Avoid Wage-Hour Mistakes

02/26/07

Harassment and discrimination may get a lot of press, but the Fair Labor Standards Act is the most violated of any of the federal employment laws. That’s according to Christopher D. Robinson, an attorney and FLSA (wage-and-hour law) expert with Fisher & Phillips in Fort Lauderdale, Florida.

“And good luck making sense of the FLSA,” Robinson recently told a group of HR professionals. “The FLSA is a law you can’t reason through.” He also said the FLSA is inspiring more and more lawsuits. That’s because plaintiffs’ attorneys look for employees with a wage-hour problem (like improper calculation of overtime), knowing there are probably more people in the company experiencing the same or similar problems. The result: a class-action lawsuit.

It pays, then, to avoid wage-hour mistakes. Robinson, who suggests employers hire an FLSA expert to do an audit designed to catch problems, cites the following as among the most common:

Mistake #1: Employers fail to classify employees properly as exempt or nonexempt. If an employee is nonexempt, you must keep detailed records of hours worked, as well as pay time and a half for any hours worked over forty, in one week. (You can find guidelines for properly classifying workers at www.dol.gov/dol/esa/public/whd_org.htm, although Robinson suggests you talk to an attorney with FLSA expertise if you’re confused about how to classify employees.

Mistake #2. Employers make illegal deductions for salaried employees. If an employee is exempt, then you generally can’t make salary deductions for anything less than a full day. Why? The salary of an exempt employee is not supposed to be based on time, but rather on the value an employee brings to the company. So it’s not legal to deduct an hour here or there when an exempt employee comes in late or goes to the dentist. If you do, the government assumes the employee is actually paid on a nonexempt, hourly basis. That can make you liable for overtime pay, back taxes, and penalties. Robinson cited the case of an engineering firm that routinely deducted time in hourly increments—and ended up owing more than $8 million as a result of a federal trial. You can deduct time in full-day increments from an exempt employee’s paycheck for personal days, sick days (but only under an established sick-leave policy); days missed the first and last week of the person’s employment; and for intermittent leave under the Family and Medical Leave Act.

The DOL's new FairPay Rules, new regulations issued April 20, 2004, also allow deductions of a day or more for disciplinary suspensions imposed in good faith for workplace conduct rule violations. The regulations also provide a "safe harbor" protection for employers that make improper deductions despite having a proper salary deduction policy in place. (Our FLSA Compliance Kit includes FairPay Compliance Policy Forms that comply with DOL guidelines.)

Mistake #3: Employers fail to include additions to regular pay for the purposes of computing overtime. If you pay commissions, contest awards, piece rates, or nondiscretionary bonuses to nonexempt employees, then you have to refigure pay rates when paying overtime. For example, say you pay a $100 performance bonus on a fifty-hour week. You normally pay employees $10 an hour and, therefore, $15 an hour for overtime. That $100 bonus makes the employees’ base wage $12 an hour, however, and overtime becomes $18 an hour.

Mistake #4: Accepting bad time records. These might be time sheets an employee doesn’t sign, records altered by management, or records that don’t reflect the true number of hours worked. Robinson also pointed to what he calls ‘bad supervisor incentives.’ He explained: “A manager will be rewarded for not letting people clock any overtime. So he’ll have them punch out, then come back and do a few more things off the clock.”

Robinson also cautioned against submitting time records that show employees worked five 8-hour days week in and week out. Most employees will show daily, weekly, or seasonal variations, and so government inspectors raise an eyebrow when they see such time records.