Coalition for Ethanol Webinar Series
Wage and Hour Traps for the Unwary Employer
Presented by: Holly E. Courtney
[inaudible] make sure that your job descriptions are reflecting the various duties that are
mentioned in the statute. Changing your condition description isn’t something that is going save
you in litigation. However, a poor job description is going to be fatal. So it is better to be safe
than sorry.
The next problem area that we see some issues arise are deductions from salary. As I mentioned,
most employees are monthly paid on a salary basis to be in effect. So _____________ event
employee on a salary basis is going to result in that employee being not exempt, even if that
employee is still performing those event duties. This is just one way that employers
inadvertently destroy that status by improperly deducting from the then employee’s salary.
There are a couple of general rules, although there are exceptions. First, do not dock pay for
poor performance or poor attendance. There are exceptions, but when you are in doubt, follow
the general rule because it will prevent you from costing the state. Second, salaried employees
who worked any part of the work week are entitled to their full salary for that work week, unless
they meet the exception. Third, salaried employees who do not perform any work in a work
week are not entitled to their full salary for that work week. Unless the deduction is permissible
under the law, don’t deduct from the event employee salary. Here is a list of permissible
deductions from salary for personal absence of one day or more. You want to make sure that it is
a full day and not a partial day. Deductions for absences of one day or more due to sickness or
disability, you can make some deductions for certain disciplinary thing, also initial and terminal
weeks of employment can make deductions for FMLA leave. As you know, FMLA is not paid
leave under the law, though some employers do pay their employees during that leave. Also,
deductions from leave account.
The next area where employers can fall into some traps are with overtime pay calculations. Nonexempt employees must be paid overtime at a rate of no less than 1.5 times their rate of pay after
40 hours of work in a work week. A work week is a period of seven consecutive days. It is not
necessarily a calendar day, as the employer you choose about what seven day period your work
week is going to be. However, one more caution is employers shouldn’t avoid changing their
work week often to avoid giving the impression that the employer is evading its overtime policy,
whether or not you are actually doing that. You may give the impression.
Regular rate of pay: For hourly employees who don’t receive additional pay like bonuses, or
shift differentials, the regular rate of pay is very easy to determine. It’s just that employee’s
regular hourly rate. However, the calculations get trickier when the employee receives
compensation on top of their normal hourly pay. Regular rate of pay needs to take into account
all enumerations received in the work week. For example, for an hourly employee who receives
a discretionary bonus, the regular rate is going to be that employee’s hourly pay plus the bonus,
divided by the non-overtime hours worked. So, the regular rate of pay can be slightly higher
than the employee’s normal hourly rate. Also, even for salaried, non-exempt employees, you
determine the regular rate of pay on an hourly basis, even though they are not paid on an hourly
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basis. You divide the salary by the total number of hours the salary is intended to compensation.
This salary can get even more complicated with more non-discretionary bonuses.
Just as an example for how to calculate overtime pay: Tom works in the factory, has a base
hourly rate of $12 per hour. He often fills in on the third shift and also works on the weekend.
By company policy, the company pays his third shift employees a shift premium of $1 per hour.
Company also pays employees a $2 per hour bonus on weekends. The company pays Tom
overtime at $18 per hour, including those weeks in which he worked the third shift and
weekends. Did the company pay the required overtime? Here, no, it did not. They failed to
calculate, or add, the shift premium. You need to make sure you are adding all that up to
determine the regular rate of pay.
Another issue that can arise is where an employer misclassifies a worker as an independent
contractor when that worker is an employee. Only employees are subject to FLSA. If you are
improperly designating someone as an independent contractor, and they are actually an
employee, and you are not calling the various requirements under the FLSA, and the person is
also labeled an independent contractor, you can be in big trouble. Again, there are reasons why
employers and workers may want to classify workers as independent contractors instead of
employees. Generally, the key benefit is a smaller tax bill for both the employer and the
employee. Usually the employer will need to pay contributions to certain employment related
taxes, and the employee can deduct certain business expenses on their returns. As a general
matter, do not assume that employers cannot be liable for FLSA violations committed with
respect to workers designated as independent contractors. We need to make sure that under the
statute, they are actually considered independent contracts. FLSA in general – what makes
common business sense, what’s done in correctness does not always comply with the law.
Under the FLSA, to determine whether or not someone is an employee, they use the Economic
Reality Test. This is a test that looks to several non-dispositive factors. They key factor is the
employer’s degree of control. The more control the employer has over the worker, the more
likely they are to be considered an employee and not an independent contractor. The other
considerations are the worker’s opportunity for profit and losses, degree of worker’s investment
in equipment or materials, whether the job requires special skills to perform, the permanence of
duration of the working relationship, and the extent to which the work is an integral part of the
employer’s business. Just another warning – having the standard independent contractor
agreement is not going to get you off the hook. The test looks at the actual facts and considers
all of these factors, and sometimes just the standard agreement won’t be enough. You need to
make sure that they are actually performing the type of work an independent contractor would do
before ______________________ and such.
The last area where employers sometimes fall into a trap are for Off-the-Clock hours.
Employees need to be compensated for all hours worked. Generally, if the time is spent for the
employer’s benefit, this is considered hours worked and the employee will need to be
compensated. So-called “off-the-clock” cases are becoming increasingly prevalent. In these
cases employers are being sued for not counting certain time as “hours worked” for purposes of
calculating non-exempt employee’s regular and overtime compensation. Difficult situations
arise when non-exempt employees work without reporting all of their hours to their employer,
particularly when the employer did not authorize such “off-the-clock” work or doesn’t even
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know it occurred. This is why these off-the-clock hours’ situations are so challenging because
many times, the employer doesn’t even know that the employee is working when not supposed to
be.
There are a few easy things you can do to avoid common off-the-clock mistakes. First,
preparatory and concluding activities. If activities are integral and an indispensable part of the
job, they have to be counted as hours worked. For example, if an employee has to set-up certain
machinery before starting their shift, that employee needs to be compensated for that time. If an
employee needs to change into certain safety clothing to do his work, that needs to be counted as
hours worked. Second, sometimes issues arise where there is mandatory training and off-duty
meeting time. This is a simple thing to fix. If training and off-duty meetings are mandatory,
they have to be counted as hours worked. If your employee needs to be there, you need to pay
them. Sometimes training in meetings are truly permissible and may not be counted as hours
worked. However, be careful of that because more thorough reporting is likely going to be
necessary.
Another easy to avoid off-the-cuff mistake relates to travel fund. Generally bringing their
meeting to and from work does not count as hours’ worked. However, if an employee receives
an assignment requiring him or her to travel out of town for the day or more than a day, the
employee’s travel time to and from is considered hours worked and they need to be paid for that
whole time. If I work in Milwaukee and am assigned to travel to Chicago for the day. I need to
be compensated for my travel to and from Chicago.
There are just a few common off-the--cuff issues that tend to lead to litigation. This is when an
employee is required to finish certain tasks that were not completed during the employee’s work
day. If the employee works for the day and doesn’t finish some of his or her work and stays
when it is after he is supposed to and do his or her work - that can lead to litigation.
A second situation is when an employee needs to work to through his or her unpaid meal and a
rest break. Third, unauthorized overtime often can become a problem and lead to litigation. So
in all those situations, because the employee is doing something for the employer’s benefit this
needs to be counted as hours worked.
First things first, a meal and a rest break, although they have regulations covering this, generally
the state laws are a bit more employee friendly. Make sure that you are looking to whatever state
in which your employees are working. Make sure that you are complying with that state’s meal
and rest break requirements. Other than rest break and the meal break, the employers are not
required to pay their employees for the bona fide meal break lasting 30 minutes or more.
However, the employee must be completely relieved from performing any work duty during that
time. If they work at all, the meal break needs to be compensated. Also the rest breaks are
usually 20 minutes or less and must be counted towards hours worked. Federal law doesn’t
require employers to give these meal and rest breaks. The regulations here just govern whether
or not the periods need to be paid or not. For example, ABC Company provides employees with
a 30 minute unpaid lunch break. Employees are generally free to use this time for whatever
restaurant, [inaudible] except they cannot leave the premises. Two employees, Jim and Karen,
usually eat in the lunchroom. Angela and Pam usually eat at their desk and complete some
administrative paperwork during their lunch break and an issue arises. Is this company unpaid
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lunch rule lawful? The answer is a little complicated. Under state law, you wouldn’t have to pay
the employee to work on the premises, eating in the lunch break room. They would be
completely relieved from duty. You wouldn’t have to pay them for their meal break.
However, law firms and other employees that are choosing to get a couple things done at work
and just work at their desk while they are eating their sandwich, under FSLA, you need to pay
them. If you were in Wisconsin, you would actually have to pay all of those employees for their
meal break because under the company policy it didn’t let the employees leave the premises.
Under Wisconsin you need to be able to let the employees leave the premises and there are
similar rules in other states so just be aware of things like that.
There are a lot of possible solutions to these main off the mark tracks. Even if you are going to
have the pay the employees for working off the clock, if you treat the employee violations as
disciplinary issues, you’re going to help stop the employees working off the clock when they are
not supposed to be.
Say an employee is working overtime and they are not supposed to. As a company what you can
do is you can require all overtime to still be approved in advance by the employee’s supervisor
and make clear to the employees that working on unauthorized overtime is a disciplinary issue.
Put this in your employee handbook, put it on notice somewhere that employees are aware of it.
This can result in disciplinary action. As the employer actually treat unauthorized overtime as a
disciplinary issue, but if they violate it you still need to compensate them. This is just a way to
really make it clear to your employees that they can’t be working overtime and stop them from
doing so.
Also, regarding employees that are working through their meals when they are not supposed to
be, just make sure they are not being assigned any tasks to be performed outside of normal
working hours. Make sure that they know that they cannot work during their unpaid meal period
and if you do not do that and they are working you will have to pay them.
Overall to be sure the problems discussed today are not the only FSLA state problem areas. As
long as there are different state laws that make even more employee protected that you should be
aware of. In any event, taking steps and minimize FLSA litigation is essential to avoid
complicated costly defensive FLSA claims.
Thank you for joining the Michael Best & Friedrich Webinar “Wage and Hour Traps for the
Unwary Employer”.
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