515-223-5119 [email protected]

[Author: Lesley Sifers, Tax Favored Benefits, Inc., 2011; R-2013 | Keywords: Human Resources, Wages]

I have written about this topic several times, but it seems there are still many employers making serious mistakes in wage administration; mistakes that lead to hefty fines when a company is audited by the Department of Labor (DOL) or state and local agencies. The DOL is stepping up enforcement and other agencies are following suit. It’s a rare audit that doesn’t result in costly findings. New enforcement initiatives concentrate on non-exempt workers – those who are NOT exempt from overtime pay requirements of the Fair Labor Standards Act (FLSA). Following is a short summary of areas that will, most likely, be the focus of an audit.

Are you paying for “all time worked”? Time worked is defined as any time an employee is “suffered or permitted to work.” Employees must be compensated and all work time counts toward overtime. The DOL will be looking at how you handle the following situations:

Time clocks if you use a time clock and consistently round hours down, you are probably in violation of overtime rules. Let’s say your scheduled work day is 7:00 AM to 3:30 PM (30 minute lunch) and an employee clocks in at 6:50 AM and clocks out at 3:38 PM. That employee is due pay for 30 minutes more – which also counts toward overtime for the week. The time clock rule is: you can round down if the time is between 1-7 minutes; between 8-14 minutes, you must round up. It doesn’t matter if the employee was simply loitering around the time clock talking to co-workers.

Training and Travel Time if training is compulsory, regardless of time of day or day of the week, you must pay for time spent in training sessions. Travel time for non-exempts gets more complicated. Normal commuting time is not compensable but travel to a job site, other than your normal place of business, most likely will be. Likewise, travel out of town on a weekend may be compensable if it cuts across the employees “normal work hours” even on a weekend and especially if the employee is required to drive.

Rest Periods and Meal Breaks although the FLSA is silent on many issues, it’s clear that a break of less than 20 minutes must be paid. Breaks or meal periods of 30 minutes or longer, if the employee is completely relieved of duty, can be unpaid. But beware, if you ask a technician to leave his sandwich and look at a customer’s piece of equipment, you must pay for that time. The same goes for the clerk who eats at his desk and takes a phone call or checks work-related e-mails.

On-Call or Waiting Time if a non-exempt employee must be “on call” for emergencies, and cannot effectively use that time as they wish, it’s probably compensable time. Likewise, if an employee is required to report to a work site and must wait before actually starting work, it’s paid time.

Unauthorized Work Hours perhaps you have a rule that overtime must be approved by a supervisor. Then, an employee works overtime without authorization. You still have to pay them but you can discipline them for breaking your rules. It’s trickier if you have a non-exempt employee who takes work home. For example, an Administrative Assistant has a proposal to prepare and doesn’t have time at the office. You did not ask her to do it but the next day the completed proposal is on your desk and you pretty much know that it could not have been done so quickly unless she took work home. That’s compensable time even if the employee does not request any pay. Again, you can discipline the employee, but you must compensate for her time.

Are you making illegal deductions from pay? Some employers dock pay for things like breakage, tool loss or damage to equipment. It’s usually not legal. I once reviewed a handbook that included employee “fines” for certain types of misconduct. You can’t do that. What I hear most often is deducting amounts owed to the company for employee purchases. Without written authorization from the employee, you cannot make deductions from pay. Even with authorization, the deduction cannot result in the employee making less than your state’s minimum wage. Better to require a promissory note and sue in small claims court. Or, limit the amount employees can rack up shopping at work to something you can afford to lose. This issue becomes most problematic when an employee terminates and owes you money.

Are you properly calculating pay rates and hours worked for overtime? Overtime is based on a standard work week which is seven, consecutive 24 hour periods that you select. It doesn’t matter if you are issuing paychecks bi-weekly or semi-monthly. You must establish a pay week for calculating overtime. This applies to salaried, non-exempt employees as well as those who are paid an hourly wage.

Compensatory time (“comp time”) is not legal in the private sector. For example, you pay every two weeks and an employee requests 4 hours off in week one and works 4 hours extra in week two as “make-up” time. In week two, if they worked 44 hours, 4 hours are at overtime rate.

The pay rate for overtime includes things like shift differentials and non-discretionary bonuses. (To be honest, I have not been able to determine how commissions might affect wage rates.) Let’s say you give a non-discretionary bonus quarterly on the first paycheck after the end of the quarter. You must go back to the prior week and recalculate the employee’s hourly rate of pay for overtime purposes and pay the difference.

Earlier this year, the DOL announced plans for new regulations that, if enacted, would require employers to create a massive amount of documentation to justify wage administration. I will be writing about that next.