Costly Wage and Hour Mistakes Abound

By Joanne Deschenaux Jun 18, 2013

CHICAGO--“In this room of HR people, we all think we understand the basics of the Fair Labor Standards Act. But it’s counterintuitive. The law was written in the 1930s. The law hasn’t changed much, but the world has,” said Robert A. Boonin, an attorney with Butzel Long in Ann Arbor, Mich., addressing attendees during a Tuesday concurrent session on wage and hour compliance at the Society for Human Resource Management (SHRM) Annual Conference & Exposition.

Wage and hour lawsuits are the lawsuits “du jour,” he told the audience. Both individual and collective actions have increased radically in recent years. Just look at the numbers, Boonin said:

Collective actions have increased by more than 500 percent since 2002.

90 percent of all employment class actions are wage and hour cases.

The Department of Labor’s (DOL) investigative budget has increased by 50 percent since 2008. There are now more than 1,800 field agents.

The DOL estimates that 70 percent of employers are violating the FLSA in some way.

Aggressive Enforcement Agenda

In the past, the DOL has acted primarily by responding to employee complaints of FLSA violations, Boonin said. But the agency’s 2013 agenda focuses on “directed” investigations, in which the agency chooses an employer to investigate even if no complaints against the company have been filed. Instances of directed investigations increased from 6,600 in 2011 to 9,400 in 2012.

The DOL has also focused on the misclassification of independent contractors as employees, cooperating with the Internal Revenue Service, as well as 14 states, in investigating employer classification practices. This is a delicate area for some employers, Boonin noted. “You should be concerned. Do my contractors walk and talk like employees? If so, they likely are employees,” he said.

And the agency has issued a new video series called “Know Your Rights,” which “shows that they are trying to reach out and educate employees,” Boonin said.

Another recent DOL initiative is the crackdown on unpaid interns. Almost all unpaid interns in for-profit private-sector jobs are employees subject to minimum wage and overtime rules. “It is almost impossible to legitimately have an unpaid intern. Be very careful and pay your interns,” Boonin advised.

Consequences of Errors

Violating wage and hour laws can cost employers dearly. Successful plaintiffs are entitled to the amount of unpaid overtime for the past two to three years. They may also be entitled to damages equal to the amount of unpaid overtime and to their attorneys’ fees. Employers may face fines, interest and possible criminal sanctions. And in some circumstances, individual employees may be held personally liable; that means the money comes from their pockets and not from the company’s resources.

And while HR professionals certainly know that overtime pay is due to all nonexempt employees for all hours actually worked over 40 in a workweek at the rate of 1.5 times the employee’s regular hourly rate of pay, defining “nonexempt,” “worked” and “regular hourly rate” may not be so easy.

Boonin outlined the seven most common wage and hour compliance errors:

Misclassifying employees as exempt.

Violating the “salary basis” rule.

Failing to pay for compensable off-the-clock time.

Awarding nonexempt employees compensatory time rather than overtime payments.

Miscounting travel time.

Miscounting training time.

Miscalculating the regular rate of pay.

“Wage and hour lawsuits are the ones that employers are losing sleep over,” Boonin said, “but you can eliminate or at least minimize your liability by reviewing your practices.”

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.


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