I recently asked an in-house counsel which compliance issues kept him awake at night. His reaction was immediate: wage and hour land mines. Describing concerns about unpaid overtime, off-the-clock work and misclassification of exempt employees as a “speeding train hurtling down the track,” he admitted that he had difficulty sorting the potential issues into a manageable compliance framework. No doubt, his concerns are not unique.
For years, the Fair Labor Standards Act (FLSA) was a sleeping giant. Even though collective actions allowing damages for large categories of employees could be pursued with relative ease, very few plaintiff lawyers waded into this highly technical area. Employers, in turn, were either naive about the costly ramifications of non-compliance or they closed their eyes, crossed their fingers and hoped for the best.
If an employee is misclassified as exempt, though, the company may be responsible for unpaid overtime, liquidated damages (i.e., double back pay), civil penalties, injunctions and other relief. Depending on whether the violation is willful, the statute of limitations is either two or three years. Managers or supervisors can be found individually liable. Equally troubling, if an employer’s payroll practices allow exempt employees’ salaries to be docked in ways that conflict with the salary basis test, scores of employees can be converted to non-exempt status and thus, entitled to unpaid overtime. The liability can be enormous. To reduce the risk of surprises, the FLSA added a “safe harbor” provision allowing employers to preserve exemption through written policies and robust internal complaint procedures.
In auditing whether employees perform exempt duties and are paid on a salary basis, employers should consider these factors:
Examples of common mistakes employers make in counting hours worked are:
- Excluding time employees spend “donning” and “doffing” required safety gear or protective clothing that is integral and indispensable to the job
- Not properly counting and paying for missed unpaid meal breaks or certain training and travel time
- Assuming that work employees do remotely at home in off hours with the tacit approval of their supervisors is “on their own time”
- Shaving employee working time through payroll assumptions and overly broad rounding practices
Calculating overtime pay