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.
2. Treating an employee as an independent contractor.
Employers avoid minimum wage, overtime, and employment taxes by treating a worker as an independent contractor rather than an employee. The legal distinction between the two types of workers turns on the business’s right to control the manner in which the work is performed. The IRS has used a variety of tests, the most recent of which involves evaluating three areas of control: Behavioral Control, Financial Control, and the Type of Relationship. The IRS has published 162 pages Training Materials on this subject.
There are two principal areas of IRS/DOL audit focus. First, changing a whole classification of employees to independent contractors such as computer technicians or sales employees. Second, reclassifying an employee who "retires" and then comes back as an independent contractor doing the same job for the business. Both these situations are easily tracked by the IRS because the worker will likely receive both a W-2 form and a 1099 form from the same business in the same tax year.
3. Failing to pay employees for all "hours worked".
It is the employer’s responsibility to keep track of all hours worked by its employees. Good records are imperative. The most common errors are as follows:
· Commencement of the Workday. Many good employees come in early before their regular starting hours. They turn on their computer, make coffee, get organized for the day. The DOL may consider these preliminary activities as "work" for which the employee must be paid.
· Donning and Doffing. In many industries, putting on clothing and washing up after performing work are part of a workday. The U.S. Supreme Court recently ruled that these types of preliminary activities are work time and must be paid.
· Working off the Clock. Compensation for meal and break times are difficult for an employer to monitor, but diligence is required.
· Travel Time. Workers who report to different work sites away from the employer’s principal business may need to be paid for travel time. There is a post in the PA Highlights section that discusses pay for travel time.
4. Docking exempt employee pay.
Exempt employees must be paid a weekly salary regardless of the number of hours worked. Their salary may be docked in limited circumstances like FMLA absences or for full day absences for illness, personal reasons, and certain disciplinary suspensions. Employers must be cautious in deducting time from a paid time off bank in less than whole day increments, particularly when the bank is exhausted. Salary may not be docked for jury duty, witness appearance, temporary military leave, damage or loss of work-related items, or for recouping the cost of production errors. Docking exempt employees may result in loss of the exemption and subject an employer to unpaid overtime.
5. Violating Child Labor laws.
Now that summer is here, many employers will be hiring teenagers for seasonal work or to fill in for vacationing employees. There are state and federal limitations for "child labor" on the maximum hours of work, types of work, and work authorization documentation. Different aged children are limited in the jobs they can perform and the hours they can work. Monitoring child labor is important because it is highly regulated by the Department of Labor and Industry and the subject of audits in industries that traditionally employ minors.