Faced with reports of multi-million dollar overtime pay settlements, employers around the country are scrambling to put their payroll policies in order. And with good reason. Confusion over arcane regulations, economic incentives for non-compliance and complacency rooted in years of non-enforcement have combined to create widespread violations of wage and hour laws. The Department of Labor (DOL) estimates that 70 percent of employers are not in compliance with the federal Fair Labor Standards Act (FLSA), a number that would grow substantially if violations of state laws were factored in.
With the number of class actions for wage and hour violations now exceeding all other types of employment class actions combined, employment lawyers are urging their clients to conduct audits and review payroll policies.
Bulger notes that you can't base your classification on whether the employee is paid a salary or what his or her job title is. Instead, you need to carefully review DOL rules. For example, while outside sales people are generally exempt, most inside sales workers aren't.
The audit also should examine how the company calculates overtime pay. Bonuses, shift differential and incentive pay must be included in the base rate from which overtime is determined. Employers frequently wrongly assume that incentives and performance rewards don't have to be included. "That's one of the most common violations [of FLSA] that I see," Schreter says.
The statute of limitations on filing FLSA claims is two years, but if a plaintiff can prove "willful violation" by the employer, the time frame expands to three years. Additionally, some courts have held that employers who willfully violate the law are liable for double damages. On the other hand, the law provides for a "good faith" defense that involves proving the employer had "reasonable grounds for believing" its actions did not violate the FLSA.
"A carefully planned audit and consistently enforced policies are the foundation of the good faith defense," Schreter says. "There also needs to be management buy-in that if you find violations, you will address and correct them. If you take no steps to correct them, you run the risk of a plaintiff proving willful violations of the act."