Some workplace crises blow up instantaneously, exploding onto the scene with immediacy and urgency that can take one's breath away. Wage and hour liability is different. It lurks below the surface, sometimes for years, before the problem is discovered and brought to management's attention.
The problem, of course, is that once the crisis hits, companies have little to defend themselves with unless they've been managing time-keeping procedures exceptionally well. If they haven't, the long arm of the law can stretch back to up to four years (depending on the state) to scrutinize paper and electronic records for unpaid overtime, missing meal and rest period premiums, and other violations in wage and hour practices. Likewise, such investigations often result in class-action lawsuits, which can be extremely time consuming and expensive to defend with hefty damage settlement demands and attorneys' fees.
There's no doubt about it—you want to keep wage and hour (i.e., time-keeping, overtime, employee classification, and rest and meal period adherence) compliance clean and tidy. Managers can be a particularly weak point; managing overtime properly can be a daunting task for many supervisors who may not be aware of the intricacies and traps that await them within the wage and hour world.
"There are a number of counterintuitive requirements and subtle nuances in wage and hour law, and a high level of diligence is needed to protect your organization from liability," said Christopher W. Olmsted, managing shareholder at Ogletree Deakins in San Diego.
Determining Exemption Status
Exemption status will always be the first hurdle. It is the company's responsibility to pay overtime to nonexempt workers for hours worked in excess of 40 in a week (or in some states, like California, in excess of eight hours in a day), and it all begins with classifying employees properly. Federal and state laws provide a limited number of exempt categories, chief among them positions in executive, administrative, professional, computer professional and certain sales roles. Most companies don't have any problems identifying their CEOs and vice presidents as exempt from protections under the Fair Labor Standards Act of 1938, which established overtime pay as a penalty or tax during the Great Depression to employers for "stretching out" their existing clerical or manufacturing workforce and not adding new employees to the payroll.
But where this gets dicey is with "wobbler" job categories like coordinators, analysts, specialists and administrators (and, in some cases, assistant managers). Some companies classify these paraprofessional and junior management positions into the exempt category, while others place them into the nonexempt, overtime-eligible category. In some cases, the classification decision may withstand legal scrutiny, but understand that if you're ever audited by the government or sued by a plaintiff attorney, a misclassification error may lead to an award of substantial wage liability, interest, penalties and attorney fees.
"The law presumes that an employee is nonexempt, and the burden will fall on your company to prove or otherwise demonstrate that the workers in question are indeed exempt from overtime pay," Olmsted advised. "And if your company is deemed to be wrong in its classification decision, then the organization could end up with a massive back-wages tab that governs the entire class of workers."
The problem may be compounded by a lack of accurate time records showing how many hours the misclassified employees actually worked. Remember, all else being equal, the government liberally interprets the law to require companies to pay overtime so workers aren't exploited or otherwise denied the additional overtime pay. Therefore, when in doubt, classify workers as nonexempt and pay overtime to be on the safe side.
Paying Overtime Correctly
In terms of paying overtime correctly, it's important to understand that overtime premiums must be paid for all overtime worked, including unapproved overtime. In fact, you're allowed to discipline an employee for working unapproved overtime, but you're not allowed to withhold the overtime pay. That would be a classic wage and hour violation.
You should also be aware that when calculating the overtime rate of pay, your company may need to include consideration of variable pay, such as shift differentials, bonuses, commissions and other incentive pay. In some cases, an employee who receives a bonus earns a higher overtime rate than one who has not.
"Seemingly minor calculation errors may become the centerpiece of class-action lawsuits," Olmsted said. And the liability may add up quickly. "Calculations typically go back two or more years, and it's not uncommon for claims resulting from unpaid overtime plus attorneys' fees and other remedies to settle in the six- to seven-figure range, depending on the size of your company and the number of workers in the class."
Rest and Meal Period Premiums—California Focus
Finally, ensure that you understand the basic rules and guidelines involved in rest and meal period regulation. Some states, including California and a few other jurisdictions, have specific meal and rest break regulations. For example, in California, nonexempt employees must be provided one 10-minute duty-free paid rest period per four hours worked. If they involuntarily only take one or skip both in a standard eight-hour workday, a rest period premium may apply. (Depending on the wage order, a premium equal to one hour of pay at the employee's regular rate of pay is added to the employee's pay for the day if the individual did not take two breaks because the individual was required to work through those rest periods.)
Likewise, be sure you understand how meal periods work. Again, in California, if the meal period was missed or not taken by the end of the fifth hour, or if the meal period didn't last at least 30 minutes, a meal period penalty of one additional hour of pay at the employee's regular rate of pay would be due. If you do the math, you'll see that sloppy rest and meal period administration can add up to two hours' pay per day for California workers governed by particular wage orders. In an eight-hour day, those two additional hours of penalty pay can add 25 percent to the employer's payroll on a daily basis!
These rules are complex, no doubt. For example, generally speaking, if the employee missed taking a rest or meal period for personal reasons, the meal or rest penalty may not be owed. Proving that the missed break was for personal reasons may require additional documentation. Some organizations, in fact, include "attestation language" in their electronic time-keeping systems that asks employees to confirm they took both rest periods and the full meal period when they clock out at the end of the shift. This makes for an excellent record should the company be sued several years later.
Attestation language likewise clarifies if missing a rest or meal period was the employee's choice or if it was required by management. In California, where the missed break was due to work requirements, the penalty is paid. "Most employers will pay the premium unless there is evidence of a voluntary missed break. If such meal or rest break deviations keep happening, the employee may be disciplined, but the premium should be paid when required by law," Olmsted said. "Note that some California plaintiff attorneys argue that a civil penalty is owed even when the premium is paid; while case law is not settled on this point, a pattern of missed breaks can create litigation risk."
The lesson here? Don't panic if one of your nonexempt employees misses a break or lunch period on occasion. However, don't become known as a company where skipped meals and breaks become the norm or where working through rest and meal periods occurs on an "expected" basis. If you steer clear of developing that type of "working lunch at the desk" reputation by respecting the law and treating your nonexempt workers fairly, then occasional, nonsystemic lapses probably won't pose much of a serious legal risk.
There are other rules, of course. How many rest and meal periods are required for 10-hour or 12-hour shifts? Does an employee need to work a minimum number of hours before rest or meal periods come into play? What if you suspect that an employee is working off the clock in a remote work setting? Whatever the scenario, rest assured that plaintiff attorneys have seen them all and may be ready to pounce as soon as the opportunity presents itself.
It's in your and your company's best interests to make sure first-time and front-line operational managers are familiar with the rules and are constantly on the lookout for exceptions. If you haven't been trained in this critical area, ask your employer or employment attorney to set up a wage and hour training workshop so everyone on the management team is on the same page.
Paul Falcone (www.PaulFalconeHR.com) is a frequent contributor to SHRM Online and has served in a range of senior HR roles at such companies as Paramount Pictures, Nickelodeon, Time Warner and City of Hope Medical Center. He's a member of the SHRM Speakers Bureau, a corporate leadership trainer, certified executive coach and author of the five-book Paul Falcone Workplace Leadership Series (HarperCollins Leadership and Amacom). Other bestsellers include 101 Tough Conversations to Have with Employees, 101 Sample Write-Ups for Documenting Employee Performance Problems, 96 Great Interview Questions to Ask Before You Hire, and 2600 Phrases for Effective Performance Reviews.