WORKPLACE: Five Regulations You Can’t Ignore

When it comes to compliance with the U.S. Department of Labor’s wage and hour regulations, most pest management professionals are confused by the sheer number of regulations that apply to them and are disturbed by the Department’s fluctuating opinions and interpretations of the regulations. Many well-intended employers, including pest managment professionals, have found themselves caught in the trap of the government’s unusual wage and hour enforcement principles that seem, at times, to be more illogical than legal.

WHAT TO DO? Each year, hundreds of pest control companies are investigated by the U.S. Department of Labor, Wage and Hour Division, and are found guilty of violating their provisions even though their employees were paid generously and fairly and even though they made every effort to comply with the regulations. In many cases, employers end up "paying the price" because of a lack of understanding or knowledge of the regulations.

The following five requirements are commonly misunderstood by pest control owners and often result in huge back-wage liabilities (Note: this list is not all-inclusive and only contains federal requirements. Some states have more stringent regulations.):

1. Proper classification of administrative workers — Many pest management professionals are under the mistaken belief that simply paying a person a salary automatically exempts them from Wage and Hour overtime requirements. This is not true! In order for an individual to be classified as "exempt" from overtime, he or she must meet a number of "job duty" tests outlined in federal regulations.

For example, to qualify for the "Executive" exemption, in addition to receiving a guaranteed salary, an office manager would have to supervise at least two full-time employees and would have to spend a minimum of 50 percent of his/her time in "supervisory" duties. Many office managers do not meet these requirements and are misclassified under the Executive Exemption. In fact, most administrative employees in pest control companies do not qualify for any overtime exemption and should be paid time and one-half for all hours more than 40 per week. (Some states, like California, have even more restrictive overtime requirements.)

2. Proper design of pay plans for technicians paid under Section 7(i) of the Fair Labor Standards Act (FLSA) — The infamous "7(i) regulation" is, without a doubt, the most confusing Wage and Hour requirement pest management professionals have to deal with. Section 7(i) of the FLSA provides an overtime exemption for employees of a "retail" establishment who meet very specific criteria. Before using this exemption, a pest management professional must determine its "retail" status under Wage and Hour law. Under federal Wage and Hour law, a "retail" establishment is one in which 75 percent of the annual dollar volume of sales is not for resale.

In the pest control industry, residential accounts are "retail" accounts. As for commercial accounts, the Department of Labor has this to say: "Where facilities and equipment of an establishment are designed for the service of factories or commercial buildings and are of a type which the general consuming public does not ordinarily have occasion to use, the services are specialized and are not traditionally recognized as retail within the meaning of the exemption even though the firm may also, occasionally, render services to the general consuming public. On the other hand, if the exterminating facilities and equipment are no different from those used in servicing private residences, such services may be regarded as retail."

"Exterminating services performed regularly and repeatedly for commercial or industrial firms under contract covering an extended period of time, constitute maintenance operations and are not, therefore, recognized as retail services."

For multi-location pest management professionals, the Wage and Hour Division applies the retail test to each separate location ("establishment") vs. the entire company ("enterprise"). So, if you have a commercial division office where more than 25 percent of the work is non-residential, then this location could not legitimately use the overtime exemption under Section 7(i) for its employees.

Let’s assume for a moment that your company does meet the definition of "retail." The next step is to ensure that your pay plans meet the requirements of Section 7(i). The overtime exemption will only apply to employees who meet the following criteria: 1) more than 50 percent of their wages for a representative period of not less than one month must be in the form of commissions; 2) the employee must average earnings of at least time and one-half the minimum wage (currently $7.73) for each hour worked; and, 3) the employee must maintain an accurate record of all hours of work to verify the wage requirement. All of these requirements must be met or the overtime exemption can be lost and back wages owed to current and terminated employees.

3. Maintain accurate records of all hours of work — All nonexempt employees and employees paid under the 7(i) method must maintain true and accurate records of their work time. To meet this Wage and Hour requirement, the employee must record the exact time in and exact time out each day, including meal times. Times should not be rounded, they should be recorded exactly to the minute. Employers must ensure that nonexempt employees record all of their hours of work, including meeting time, compensable travel time, waiting time and others. It is not necessary for nonexempt employees to punch a time clock. The records, however, must be "true and accurate."

4. Ensure all deductions from pay are proper — For employees paid under Section 7(i) of the federal regulations, employers must ensure that deductions for uniforms, equipment, business cards, automobile expenses, etc., do not take the employee below the minimum required hourly rate ($7.73). If the employee’s pay drops below this level, the overtime exemption may be lost and overtime due to the employee.

Employers must also ensure that exempt employees who are paid a guaranteed salary receive the full salary in any week they work, regardless of quantity or quality of work.

Deducting money from an exempt employee’s salary for damages, losses or other similar reasons is a violation of the regulations and could result in loss of the exemption. Nonexempt employees must always receive at least the minimum wage ($5.15) for every hour they work up to 40 and time and one-half the minimum wage for all hours more than 40 per week. To reduce an employee’s pay below this rate for losses, damages, equipment or for a similar reason is in violation of the regulations.

5. Pay for overtime on all compensation including commissions — Nonexempt employees must receive overtime on all of their wages, not just their hourly rate. This means that if you pay a nonexempt employee an hourly rate plus commissions, you must calculate the overtime on the hourly rate and on the commissions. The Department of Labor takes the position that commissions are wages and as such, effectively increase the average hourly rate.

CONCLUSION. Pest management professionals would do well to abide by these important requirements and continually check their compliance. One Department of Labor investigation can have a huge impact on a company’s bottom line. Pest management professionals can help ensure their compliance by: 1) attending continuing education seminars and workshops that focus on wage and hour issues; 2) working closely with their human resource director to ensure properly structured pay policies and practices; 3) subscribing to various management newsletters and publications that focus on compensation issues; and, 4) working with consultants or other human resource experts who can provide guidance on compliance issues.

The author is president of the Winter Park, Fla., consulting firm, Seawright & Associates, Inc. She can be reached at 407/645-2433 or jseawright@pctonline.com.