Overtime - "Managers" Exempt or Not?

You may have recently read that Rite Aid is paying almost $21 million to settle multiple claims that it improperly failed to pay time-and-a-half for hours worked over forty in a week by its managers. State statutes and the federal Fair Labor Standards Act (FLSA) regulate the payment of overtime wages. Careful attention needs to be paid to the so-called white collar administrative and executive exemptions, particularly in view of the increasing numbers of class action suits.

I work with employers who have questions regarding the proper classification of employees. The number one misconception that I still see is the belief that paying an employee an annual salary makes him exempt from overtime payment. Another major misconception is undue reliance on a job title or written description. It does not matter what the title of the job is or what the job description says - what matters is what the employee is actually doing. If the work that the employee performs changes, even if the job title doesn't, the exemption status can change as well.

The Wage and Hour Division of the United States Department of Labor publishes fact sheets that are a good start in examining your particular situation. To qualify for the administrative exemption, the employee's primary duty must be the performance of work directly related to management or general business operations of the employer and include the exercise of discretion and independent judgment. The executive exemption applies to those whose primary duty is managing a department, and who customarily and regularly direct the work of at least two full time employees or their equivalent.

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The Old Switcheroo: An Employer's Obligation to Employee Work Hours

 

A reader recently asked if it is legal for an employer to cut an employee's hours and assign work instead to an employee who is newly hired.

The short answer to the question is a qualified yes. The exception is if the employer's action is prohibited by the terms of a collective bargaining agreement if it is a case in which there is union representation. The other exception is if the employer's treatment of the employee is because of his or her protected class. Protected class includes race, religion, gender, age, disability and national origin.

So, if the boss is assigning your hours to the new hire because the new hire is of a different race, religion, gender, etc., that action could violate local, state and federal laws against discrimination. However, seniority, in and of itself, is no protection unless pursuant to the terms of an employment contract or collective bargaining agreement.

 

Legal Requirements for Breaks, Meal Periods and Overtime

We have tackled a number of complex employment topics in our blog. Recently, feedback and questions have led us to "go back to the basics" and visit the topic of General Wage and Hour.

The Pennsylvania Department of Labor and Industry attempts to answer many questions about wages and hours in the FAQs section of their website. While the Department of Labor and Industry's site isn't an all inclusive legal resource, it does provide cursory answers to the questions asked most regularly.

  • What is my legal responsibility to employees regarding breaks and meal periods?

The Pennsylvania Department of Labor and Industry states, "Pennsylvania employers are not required to provide breaks to employees age 18 and over.  If the employer permits break periods, and they last less than 20 minutes, the employee must be paid for the break.  If the employer allows meal periods, the employer is not required to pay the employee if the employee does not work during the meal period and it lasts more than 20 minutes.  Employers and employees may agree to different terms of the employment is governed by a collective bargaining agreement."

  • Am I required to pay overtime wages, if so, to whom and who is excluded?

The laws and rules surrounding overtime are governed by the Fair Labor Standards Act.   The Act requires employers to pay employees one and half times their regular rate for all hours worked over 40 in a week.  However exemptions to the general rule exist.  An article featured on Inc.com, Who's Exempt From Overtime by Nancy Cooper, provides guidelines on properly classifying an employee. In some cases it is difficult to make the proper determination and it would be advisable to consult an attorney.

Classification of Workers as Employees or Independent Contractors: Five Things Every HR Generalist should know.*

The Manpower Employment Blawg post on $319 Million Fine for FedEx? highlights the enormous downside of misclassifying workers. There are many motivations to classify a worker as an independent contractor rather than an employee including payroll tax savings, benefit plan and insurance savings, increased workforce flexibility and headcount management to name a few. The test for worker classification isn’t crystal clear but there are some common errors. The first two points involve classification mistakes that are entirely avoidable and easily discovered by the IRS:

  1. Same Job but Different Classification.  If your employees are working next to your independent contractors, doing the same or similar jobs, you have a problem with classification. The problem becomes worse when the job being performed is an integral part of your business. I see this problem frequently in some industries such as  transportation, trade services  like telecommunications and HVAC, and construction.
  1. Retire or Fire Employee and then Rehire as Independent Contractor. Sometimes its attractive for both the employee and the employer to allow someone to “retire” and then be hired back as an independent contractor. The employee starts collecting a pension, social security and still has some income from the old job. There are many problems with this situation and it is easily discovered by the IRS since the worker will likely receive both a Form W-2 and Form 1099 from the same company in the same tax year.
  1. Misclassification has Benefits Plan and Insurance Issues.  A worker incorrectly characterized as an independent contractor may have been eligible to participate in your health, retirement and other benefit programs available to employees. In addition, the worker should have been covered under your worker’s compensation policy. Finally, there may be back wages for unpaid overtime, vacation and other benefits. On the other hand, incorrectly treating an independent contractor as an employee (although rare) has the opposite impact. The worker may have been provided medical and retirement benefits to which he or she was not entitled resulting in a violation of the terms of the plan.
  1. State Law Classification Test may Differ from Federal Law. As I have previously commented, state laws may differ from federal laws in classifying workers. Some states, like Pennsylvania, use a test that requires independent contractors to be free from control or direction over the performance of the services involved and be customarily engaged in an independent trade, occupation, profession or business. 
  1. Misclassification Fixes. The IRS provides for tax relief for misclassified workers if the employer can demonstrate a “reasonable basis” for treating a worker as an independent contractor rather than an employee. Reasonable Basis can be demonstrating as follows:
    • Reliance on court decisions or IRS rulings;
    • Prior IRS audit where similar workers were not reclassified
    • Treatment of workers as independent contractors by a significant industry segment;
    • Reliance on professional advice of a lawyer or accountant who knows the facts about your business.

Retirement Plan Blog post on What to do when an independent contractor is really an employee describing the pension plan self-correction procedures with the IRS.

* Not intended to be exhaustive.

Employee/Independent Contractor Misclassification under State Laws

Most of the Human Resources world looks to federal law when it considering the classification of a worker as an employee or an independent contractor. The IRS and most federal employment statutes use a common law rules which analyze the degree of control and the degree of dependence in the relationship between the business and the worker. The IRS recommends using Form SS-8 for this determination; however, the usefulness of this process is marginal.

To make matters more difficult, state laws also impact worker classification using sometimes differing legal standards. The post –gazette NOW Business reports that FedEx Grounds was fined $190,000 by the Massachusetts Attorney General for misclassifying 13 drivers as independent contractors. The Massachusetts test for an independent contractor differs focusing on three factors: the degree of control; work outside the usual course of business of the company; and the person engaging in a business that is customarily conducted as an independent trade or profession.

Pennsylvania has similar test for independent contractors which requires that the individual be free from control or direction over the performance of the services involved and be customarily engaged in an independent trade, occupation, profession or business. The impact of misclassification frequently appears in unemployment and workers’ compensation cases, but also had important tax and other compliance issues.

The state law employment classification issue may well be fertile ground for multistate litigation and class actions. Employers face real difficulties in complying with 50 states laws on employment classification along with a nebulous federal standard. Likewise, I don’t see how a worker could be classified as an employee for state law purposes and an independent contractor under federal law.

Year End Bonuses and Gifts: Watch Out for Wage & Hour Mistakes

Many employers traditionally provide year end bonuses and holiday gifts for their employees. Bonuses may be included in a nonexempt employee’s regular rate depending upon the manner in which the bonus is calculated and the company’s prior communication. Inclusion in the regular rate impacts overtime calculations and payments.

Bonuses paid to nonexempt employees are included in the determination of the employees’ regular rate under section 778.208 unless the bonus falls into one of several exceptions. The bonuses are allocated to the pay period and added to other wages paid to nonexempt employees and then divided by the hours worked for the same period to determine the new regular rate under the methodology described in section 778.209. For bonuses earned over more than one work week, the bonus must be allocated to pay periods to which the bonus applies and the regular rate recalculated. If overtime was worked during this period, the overtime rate must be revised to be time and a half the recalculated regular rate that includes the bonus payment. This is a nightmare.

Department of Labor regulations provide for several exclusions. Among these excludable bonus payments are discretionary bonuses, gifts and payments in the nature of gifts on special occasions, contributions by the employer to certain welfare plans and payments made by the employer pursuant to certain profit-sharing, thrift and savings plans. These exemptions are discussed in Section 778.211 Discretionary Bonuses, Section 778.212 Gifts and Holiday Bonuses, Section 778.213 Qualified Profit Sharing and Savings Plans, and Section  778.214 Other Qualified Plans.  Bonuses which do not qualify for exclusion from the regular rate as one of these types must be totaled in with other earnings to determine the regular rate on which overtime pay must be based.

Typically any bonus announced in advance and tied to work performance, hours or other productivity will not qualify for an exemption.  There three ways to manage the recalculation problem, other than utilizing qualified plans:

1. Holiday Bonuses: The Holiday Gift and Bonus exemption under section 778.212 allows for the exclusion from calculation of an employees “regular rate” of pay “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent upon hours worked, production, or efficiency…”   The following sets forth some of the parameters of the exclusion:

If the bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under section 7(e)(1) even though it is paid with regularity so that the employees are led to expect it and even though the amounts paid to different employees or groups of employees vary with the amount of the salary or regular hourly rate of such employees or according to their length of service with the firm so long as the amounts are not measured  by or directly dependent upon hours worked, production, or efficiency. A Christmas bonus paid (not pursuant to contract) in the amount of two weeks' salary to all employees and an equal additional amount for each 5 years of service with the firm, for example, would be excludable from the regular rate under this category.

2. Discretionary Bonuses: This is an area of DOL audit scrutiny and should not be used on a regular or aggressive basis. Truly discretionary bonuses are not included in the regular rate of pay under section 778.211, if both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. The following sets forth some of the parameters of the exclusion:

For example, any bonus which is promised to employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee's continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.

3. Percentage Total Earnings Bonus: Bonuses based on a percentage of the nonexempt employee’s total earnings under section 778.210 do not result in a recalculation of the regular rate because overtime is already been accounted for in the calculation.   Under this method, the bonus is described as a percentage of the nonexempt employee’s total (W-2) earnings, thereby including both regular and overtime payments and obviating the need for recalculation of the regular rate.

Inclement Weather Policies: Don't Get Lost in the Storm

Many employers struggle with business closings and delays necessitated by inclement weather. I recommend adopting a policy that addresses at least the following three areas:

Will employees be paid for the time when the business is closed?

Nonexempt employees need not be paid for time when they do not work because the business is closed. Exempt employees must be paid their salary for the week regardless of the business closing. PTO or vacation may be charged, but exempt employee salaries may not be docked for time when the business is closed. A Department of Labor Compliance Assistance Letter details some of the Wage and Hour considerations applicable to the payment of wages for exempt employees.

Will employees be paid if they don’t report to work due to inclement weather when the business is open?

Nonexempt employees need not be paid for times they are absent from work. Exempt employees need not be paid for a whole day absence taken due to inclement weather. An exempt employee absent for part of a day may be forced to use vacation or PTO time. If the exempt employee has no vacation or PTO time, his or her salary may not be docked for a partial day absence.  The same Department of Labor Compliance Assistance Letter addresses this situation.

Can an employer discipline or discharge and employee for failing to report to work due to weather conditions when the business is open?

An employer may generally apply its normal attendance policy to weather related absences; however, most will make an exception for absences due to weather if the employee makes a reasonable effort to get to work. Collateral issues abound such as childcare, public transportation, and the “snow phobic” employee (chionophobia). Keep in mind that “exceptions” should be uniformly made to avoid discrimination claims.

There is one major legal exception. Under Pennsylvania law (43 P.S. §§ 1481-1485), an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer's place of business or the county of the employee's residency, if the road closure is the result of a state of emergency declared by the Governor.  The most obvious and likely scenario is a snow storm or other inclement weather.

Employers are not required to pay an employee who is a no show based on road closures. An employee who can prove the employers "knowing and intentional" violation of the law may recover lost pay, be reinstated or have discipline revoked, and may collect attorneys fees and costs.

The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

Why Wage & Hour Class Action Lawsuits are so Attractive to Plaintiffs' Lawyers

A state court judge ordered Wal-Mart to pay over $36.5 million in attorneys’ fees to the plaintiffs’ lawyers who represented the 186,000 present and former Pennsylvania employees in a class action lawsuit filed in state court. The total hit to Wal-Mart was $187.8 million which breaks down as follows:

  • $78.8 million in a jury verdict for off the clock work by employees.
  • $62.3 million in liquidated damages under PWPCL.
  • $10.2 million in interest.
  • $36.5 in attorney’s fees and costs to the Plaintiff’s lawyers.
  • $?? in Wal-Mart legal fees to its own legal counsel.

The employee class members were ordered to pay their lawyers $12.7 million in fees out of the damage award of $141.1 million plus $10.2 in interest. The average employee award for the 186,000 class members appears to be $745.16 (less taxes and withholding). 

Michael Donovan of Donovan Searles, LLC was the lead plaintiffs counsel. As reported by the Philadelphia Inquirer, “Donovan's firm will not get the entire $49.2 million. He and his firm were assisted by other attorneys across the nation who share discovery strategies and expertise in these large and data-intensive cases. All together, 26 attorneys and 17 paralegals worked five years on the plaintiffs' case.” 

In awarding the fees, Judge Mark I Bernstein noted that “Plaintiffs' success has delivered a message to employees and employers across the commonwealth, which proclaims that work without pay is not tolerated in Pennsylvania." Appeals to the award are pending.

Wage & Hour Class Action Lawsuits: Little Mistakes add up to a lot of Money

A Federal Court judge in Philadelphia added another $62.3 million to a previous $78.5 million class action award for Wal-Mart workers who were working off the clock. The additional award was under Pennsylvania’s Wage Payment and Collection Law (WPCL) which, among other things, imposes penalties on employers that don’t pay wages within 30 days of the time they are due. The WPCL penalty is the greater of $500 or 25% of the unpaid wages. The additional award pays each of the 125,000 class members $500 each.

Class action wage & hour lawsuits pose a significant risk to large employers as observed in a recent BusinessWeek article. Class action cases are attractive to employees and lawyers because dollars grow quickly and attorney’s payoffs are big. Some of the specific aspects of these suits are as follows:

1)      Calculations of Damages under the FLSA.    Awards to class members consist of back pay (for a period of two or three years); back pay may be doubled for willful violations as liquidated damages; interest and attorneys fees. Sometimes examples can better make a point. Employers can mismanage lunch periods by automatically deducting 30 minutes a day from employee’s pay. An employee may later allege he or she regularly worked through lunch. For an employee, who is paid $12.00 per hour and who work only 40 hours per week, the mismanaged 30 minute lunch yields 2 ½ hours of unpaid overtime each week. That's fifteen dollars of unpaid overtime a week, for 52 weeks, for 2 years, for one employees or a total back pay of $1,560. Then the amount is doubled for a grand total of $3,120. For a small employer with 20 employees that amounts to $62,400.00. For Wal-Mart with 100,000 employees, it amounts to $624 million.

2)    Ease of Proof in Class Actions. Class action claims involve challenges to employer’s policies or practices that implicate a large group of similarly situated individuals. There is a relaxed standard of proof for the individual employee. Therefore, the particular facts of each employee’s situation are less important, so long as the policy or practice applied to them.

3)    Attorneys Fees. The FLSA provides for attorneys fees award to successful litigants. Typically legal fees in a class action dwarf recoveries by individual class members. Contingent fees are typical. Imagine 20-30% of $62.3 million. Although classifying the fees as “excessive” is the subject of some debate. The race to the courthouse for some class action cases has lead to allegations of kickbacks and other attorney misconduct.

I have previously posted on wage and hour issues that could be the subject of class action claims.

The Five Most Common Wage and Hour Mistakes

Wage and Hour Violations: What are the Consequences?

Ten Tips for Surviving a Wage and Hour Audit

Ten Tips for Surviving a Wage and Hour Audit

  1. The Fair Labor Standards Act is Archaic.

The FLSA was enacted in 1938 with only minor amendments since then. It doesn't fit into today's economy. For example, Overtime is still described and viewed as a "penalty". It is designed to discourage employers from working employees for more than 40 hours per week and instead encourage them to hire more employees.

  1. Understand the Mindset of a Wage and Hour Investigator.

The investigator is examining your business with the goal of finding areas of "noncompliance". The DOL publishes a Field Operations Handbook that instructs investigators on FLSA interpretations and how to conduct an audit. Remember, auditors are typically focused on certain compliance areas, industries or are investigating a complaint, but they won't tell you how you were chosen for an investigation, so don't waste time asking. They know a lot about the FLSA, just ask them. They generally don't know much about running a business. They know nothing about employee relations.

  1. Assess Your Weaknesses.

Businesses should conduct a self-audit to determine areas of risk like those identified in my previous post. Your audit likelihood increases based on two factors:

  • if you are in an industry or subject matter area targeted for a compliance initiative by the DOL. Current DOL initiatives are in the following areas:
    1. Off the Clock Compliance,
    2. Workers with Disabilities,
    3. Healthcare, and
    4. Garment Workers.
  • if you have recently undergone a messy human resources issue like a termination or organizing campaign and you have an employee who may seek vengeance through a DOL complaint.      
  1. Records are a Business' only True Defense

The DOL mandates certain recordkeeping and an employer's failure to keep adequate records of hours worked, wages paid and overtime is a violation of the FLSA. It is also very helpful to have job descriptions that attempt to establish any exemptions from overtime that my be applicable. An absence of documentation seriously undermines a business' ability to get through an investigation. Absent records, the investigator will interview employees about their hours worked and job duties.

  1. Control Your Supervisors

Meet with and educate your supervisors in advance of any DOL interview. You also have a right to sit in on any DOL interview of a supervisor so exercise that right. You are not able to sit in on employee interviews, but if the DOL identifies a larger group of employees try suggesting that they use a written survey rather than an interview. This takes the ambiguity out of both the question and the answer.

  1. Don’t be a Jerk.

As best I can tell, the Wage and Hour Division's compliance budget is almost $190 million dollars. Don't make them spend it all on you. If you tell them to get a subpoena, they will. And instead of one investigator, they'll send five. There are ways to be firm and courteous. Manage the investigation as best you can while still running your business. Here are a few simple tips:

  • Establish a point person for dealing with the investigator and have all requests for information go through that person
  • Give the investigator a place to work that is out of contact with employees but reasonably comfortable
  • Try to get a summary of the audit and the document needs of the auditor, so that you can manage his or her expectations about providing them
  • Make employees available for interview during work hours so they are not contacted at home
  • Try to wrap up the audit in one or two days, if possible. Don't let the investigator think up more questions and come back again.
  1. Investigators Don’t Always Play Fair

Employee interviews are the area where things can go horribly wrong. As every lawyer knows, a leading question is the best way to get the answer you want; particularly, if the witness is in an uncomfortable position of being quizzed by a government enforcement agent. Compare the following two questions and guess which one the investigator will ask your employees if you are a jerk to him:

  • How many hours do you normally work in a week?
  • You look like a really conscientious person, I bet you work one or two extra hours each week and don't even tell your employer?
  1. Let’s Make a Deal

The field investigators have limited ability to compromise a claim when it is reduced to a specific dollar amount based on investigative findings. If things are going badly in an area, you still have the ability to strike a deal before the investigator leaves and does his or her final calculations. Even if the investigator comes up with a number, remember there is a chain of command that you can use for further negotiations. There are Area Administrators, Regional Administrators and the DOL's legal solicitors.

  1. Expect Publicity for Noncompliance

As a means of justifying its enforcement activities, the DOL is much more likely use newspaper and website publicity that names the employer and the amount of a settlement.

    10.    Fix your Mistakes… They’ll be back.

Many settlements with the DOL involve follow up reporting and compliance agreements. In addition, the DOL does re-investigate businesses. Penalties for repeat violations are greater and lead to willful violation findings.

Comparison of Pennsylvania and Federal Minimum Wage Rate Increases

The Fair Minimum Wage Act of 2007, signed into law by President Bush on May 25, 2007 increases the federal minimum wage for the first time in 10 years. In a three-step process, the Federal minimum wage will increase to $5.85 on July 24, 2007; $6.55 on July 24, 2008; and $7.25 on July 24, 2009. Employers must pay the higher of the Federal or Pennsylvania minimum wage. In all cases, the Pennsylvania minimum wage rate is equal to or higher than the Federal minimum wage rate:

  PA Minimum Wage

PA Small Business

Federal Minimum Wage
July 1, 2007 $7.15 /hour $6.65/hour $5.85/hour
July 24, 2008  

$7.15/hour

$6.55/hour
July 24, 2009 $7.25/hour $7.25/hour $7.25/hour

Pennsylvania's Minimum Wage Increases to $7.15 per Hour on July 1, 2007 for Most Employers

The second installment of Pennsylvania's minimum wage increase takes effect on July 1, 2007. For most employers, the Pennsylvania Minimum Wage Act increases Pennsylvania’s minimum wage as follows:

·         To $6.25 per hour effective January 1, 2007.

·         To $7.15 per hour effective July 1, 2007.

·         To $7.25 per hour effect July 24, 2009.

There is delayed effective date for small employers. A small employer is defined as one who has an employee complement composed of the equivalent of 10 or less full-time employees. Small employers may use the following minimum wage implementation schedule:

·         To $5.65 per hour effective January 1, 2007.

·         To $6.65 per hour effective July 1, 2007.

·         To $7.15 per hour (the regular Pennsylvania minimum wage) effective July 1, 2008.

·         To $7.25 per hour (the Federal mandated minimum wage) effective July 24, 2009.

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Wage & Hour Compliance Assistance from the DOL

Last month the Department of Labor announced the addition of its "Overtime Calculator" to the five other previously published FLSA Advisors. Although it is unlikely that the Calculator will displace Spider Solitaire as my lunchtime dalliance, it was educational to run through the program which has links to a lot of the terminology used in the FLSA. The calculator operates with the same backwards logic of a tax return, but this shows you how mechanically the DOL applies the law to the facts.

Three of the five other FLSA Advisors are good resources for FLSA compliance. I recommend the "Hours worked", FLSA exemptions, and "Child Labor" Advisors: Continue Reading...

The Five Most Common Wage and Hour Mistakes

Having identified several of the most common Wage & Hour mistakes in the last post, I wanted to expound upon 5 of them that I see over and over again:

1.    Misclassifying nonexempt employees as exempt and the resulting failure to pay overtime.

The so called "White Collar Exemptions" were revamped in 2004 DOL regulations, but still remain a source of interpretive confusion or corporate intransigence. The exemptions to minimum wage and overtime requirements apply to executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools), outside sales employees, and employees in certain computer-related occupations. In my experience, the three most frequent errors occur for the following jobs: Working Supervisors; Administrative Assistants; IT Help Desk Employees.

Corporate intransigence remains for job titles that have traditionally been treated by a company as exempt positions and paid a salary, but which don't really qualify for any exemption.  For example, there are many clerical positions for which an employer tries to recognize the significant contribution and responsibility by treating them as exempt, but these positions don't meet the "administrative" exemption. An employer's hesitancy to address the employee relations issue associated with an incorrect exemption is like a ticking time bomb. Continue Reading...

Wage and Hour Violations: What are the Consequences?

The Central Penn Business Journal's Morning Roundup featured an Associated Press article entitled "Small Business Owners shouldn't use interns as substitute employees". This is the same issue that I commented on in my last posting, but it reminded me that I missed a chance to describe the ramifications of getting it wrong.

There are significant consequences for violating the Fair Labor Standards Act (FLSA) by incorrectly paying minimum wage or overtime. Fixing a violation may involve more than just paying the compensation that was owed.

For FLSA violations, an employee may recover both back pay and liquidated damages (which is a penalty equal to the amount of the back pay). The double damages recoverable by an employee give the FLSA some real teeth.

The FLSA may be enforced by either the Department of Labor or by a private lawsuit by an employee. Listed below are methods which the FLSA provides for recovering unpaid minimum and/or overtime wages:

(1) The Wage and Hour Division may supervise payment of back pay.

(2) The Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages.

(3) An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney's fees and court costs.

(4) The Secretary of Labor may obtain an injunction to restrain any person from violating the FLSA, including the unlawful withholding of proper minimum wage and overtime pay.

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Summer Internships: To Pay or Not to Pay

The Human Resource Blog has a great post on the benefits of hiring a summer intern. At the risk of throwing the legal wet blanket on internship programs, employers need to be cautious when it comes to unpaid interns. The FLSA provides minimum wage and overtime protection to those employed within the meaning of the Act. FLSA section 3(g) states that to “employ” means to “suffer or permit to work.” The Supreme Court in Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947), identified six factors to evaluate whether a trainee, intern, extern, apprentice, graduate assistant, or similar individual is to be considered an employee. If all of the following six factors are met, then an employment relationship does not exist and compensation is not due:

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Converting to a Paid Time Off System: Practical and Legal Pointers

Merrill Lynch tried to prevent abuses in sick time by clamping down on the reasons for sickness related absences and disciplining employees for excessive absenteeism. Many employers have decided to get away from policing the circumstances of an employee's absence by just creating a bank of paid time off that can be used for any reason. Once PTO is exhausted, time is unpaid and subject to the attendance discipline policy. This certainly sounds like a great idea, but here are some practical and legal considerations in converting from a traditional sick pay program to a PTO plan:

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Abuse of Sick Days: Analyzing the Merrill Lynch Response

 

Merrill Lynch is reportedly cracking down on time off abuses through new attendance guidelines that provide for a verbal warning and possible loss of pay after use of four sick days and termination after use of nine sick days without valid excuse. The new corporate policy is purportedly designed to reign in workers who misuse sick days by playing hooky on nice summer days, extending weekends, etc. The new policy replaces a program that providing up to 40 sick days per year.

Sick day programs are one of the most fretted over of all employment policies because they involve so many management and legal issues. Sick time is disruptive to the workplace because it is almost always unscheduled. Misuse of sick time has a dramatic impact on employee morale because of work inequity perceptions. Employers must manage abuses within the legal parameters imposed by the wage & hour laws, disability discrimination protections, Family and Medical Leave Act compliance, and wage payment regulations.

Almost every employer offers some form of sick time benefit.   Statistics show that the average business offers 8.1 sick days per year, but employees use only 5.2. However, the growing trend is away from traditional sick days to creating a paid time off bank (PTO). PTO programs combine into one pot all categories of time off, like vacation, sick days, personal days, and floating holidays. Some of the advantages and disadvantages of PTO are as follows:

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Did You Know? Pennsylvania Law Highlights Section

The Pennsylvania Employment Law Blog has added a new section which highlights and/or discusses legal situations which commonly confront human resource professionals. Click on the link titled "Did You Know? PA Employment Law Highlights" on the upper right side of the page. The short informational postings address Pennsylvania law's impact on specific HR activities to promote compliance, proactive risk management, and issue identification.   The postings will be made on a regular basis and archived in this special section of the blog for our reader's reference and review. 

Pennsylvania Minimum Wage Increase

 In 2007, Pennsylvania's minimum wage is slated to increase in two steps. On January 1, 2007 the minimum wage will increase from its current level of $5.15 an hour to $6.25 an hour. Then on July 1, 2007, the rate will rise to $7.15 an hour.

 

Increases are delayed for small employers with 10 or fewer full time employees. Small employers must increase minimum wage to $5.65 an hour on January 1, 2007, $6.65 an hour on July 1, 2007 and $7.15 an hour on July 1, 2008.

 

A sixty day training wage rate, based on the Federal $5.15 an hour, is permitted for employees under 20 years of age. To utilize the training wage, employers must notify workers at the time of hire of both the training wage and the workers right to receive the Pennsylvania minimum wage after 60 calendar days of employment. The law also makes it clear that other workers may not be displaced to allow hiring of training wage workers.

 

The minimum wage credit for tipped employees will remain at $2.83 per hour. However, an employer will have to make up the difference if the employee’s tips and the $2.83 per hour do not meet the full Pennsylvania minimum wage. The tip credit applies only if an employee received more than $30.00 in tips during a month. If an employee does not receive more than $30.00 per month in tips, the employer must pay the regular minimum wage.

 

The competitive market for employees has most companies paying more than the state minimums; however, employers of all sizes should evaluate the impact of these increases on their budgets and compensation systems.

 

If you have more questions, the Department of Labor and Industry has published a FAQ related to the new wages.