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Wage and hour violations can creep in quietly, and every office is at risk

A lot of employment laws apply only to larger employers.

Not wage and hour laws. Those apply to every employer, regardless of size.

And they are “the largest source of employment litigation,” says employment law attorney Daniel F. Pyne of Hopkins & Carley in San Jose, CA. In his own practice, wage and hour issues account for almost half of the matters that come in.

The wage and hour laws are part of the Fair Labor Standards Act, which requires that hourly employees be paid for overtime work and also sets out who is and who isn’t an hourly employee.

There’s no room for error with that, Pyne says, because with the FLSA there’s no gray area. What the employer does is either “clearly right or clearly wrong,” and the penalties aren’t reduced because it was mostly right.

Make a mistake and suffer the full consequences.

Generally, that means payment of all back wages due plus fines. There can also be criminal charges and fines up to $10,000.

Violations happen often and easily

It’s not uncommon for employers to get into wage and hour trouble, Pyne says.

One reason is that managers “tend to follow the herd mentality.” They see other offices guilty of violations and think they can do the same. Ask any office the why of a wage and hour violation, and the common response is “well, everybody does it this way,” so it must be right.

Businesses of all sorts and sizes make wage and hour mistakes every day, he says. Just because a very large or prominent office does something doesn’t mean it’s right.

Another reason for the large number of violations is that managers don’t have any real incentive to follow the FLSA requirements to the letter. Their job is to minimize costs, and paying out a lot of overtime will hurt their performance reviews. So they focus on cutting corners more than on complying with overtime law.

Along with that, managers don’t expect their staff to bring wage and hour claims. Often a manager will admit that yes, there is a violation going on, “but we’ve all been working together a long time. It’s like family here. Nobody is going to report it.”

That’s true “until somebody gets fired or laid off,” he says. Then the loyalty goes out the window and the fired staffer starts crying wage and hour violation. Heretofore, it wasn’t a big deal to work an extra hour or two, but now the picture changes and the thinking becomes “I didn’t get paid for overtime for the last three years.”

And the fact that the staffer consented to it is no defense for the office.

In comes a killer class action

The real danger with wage and hour violations, Pyne says, is that it only takes one complaint to start a class action law suit. Whenever a client comes in citing an FLSA violation, the attorney responds with “are there others like you in the company?”

The more people the better, because there’s a lot of money for that attorney to collect. And the attorney doesn’t even need the consent of those other employees to make them part of the claim.

In a large company, a class action can cover “dozens, hundreds, and thousands of employees,” he says, and if the violations go back a long time, the payback amount can be tremendous. Federal law allows going back three years, and some states say claims can go back even farther than that.

The case may get settled at a discount, but even that can be an enormous amount. There can also be significant state and federal penalties. And on top of that, the employer also has to pay attorney’s fees.

In short, he says, “it could kill you.”

Misclassification is at the top

The big violation to watch for is misclassifying hourly employees as salaried employees and not paying them overtime. Salaried employees are exempt from overtime, but hourly employees have to be paid for extra hours worked.

The misclassification can be especially costly because employers don’t keep time records for salaried employees. So if a misclassified employee says “I worked 15 hours a week of overtime for three years and never got paid for it,” the office “is behind the eight ball.” It has no records to show otherwise and may well have to pay the full amount of back wages claimed.

And if other employees have also been misclassified, the claim could turn into a class action.

Repair the mistakes quietly

What should the office do if it has been misclassifying employees?

Be careful, Pyne says. Don’t do anything without first talking with an attorney to develop a strategy.

In general, if only a small amount of money is involved, an employer is better off just paying what’s owed. But if the violation has been going on for a long time and if a lot of employees are involved,” it’s going to be a challenge.

His advice is “don’t bring attention to it.” Correct the problem without telling anybody the change is being made to comply with the FLSA.

One approach is to redo the employee handbook and change the payroll and quietly “build a fence around the problem so it doesn’t get any bigger.”

Don’t make a sudden or unannounced payroll change, or people are going to start wondering “hey, what’s going on here?” And somebody may figure out the situation and bring an FLSA suit.

Three points of safety

As to what the manager can do to keep the office safe from overtime violations, Pyne makes three recommendations.

  • Have staff fill out their own time records and sign them.

Many managers do the documenting themselves, he says, and that’s risky.

If somebody sues for unpaid overtime and the records are in the manager’s handwriting, the claim is going to be “I didn’t create those records. The manager wrote all that down.”

But if the records are in the staffer’s handwriting, there’s no argument.

  • Pay attention to who’s doing what.

Suppose the office has a policy that no one can work overtime without approval and the manager sees somebody working at the front desk after hours.

Pay that person and stop it right there, he says. Otherwise, a claim can come in that the office knew the staffer was working extra hours “and was happily reaping the benefits of the overtime labor but wasn’t paying for it.”

If the staffer continues to work overtime after being told to stop, treat it as a disciplinary issue.

  • Pay for every minute a staffer works. Anything the job requires is work time.

If travel is a job requirement, for example, the employee has to be paid for the travel time. Or if a manufacturing company requires people to change into uniforms before starting work, the clothes-changing time is work time.

He gives the example of one medical office client that required staff to come in at 7:40 a.m. for a morning huddle. The office didn’t open until 8:00 a.m., so nobody clocked in until then.

All was well until a staffer was fired and came back with “I never got paid for those morning meetings.”

The huddles had been held four days a week for a long time, and the office had 10 staffers. “Do the math,” he says. “The numbers add up quickly.”

The potential on the horizon

Be aware too of potential issues developing as a result of what he terms “a cultural tension.”

Technology now allows people to stay connected with their jobs and catch up on work after hours, “but the wage and hour laws aren’t evolving with that.”

There’s potential for claims there, he says, because what anybody does for work is work and has to be paid for. “If somebody is checking e-mails and responding to a few work messages on a Saturday, that’s work time.”

Employers see it as absurd to pay for things such as weekend e-mail checking, but the law still says they have to.

Decisions make the difference

Who’s salaried and therefore exempt from overtime?

While it’s admittedly “an overgeneralization,” he says, a key factor is decision making. Does that person make decisions “that involve judgment and independent discretion?”

Suppose the employee sets the work and salary schedules, buys the supplies, and sends the payroll to a payroll service. Is that person overtime-exempt?

The office may argue that all those duties involve decision-making. “But there’s not a lot of thought in those decision,” he says. Deciding what paper to buy or when to pay the staff aren’t significant decisions.

Significant decisions are things such as hiring and firing, determining when the office should move, or making the buying choices on expensive equipment.

Put another way, the Department of Labor says every employee is considered hourly and therefore has to be paid overtime unless the job passes two tests.

One is salary. The employee has be paid a set amount regardless of the quality or quantity of work done and regardless of the number of days or hours worked. Also, the pay period can’t be more often than weekly.

The other test is duties. The employee has to spend at least 80% of the time doing work that’s considered administrative, executive, professional, outside sales, or computer programming.

If an employee doesn’t pass those two tests, the office has to pay overtime.

He adds that it’s not a title or an agreement that exempts an employee from overtime. It’s what that employee does day to day, and the title has nothing to do with that. If the title says manager but the job requires processing papers all day, the employee has to be paid an hourly wage, not a salary.

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