If you have employees who you believe are exempt from being paid overtime or the minimum wage (and who doesn’t?), your company is vulnerable to being accused of “wage theft” by the Department of Labor and being faced with repayment of wages, liquidated (double) damages, interest, penalties and attorneys’ fees. “Wage theft” is the new inflammatory term, coined by an activist named Kim Bobo, author of Wage Theft in America, to describe any failure to pay workers in strict compliance with federal and state law.
Bobo’s thesis is that the DOL has not been properly funded in many years and has focused on helping employers comply with the laws rather than targeting those same employers for vigorous enforcement efforts and collection of the wages which have been “stolen” from low-income workers. She advocates greatly increasing the number of investigators employed by the DOL, which my earlier posts (click here and here) have said is exactly the plan that the Obama administration is following.
The areas in which an employer is most vulnerable to being investigated and prosecuted for wage theft are:
- MInimum wage payment.
- Misclassification of workers as “contract labor”.
- Overtime pay.
The employers in the Texas Panhandle who come to me with compensation questions are not committing wage theft. They are generally confused, or are using common sense instead of knowledge of the law, or are doing what they’ve always done in times when the government wasn’t so rabid about enforcement. They often don’t know they have done anything wrong until a disgruntled former employee complains to the DOL and an investigator comes to audit the business. Now with the present enforcement efforts, the employer is too late to correct the problems and is faced with significant costs and penalties.
So how can you make changes now to avoid an accusation of wage theft and an investigation of your pay practices?
The easiest way to avoid being investigated for the minimum wage violations is to make sure every worker is earning at least $7.25 during each pay period for every hour he spends at work, even if he is paid on commission and hasn’t really produced any sales, even if he is an agricultural worker and it is harvest time so he is working 18 hour days but barely works at all in the winter, and/or even if he is not at work, but is still on call or answering work calls on his cell phone during his personal time.
To avoid liability for misclassifying an employee as contract labor, make sure every person who performs any work for you is on the payroll and all taxes are being withheld from each paycheck. Don’t ever buy into the myth that you can choose to make a worker into a contract laborer. Anyone who performs work for you is probably an employee other than the self-employed plumber who shows up once per year to fix your sink or the lawyer who drafts your personnel policies and reviews them annually.
To avoid overtime liability, you may want to forget about the “administrative exemption” to the Fair Labor Standards Act. This is a catch-all white collar exemption that many businesses use to classify these types of employees: tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.
The problem is that just having one of these job titles is not enough. The exempt administrative employee must also have significant independent discretion and judgment, a requirement that the DOL is interpreting more and more narrowly. Now, even employees who work without much supervision will not be considered exempt if the employer has provided specific instructions on how he wants the job performed. Therefore, an administrative employee who you have always considered to be exempt in the past may not pass the DOL’s scrutiny now.
A careful employer will now get a legal opinion on each employee that he wants to exempt from the overtime and minimum wage laws. As extra protection, even if you believe that your employees are clearly exempt, have every single employee clock in and out every day so that inflated claims can never be made on the hours that a particular employee worked if your exemption determination is questioned in the future.