Top Five Wage And Hour Liabilities

Complying with state and federal wage and hour regulations continues to be one of the greatest challenges faced by management today. The regulations are confusing and many PCOs find themselves caught in the trap of non-compliance with requirements they didn’t even know existed. One of the more significant areas of liability rests with federal Department of Labor rules that cover minimum wage, overtime and record keeping.

Although we can think of hundreds of workplace topics that are much more exciting, every now and then we all have to put on our "human resources hat" and address dry, but very serious, employment issues. There are five pertinent areas of federal wage and hour compliance that are most often misunderstood by employers. We’ll share these "myths" (and the truth behind each) because they’ve resulted in significant monetary penalties for PCOs.

Federal wage and hour myth No. 1:
By virtue of paying someone a salary, employers do not have to pay overtime. This is false! Simply paying a salary does not automatically exempt an employee from overtime. The Department of Labor classifies positions as exempt or non-exempt from overtime based on the position duties. There are four common exemptions from overtime called "Executive," "Administrative," "Professional" and "Outside Sales." There are a number of "tests" under each classification that must be met in order for the position to qualify for the overtime exemption. In addition to meeting the position duty tests, these exemptions also require the payment of a guaranteed salary that is paid in full regardless of quantity or quality of work.

PCOs may also qualify for use of another special exemption from overtime under federal regulations. This pay plan is commonly referred to as the "7(i) pay plan" because it’s defined under Section 7(i) of the Fair Labor Standards Act. This exemption is available for use by PCOs that meet the definition of a "retail" employer under these particular regulations. If your business meets this definition, you can avoid paying overtime to technicians who earn more than 50 percent of their pay in commissions and who earn at least time and one-half the minimum wage for every hour worked. These employees must also maintain accurate time records. (Note: Some states prohibit the use of this federal pay plan, or have defined a similar, but more stringent version.)

Federal wage and hour myth No. 2:
Non-discretionary bonuses do not need to be included in overtime calculations. This is false! For employees classified as non-exempt, overtime must be paid on all wages, not just the hourly rate. This means if an employee receives commissions on top of the hourly rate, the commissions must be included in the regular rate and a new overtime rate calculated. Also, if you pay an employee a bonus that’s non-discretionary (bonuses lose discretion when employees become aware of the amount and/or the fact that a bonus will be paid), it must also be included in the overtime. This is true regardless of when the bonus is paid (weekly, monthly, quarterly or annually).

Federal wage and hour myth No. 3:
Employers can withhold an employee’s entire final pay if he or she owes money to the company. This is false! Federal wage and hour regulations require employers to pay non-exempt employees at least the minimum wage for every hour worked up to 40, and time and one-half the regular hourly rate for all hours worked in excess of 40. When an employee owes a debt to the employer, federal regulations allow deductions down to the minimum wage for every hour worked up to 40. Employers are not allowed to deduct from overtime. (Some state regulations, however, have more stringent guidelines. Several states forbid employer-imposed deductions for losses, debts, breakages and others. Other states require a signed authorization for the deduction.)

Federal Wage and Hour Myth No. 4:
Employers can give non-exempt employees time off in the future in lieu of overtime worked. This is false! Commonly referred to as "comp time" (short for compensatory time off) this practice is not allowed for non-exempt employees. In the world of wages and hours, each week stands alone. This means that overtime must be settled out weekly and employees must receive overtime, free and clear, whenever it is worked. Federal regulations do not allow non-exempt employees to take time off in a later workweek in lieu of overtime. You can, however, send employees home early during the week so that their total time worked within the same workweek is less than 40 hours. In the past couple of years, we’ve seen bills before the U.S. Senate and House that would allow the use of comp time for non-exempt employees. So far, they have not passed; however, we’re keeping our fingers crossed!

Comp time can be used for salaried, exempt employees because they receive their full salary regardless of the quantity or quality of their work.

Federal wage and hour myth No. 5:
Non-exempt employees must punch a time clock. This is false! According to federal record-keeping requirements, non-exempt employees must maintain a true and accurate record of their work time. Punching a time clock is not required; however, it is often the most accurate method of record keeping. If an employee maintains a handwritten time record, it must be completed daily and must show the exact time in and out each day, including meal periods. Employees should not round the times; exact times, to the minute, should be recorded. In the event of an investigation, if time records are viewed as "inaccurate" by the Department of Labor (as is often the case with time sheets that show rounded times or total times for the day, without the in and out entry), employees will be interviewed and the investigator will construct the amount of time he or she believes was worked. In other words, inaccurate time records can actually create additional liability. Employees should be instructed to sign their time record at the end of the week, verifying the hours are true and correct. They should also initial any changes made to the time record, along with the manager.

You’ll want to consider these important points as you review your current pay practices or when you establish new ones. Wage and hour regulations are among the most confusing for employers, so always seek the advice of a professional when you’re in doubt. Why not begin the year with a quick review of your pay practices so you have peace of mind about this important area of employment? Structuring your pay plans, policies and practices properly can save money, reduce liability and enhance the productivity and morale of employees.