Issaquah has agreed to pay $550,000 to settle a U.S. Department of Labor lawsuit alleging it shortchanged nearly 400 workers on overtime wages over a 3½ year period.

The labor department said Thursday that Summit Drywall will pay $275,000 in back wages and another $275,000 in damages to workers who allegedly were illegally denied overtime compensation from October 2009 to April 2013.

About 380 current and former employees will receive money from the settlement, which was made final by a consent judgment in federal district court in Seattle.

Investigators found that drywall hangers and tapers were paid on a “piece-rate” basis and were not compensated for all the hours they worked, including time spent traveling between job sites and transporting equipment.

“In this region, long hours and low wages are prevalent in the drywall industry,” Janet Herold, the department’s regional solicitor in San Francisco, said in a statement. “This consent decree sends the unambiguous message that the department will not permit the underpayment of workers’ wages in piece-rate schemes.”

Thomas Kauzlarich, the owner of Summit Drywall, said he paid “some overtime, but not enough to satisfy” investigators. He also acknowledged that he failed to keep adequate records on workers’ hours and said he chose to settle rather than pursue a costly trial.

“It was going to cost a lot of money,” he said. “We do try to comply with employment laws, but there’s a lot of them, and it’s difficult. We never intentionally violated any laws.”

Under a piece-rate compensation system, workers’ pay is based on the quantity and quality of their output. While legal, it cannot be used to avoid paying workers minimum wage, or proper overtime premiums, said Donna Hart, district director for the department’s Wage and Hour Division in Seattle.

Summit Drywall employees regularly worked more than 40 hours a week, yet did not receive 1.5 times their regular pay rate for all overtime, as required by the Fair Labor Standards Act (FLSA), she said.

“Employers must keep accurate records, and they must count hours, even if they’re paying on a piece-rate basis,” she said.

Overtime-pay violations are common in piece-rate compensation systems, she added, “unless employers are very careful to comply with the law.”

Summit Drywall is required to pay the $550,000 within 70 days. Affected workers will receive an average payout of $1,400.

As part of the settlement, the company also must train employees on their rights under federal wage and hour laws. In addition, the company will write an article for a trade publication on an employer’s obligations under the FLSA.

The Seattle office of the Wage and Hour Division says it has investigated more than 225 employers in the construction industry since 2009. More than half its completed investigations found labor violations, including back wages.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com. On Twitter: @amyemartinez