From The Desk of Greg Guidry – December, 2011
COMMON WAGE-HOUR TRAPS:
A YEAR END AUDIT CHECKLIST FOR PIPELINE EMPLOYERS
The federal Department of Labor’s Wage and Hour Division has been engaged in very aggressive enforcement and employee-educational activity involving violations of the federal Fair Labor Standards Act (FLSA) for the past couple of years. Large collective (class) actions are also still being frequently filed around the country by private plaintiffs represented by attorneys. Six and seven figure settlements of these claims are common. Several pipeline industry companies were impacted in 2011.
Given the attention being paid to these issues, and the potential exposure, it is a good time for employers to review their pay practices to avoid common violations of the FLSA. For those companies with calendar year budgets, it might also be a good time to make any necessary changes as part of your 2012 budget implementation.
The following checklist is not exhaustive, but focuses on the most common violations employers unintentionally commit.
1. Deductions. If you make any deductions from the paycheck of your nonexempt employees, ensure that they do not interfere with the employee’s receipt of the minimum wage (currently $7.25 per hour) free and clear for all hours worked, plus any required overtime. Certain deductions that interfere with an employee’s receipt of the minimum wage are illegal. Examples are deductions (or mandatory employee purchases) for required equipment or uniforms.
2. Record-keeping. Failure to keep required records can create a big problem for employers. For example, if an employer fails to accurately track hours worked each day for all nonexempt employees, and a claim is filed alleging underpayment, the failure to keep required records can lead the court or jury to credit the employees’ version of how many hours were worked.
3. Hours Worked. Failure to pay for all hours worked can create substantial liability for employers. Common examples include failure to pay nonexempt employees for training time, certain travel time, meal break time when the employees are not allowed to eat on an uninterrupted basis for at least 30 minutes, “off the clock” time at home or while traveling, pre-shift meetings or necessary job preparation time, and on call time (where the employees’ freedom to engage in personal pursuits is substantially interfered with).
4. Exemption Misclassification. A common violation involves the misclassification of nonexempt employees as exempt where the employees in question clearly fail to meet the various exemption duties tests under the FLSA. Remember, job titles don’t control the outcome, actual day to day duties do. Also, paying someone a salary does not make them exempt.
5. Exempt Salary Deductions. Be careful about making deductions from the salary of your exempt employees. Such deductions may lead to a finding that the employees are not truly salaried and thus not exempt. A common problem involves deductions for partial day absences.
6. Overtime Regular Rate Omissions. In calculating the hourly “regular rate” for purposes of calculating overtime due to nonexempt employees for all hours worked in excess of 40 in a workweek, many employers fail to include certain extra payments that are made in effort to increase the compensation of those employees. Examples of payments that must be included in the regular rate calculation are: Non-discretionary bonuses, per diems or reimbursements that are not reasonably related to actual expenses incurred by employees, and other add-ons or incentives that don’t qualify for exclusion from the regular rate.
7. Day Rates. If you pay a day rate to nonexempt employees, you must still pay overtime in addition to the day rate.
8. Weighted Average Method. If you have nonexempt employees who work more than one job during the workweek at different hourly rates, you must generally use the “weighted average” method of calculating overtime, unless you enter into a special agreement with those employees to pay overtime based on the hourly rate of the job being performed during overtime hours.
9. Independent Contractor Misclassification. Though the pipeline industry seems to have moved away from the practice, many employers still improperly classify employees as “independent contractors” in an effort to avoid overtime obligations. This is a “hot” issue for federal and state government, so any such classifications should be audited carefully for compliance with all applicable guidelines under various federal and state laws.
10. State Traps. Employers that work in several states should ensure that they become familiar with each state’s special wage and hour requirements, which may exceed the requirements of the FLSA, and create substantial liabilities.
More information on these issues and other wage and hour rules can be found at the Wage and Hour Division’s page on the federal Department of Labor’s website at www.dol.gov.