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Be Prepared for Tougher Enforcement of Wage and Hour Laws

Employers could be in for some legal headaches as Democrats toughen up on the enforcement of wage and hour laws.

July 29, 2008
Related Topics: Technology
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Employers could be in for some legal headaches down the road as Democrats recently vowed to toughen up on the enforcement of wage and hour laws, which might require talent managers to brush up on compensation procedures.

Two reports released July 15 by the Government Accountability Office and commissioned by Chairman George Miller, D-Calif., found the Department of Labor (DOL) is failing to adequately enforce federal wage and hour laws dictated by the Fair Labor Standards Act (FLSA).

The number of actions initiated by the DOL in response to potential violations fell from approximately 47,000 in 1997 to fewer than 30,000 in 2007, while the use of fines to punish repeat or egregious offenders dropped by nearly 50 percent from 2001 to 2007, the reports showed.

On the other hand, the amount of back wages recovered by the DOL has increased from nearly $97 million in fiscal 1997 to nearly $221 million in fiscal 2007, possibly because employee-initiated efforts — in the form of FLSA lawsuits — have increased, said Jennifer Blum Feldman, a partner at WolfBlock LLP.

“It’s not that employees’ rights are going unvindicated or employees are sitting quietly while employers are taking advantage of them,” she said. “I think the idea is that the Democrats want to put some pressure on the Department of Labor to step up their effort.”

With the DOL taking more initiative to investigate and audit companies, employers will be more accountable on two fronts, and ultimately, they might have to change their policies to avoid hefty fines.

What Are the Laws?
Under FSLA, employees categorized as nonexempt must be paid at least minimum wage for all hours worked up to 40 in a workweek, and they must be compensated for any additional hours at one-and-a-half times the regular rate.

But it gets a lot more complicated than that, Feldman said.

“Overtime is defined as one-and-a-half times an employee’s regular rate — not their hourly rate,” Feldman explained. “So for example, if an employee is paid commissions on top of his or her hourly rate, those commissions need to be included in determining what the regular rate is for the workweek.”

If employers don’t compute the overtime properly, even if they’re unaware of the law, they can be found to have committed a willful violation and be subject to additional fines, Feldman said.

“Overtime can end up being a lot more expensive for employers if they’re not aware how to properly calculate it,” she said.

Then there is the issue of off-the-clock work. This occurs when employees come in early or stay late to work on assignments, but they clock in and out at their regular time. Technically, they must be paid for that extra work. If supervisors know what’s going on or even go so far as to ask employees to engage in off-the-clock work, the company once again could be subject to additional fines, Feldman said.

Another big issue for nonexempt employees right now is telecommuting. Employees increasingly are being equipped with mobile devices such as Palm Treos and BlackBerrys.

“So [employees] end up doing work, checking in with the office at 8 o’clock, 9 o’clock at night,” Feldman said. “Do they need to be paid? Is it work? That may be a new area of litigation.”

With so much at stake, what can talent managers do to make sure they’re compliant with FSLA regulations?

Exempt vs. Nonexempt: Know the Difference. The rules differ significantly for exempt versus nonexempt employees. Talent managers must make sure employees are categorized properly.

“One of the tricky areas is the interplay between federal and state law,” Feldman said. “An employee may qualify for exemption under federal law, but because state law is more restricted, they would not qualify for restriction. In a wage-and-hour context, employees get the benefit of whichever law — federal or state — provides the most protection to them.”

Track Hours. All nonexempt employees should make sure they track all the hours they work. If they are ever asked to engage in off-the-clock work, they should report it, Feldman said.

Invest in an Audit.
Employers should take a hard, thorough look at their policies and procedures pertaining to wages, Feldman said.

“An audit is an excellent first step in figuring out if there are problems and making sure there’s compliance,” she said.

Organizations should carefully consider the pros and cons of having this type of examination done internally, externally by a consultant, by outside counsel or other options.

“The other thing to do is to go to the company’s policies and procedures and make sure that the company’s good-faith efforts toward compliance are easily discernible from their policies,” Feldman said. “You [also] want to make sure there’s a complaint procedure for employees if they believe they’ve been improperly paid.”

That said, companies should only conduct an audit if they’re prepared to make changes, Feldman said.

“But again, sticking your head in the sand and taking the ostrich approach isn’t going to necessarily help if there is litigation or a Department of Labor audit or investigation,” she said. “Policies and procedures can go a long way towards establishing an employer’s good-faith efforts to comply with not only federal law but also state law in the wage-and-hour area.”

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