What Are YOU Doing About Wage and Hour Compliance?

70% of employers are routinely violating wage and hour laws, according to estimates by the Department of Labor. Hyperbole? Maybe. But maybe not, when you consider that the Wage and Hour Division's recovery of back wages for Fiscal Years 2001 through 2008 was a staggering $1.4 billion.

 Wage and hour claims are the fastest growing type of employment litigation. The reasons for this range from the legal (fee-shifting statutes serve as an incentive for plaintiff attorneys to do this kind of work) to practical (wage and hour laws are not black-and-white and employers can easily violate them unintentionally). Some experts have said that multi-plaintiff wage and hour lawsuits pose the greatest employment litigation threat to American businesses today.

But this threat is not limited to the corporate level. Because the Fair Labor Standards Act recognizes the concept of "joint employment", enforcement of an FLSA judgment could reach an individual's personal assets - including bank accounts, homes, and other property.

To see how this could happen, we need to look at how the Act defines an employer: an employer is "any person acting directly or indirectly in the interest of an employer in relation to an employee." Owners, officers, managers and HR personnel are the individuals most likely to be considered an employer under the FLSA. If an individual is considered an employer, (s)he is directly liable; under the FLSA, the plaintiff doesn't need to "pierce the corporate veil" to reach individual defendants.

Because of this direct liability, owners, officers, managers and HR personnel have a personal stake in complying with wage and hour laws. If you're not already examining your compliance with federal and state wage and hour laws, now is the time to start.

Ideally, FLSA compliance should be on your mind daily. Wage and hour compliance is a lifestyle. Realistically, day-to-day monitoring of wage and hour compliance is probably not feasible. The next best thing is periodic auditing of your wage and hour practices.

A full-scale wage and hour audit can seem like an overwhelming task. Before you enlist your entire payroll department, friends, neighbors, and the local high school armed with calculators to verify every calculation for every employee for the last three years, take a moment to plan your strategy. With proper planning, a wage and hour audit can be manageable.

Focus your initial efforts on four key areas:

• Recordkeeping: For non-exempt employees, you should be keeping information about the hour and day the workweek begins, total hours worked each day and each workweek, total daily or weekly straight-time earnings, regular hourly rate of pay for any week when overtime is worked, total overtime pay for the workweek, deductions from and additions to wages, total wages paid each period, and the date of payment and pay period covered. Recordkeeping requirements differ for exempt employees, and there are some special requirements for employees being paid under non-traditional arrangements, employees who are receiving remedial education, etc. Be sure to check with legal counsel about these special requirements.

 

• Exempt versus non-exempt classification: Proper classification is essential to compliance. If your employees are misclassified, chances are you're going to be out of compliance with other wage and hour laws for these employees. In order for an employee to be properly classified as exempt, the employee's specific job duties, salary amount, and the way in which that salary is paid must all satisfy the requirements set forth in the regulations. You should review position descriptions and compare them to what employees are actually doing on a daily basis. Responsibilities evolve over time, and it's easy for descriptions to get out of sync. If your position descriptions no longer match what the employee is actually doing, update your descriptions. Then, based on the accurate description of day-to-day duties and responsibilities, you can assess whether the employee is properly classified as exempt or non-exempt.

 

• Determination of hours worked: Under FLSA, the definition of "employ" includes the words "suffer or permit to work". Hours worked include not only the hours spent by the employee actually performing job duties, but any other hours that the employer requires or allows employees to work. Make sure that on-call time, waiting time, travel time, meal periods, setup time, and all of the other various time required or permitted is included in work hours as appropriate.

 

• Calculation of overtime pay: You probably think you're calculating overtime pay correctly - it's simply the number of overtime hours multiplied by 1.5 times the employee's hourly rate, right?FLSA requires overtime pay at a rate of 1.5 times an employees regular rate of pay for all hours worked in excess of 40. The regular rate of pay is NOT the employee's file rate - it's a calculated rate that includes all pay, including shift differentials, non-discretionary bonuses, promotional bonuses, cost of living adjustments, and a a variety of other payments too numerous to list. Using the hourly rate, rather than the regular rate, is fine if pay consists solely of straight and overtime pay. But if any of those other kinds of pay are involved, a calculation based on the hourly rate is incorrect. This is one of the most common mistakes employers make. 

 As with any proactive audit, be sure to enlist legal counsel (either in-house and/or outside) to ensure that your interests, and the interests of your employees, are protected.

Wage and hour litigation is not expected to slow down any time soon. Remember, you have a personal stake in complying with wage and hour laws. Start looking at your policies and practices today.

 (image courtesy of eyeimage via Flickr) 

 Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert EEO analysis. Stephanie has published several articles on examining compensation systems with respect to equity. She is the host of The Proactive Employer, and is the Director of Statistical and Economic Expert Testimony at MCG. Follow her on Twitter at @ProactiveStats.

 

Comments

[Steve]

Can you offer any examples of cases where anyone other than an owner or officer has been held personally liable for violation of the FLSA? Not that it isn't theoretically possible... I'm just curious as to whether it has actually happened or not.
Thanks!

[Stephanie R. Thomas, Ph.D.]

Hi Steve-

Thanks for the question. I'm not aware of any cases in which someone other than an owner or officer has been held personally liable. It's my understanding that the cases to date have not extended beyond the top executive level of the organization.