Time to Talk about Time

One of the most misunderstood areas of the law for many of my clients relates to wage and hour issues. I’ve seen disgruntled former employees contact the State or Federal Department of Labor claiming violations of wage and hour laws, which sometimes result in audits of employment time keeping practices and penalties for non-compliance.  And, a few years ago, Fortune magazine reported a 400% increase in federal lawsuits alleging violations of the Fair Labor Standards Act.

What’s behind all of the attention? It’s primarily that the laws in this area seem counter intuitive to many business owners.

First, let’s start with some nomenclature. The Fair Labor Standards Act classifies employees as exempt or nonexempt. Exempt positions are excluded from minimum wage, overtime rules, and other protections under the Act. Exempt employees usually, but not always, are paid a salary and fall into the executive, supervisory or professional categories.

Nonexempt employees enjoy the protections of the Act and are entitled to the minimum wage and overtime of not less than 1½ times their hourly rates for any hours worked beyond 40 each week. 

Let’s now explore some of the ways that these laws may be violated by employers, especially in today’s climate.

Working off the Clock.  In past years, before the ubiquitous presence of smart phones, it was easier to “clock out” and not worry about work until the next day. Today, however, employers have to worry about their nonexempt employees doing work off the clock. Their use of smart phones for business purposes and other work they do at home may well count as compensable time. Enterprising lawyers have already filed suits against large companies claiming violations of the Act under this exact situation.

To avoid any claims in this regard, employers should have a policy that require employees to report all hours they work and that also prohibits them from working at home.  Further, and in general, employees should sign their timesheets – thereby acknowledging that they are accurate.

Is your Timekeeping System Up to Date?  Do you have an actual timekeeping system? If not, how do you track time? Older systems often rounded to the nearest quarter hour. If it always rounds in your favor, you may well have a problem.  Or if you automatically deduct time for lunch breaks, make sure that every employee is actually taking a lunch break.  If not, and if you never compensated those employees, you may have violated the Act.

Are You Properly Classifying Your Employees?  Savvy employers regularly do an audit and review of employee classifications and job descriptions. In general, those who fall into the Executive, Administrative or Professional categories are not entitled to overtime pay. If your employees don’t fall into those categories, you’d be wise to start tracking time for them.  To assist, the Act and the Department of Labor provide some guidance as to whether employees fall into these categories:

“Executive” Employees: 

• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; 

• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and 

• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. 

“Administrative” Employees:

• The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and 

• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

“Professional” Employees:

• The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; 

• The advanced knowledge must be in a field of science or learning; and 

• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. 

There are some additional categories such as “Computer Employees,” “Creative Professionals,” and “Outside Sales Employees.” Further guidance can be found at the Department of Labor: http://www.dol.gov/whd/regs/compliance/fairpay/

Wage and hour laws are constantly changing and courts are interpreting these laws in new ways. Employers’ bear the burden of making sure they comply with these laws and that they properly pay their employees. With the increasing amount of litigation in the wage and hour arena, it literally pays for employers to keep abreast of the law. While this may take time and cause complications, it could save you time and money down the line.