Thursday, May 16, 2013

Are you paying your employees correctly?

For the fifth year in a row, there has been an increase in the number of wage-and-hour lawsuits filed in federal court, according to calculations by the Federal Judicial Center. Plaintiffs brought 7,764 suits between April 1, 2012, and March 31, 2013, about a 10 percent jump since 2012. A spike in cases occurred in 2003, when the number of these suits nearly doubled from 2,035 to 4,055. They shot up again in 2007, to 6,786 suits. Though the number of actions dropped off the following year, to 5,302 in 2008, they have been climbing steadily ever since.

Given this increase in claims, and the risk to employers, are you sure you’re paying yours correctly? When you don’t, you run the risk of awards for back pay and penalties, possibly criminal penalties, attorney’s fees, time and trouble and the damage to your company’s reputation.

We know the basics. We know we must:
  • pay minimum wage (federal rate is currently $7.25; some states have higher rates).
  • pay premium pay (1.5 times regular rate ) for hours worked over 40 (some states require OT for working over 8 in a day).
  • maintain an accurate record of hours worked.
The form the wage takes does not determine how the employee is paid.  Non-exempt employees could be hourly, salaried, commissioned, paid by the day, paid by the job, paid a piece-rate, or paid in many other ways, but the above four requirements still apply. You can call a non-exempt employee salaried, but it doesn’t make them exempt from overtime.

There’s also often the misconception that employers may provide "comp time" in lieu of overtime compensation. For private employers, comp time is not permissible under the FLSA. Only government employers can provide comp time to their employees. However, there is currently a bill in Congress that would amend the FLSA to allow private employers to offer comp time to employees, within certain guidelines. There are opponents to this bill, so we’ll have to wait to see if it becomes a reality.

Contrary to what many believe, the FLSA does not require employers to give:
  • Vacations and holidays
  • Lunch breaks (not counted as work as long as the employee is relieved from duty). However, some states have enacted legislation to require meal periods, paid and unpaid. Check your state laws.
  • Rest periods (but if rest periods are given, breaks of 10 to 20 minutes are compensable)
  • Sick days (again, check state laws!)
As a result, these non-work hours do not need to be included in calculations for overtime purposes. Some employers do, and that is also fine, but it is not required by law.

In addition, be careful about making deductions to the pay of non-exempt employees. Most deductions cannot effectively reduce the hourly rate below the minimum wage. However, the FLSA does permit employers to make some deductions from employees’ wages, even if it does take them below minimum wage or overtime due, but only if the deductions are required by law, such as:
  • State and federal taxes
  • Social Security
  • Child support orders
In addition, an employer may generally make deductions for things that cut into minimum wage or overtime provided they are authorized by the employee and are strictly for the employee’s benefit. For example, group health insurance premiums, savings bonds, charitable contributions and wage advances are allowed.

Employers cannot make deductions that cut into the employee’s minimum wage or overtime if the deduction is for the employer’s benefit. Deductions for cash shortages, or the sale of goods or services at a profit or the cost of repairs of vehicle or equipment damages caused by the employee cannot reduce the wage to below minimum wage.

What are some of the biggest mistakes employers make in paying their employees?

Working off the clock
Some supervisors, in an effort to get the work done, may end up inadvertently implying that the employee needs to work, but be "off the clock" when doing so. In some cases, supervisors have been known to explicitly state such. This is expressly illegal under the FLSA. Sometimes employees voluntarily work off the clock even though they know that any overtime needs to be authorized. Once a supervisor finds out about unauthorized overtime, they might therefore refuse to pay for it. That is also expressly illegal. In order to prevent an employee from working unauthorized overtime you can control how many hours the employee works for the remainder of the work week. For example, if an employee works late on a Wednesday, and as a result will most likely work more than 40 hours for that week, you can give the employee a day off during that work week.

When an employee continually works overtime without prior approval, you must deal with the situation in a disciplinary fashion, but the hours must be paid. This often shows up with people clocking in a bit early or clocking out a bit late, or sometimes more common, beginning work even before clocking in or continuing to work after clocking out. You should have a strict policy against this and make sure all employees and supervisors are aware of it and adhere to it.

Independent contractor or Employee?
This can be a complicated subject, but basically if you control the workers hours, what he does, when he does it, and how (the process) he does it, then he is most likely an employee. See the IRS test for more info here

Travel Time
Normal home-to-work-to home commuting time does not need to be compensated, but there are rules about paid travel time. For example, if an employee is called back to a place of work because of an emergency, the travel time involved in the callback is compensable.  If the employee is required to report to a particular place (office, dispatch center, etc.) at the start or end of a work day, travel time between the place of reporting and the actual work site must be paid time. However, travel time from home to the starting location for the day, and from the ending location for the day to home, is not compensable under the FLSA.

What happens when non-exempt employees travel for work? Generally, any travel that takes place during the employee’s normal hours of work must be paid, even if the travel occurs on a day the employee is not working. So, if an employee generally works Monday through Friday 9 a.m. to 5 p.m., the employee must be paid for out-of-town travel on Saturday or Sunday between those same hours. Of course, a non-exempt employee must be paid for the hours of work while they are away, for instance, if they’re attending a conference. Any personal activities they engage in before or after normal work hours, even while still at the conference, need not be paid. 

Docking Pay of Exempt Employees
Exempt employees are paid for the work they do, not the hours they spend doing the work.

Employers who "dock" the pay of salaried employees for hours they are not working may be treating the employees as hourly workers, which can threaten their exempt status. The rules as to docking were somewhat loosened by recent, new Department of Labor (DOL) regulations.  However, there are still limits to an employer’s right to make such deductions. 

An employer may dock a salaried employee who is absent for a full day for "personal reasons" (other than sickness or accident), but docking for absences of less than a day is problematic.  Likewise, a salaried employee absent for a day or more for illness or injury may be docked, as long as the time is charged to a sick pay or similar plan to compensate the employee for such absences. Also, exempt employees may be docked as a result of disciplinary suspensions issued for violating major safety rules or workplace conduct rules.  Regulations under the Family and Medical Leave Act (FMLA) allow that docking an employee for taking intermittent leave under the statute will not defeat the "salary basis" test.  However, this is limited to situations in which the absence qualifies for FMLA leave.

Improper Designation of "Exempt" Employees 
Employees will not qualify as exempt supervisors unless they are paid a regular, fixed salary – but many employers pay their supervisors hourly, which will fail the test for the exemption. But keep in mind, just paying an employee a fixed salary, instead of by the hour, does not exempt the employee from overtime requirements. You can use the DOL’s FLSA Overtime Security Advisor as a guide. Find it here

On Call Pay 
This is such a common mistake and so many employers misunderstand the rules. For non-exempt employees, the general rule is that employees need not be paid for "on call" status if they can effectively use the time as their own, for normal activities outside of work.  For employees who have some form of "on call" status in their work, the law recognizes a distinction between "waiting to be paid" (non-work status) and being "paid to wait" (work status). Simply carrying a pager or cell phone doesn’t usually prevent an employee from carrying on normal activities outside of work, and not all employees who carry such devices must be paid for the hours where they might be called to work.  On the other hand, requiring that the employee stay home, or be within a short distance from the workplace, might be enough of a restriction so that the employee must be paid.  Regardless, the employee must be compensated if actually called in and required to perform work.

So, there you have it. It pays to pay your people correctly and legally!

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