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– KPA CONFIDENTIAL –
Essentials of Wage and Hour Law for
Dealerships
February 11, 2010
Questions
• If you have questions
during the
presentation, please
submit them using the
“Questions” feature
• Questions wi...
Essentials of Wage and Hour Law for
Dealerships
3– KPA CONFIDENTIAL –
•Investigation vs. Lawsuit
•Employee Classification
...
Said One Plaintiff’s
Wage & Hour Lawyer:
“I’m confident that I
will be fully
employed for the
rest of my
life, unless they...
Why the litigation explosion?
• Employers misunderstanding the law
• Plaintiff’s lawyers - Plaintiff’s lawyers -
Plaintiff...
Recent Settlements or Awards
• Wal-Mart Stores $172 Million
• Smith Barney $98 Million
• USB Financial $87 Million
• Starb...
Investigation vs. Lawsuit
Federal Investigation
• Complaint
• Audit D.O.L. vs. Self
• Wages Due
• Statute of Limitations
(...
Main Types of Wage and Hour Class and
Collective Actions
• Misclassification of nonexempt employees
• Improper salary dedu...
Impact of State Wage and Hour Laws
• State law claims may be brought as class actions
as opposed to FLSA collective action...
Federal Exemptions
MINIMUM WAGE/
OVERTIME/ RECORDS
• Executive
• Administrative
• Professional
• Outside Sales
• Highly Co...
Complete Exemptions
1. Executive
2. Administrative
3. Professional
4. Outside sales
5. Highly Compensated Employees
Minimu...
• Is in charge of a department or sub-
department, and
• Supervises the work of two or more full
time employees, and
• Rec...
EXEMPT
only means that these employees generally
meet all the criteria and are generally
exempt from overtime
NOT EXEMPT
o...
Executive Exemption
EXEMPT
Dealer
Dep’t Manager
NOT EXEMPT
Ass’t Manager
CSI Manager
Lot Manager
Inventory Manager
...
• Primary duty is performing non-manual work
related to management policies or general
business operations, and
• Exercise...
Administrative Exemption
EXEMPT
 Used Car Buyer
 Human Resources
Manager
 Office Manager
NOT EXEMPT
Office employees
...
Outside Sales
EXEMPT
Wholesale parts
sales
NOT EXEMPT
• Performs office or non-manual
work, and
• Is guaranteed total annual
compensation of at least $100,000 per
year, and
• P...
Partial Exemptions
(OVERTIME only)
• Salesman
• Partsman
• Mechanic
• Commission-paid
• Motor Carrier ???
Salesman
EXEMPT
 Sales person
 Sales associate
 Internet sales person
 Service Writer
NOT EXEMPT
 After market sales
...
Service Writers
The Department of Labor will no longer deny
the OT exemption for (service writers) FOH
24L04(k)
Partsman
EXEMPT
Parts counter
Shipping/receiving
Mechanics’ counter
Telephone sales
NOT EXEMPT
Parts driver
Parts in...
EXEMPT
Technician
Technician trainee
Apprentice
Body man
After-market
installer
NOT EXEMPT
Quick lube
mechanic
Deta...
Commission-Paid Exemption
• Employed at a “retail” dealership, and
• Receives the majority of his/her
compensation from “c...
Commission-Paid
EXEMPT
Finance Manager
Painter
Dispatcher
Service Foreman
“Flat rate” detailer
Other managers
NOT EX...
Finance Managers
• 9th CIRCUIT
OPINION – 2005
F & I Managers
ARE Exempt!
Changes to Motor Carrier Act Exemption
• Before 2005, the FLSA’s motor carrier exemption
applied to all employees who drov...
“Are they exempt from overtime?”
• What does the employee
spend the majority of his time
doing?
• How is employee’s pay pl...
Irrelevant Factors
• Employee is paid a salary
• We consider employee a “manager”
• Employee makes $45,000
• Employee coul...
Common Classification Mistakes
• Not considering differences in state and
federal salary and duties tests
• Treating train...
Wage Calculation Issue:
Failing to pay all the overtime that
is due to an employee
If an employee is not exempt from
overtime…
The employer must pay overtime premium on
all compensation the employee receiv...
Example
 Warranty Administrator is paid salary of
$600/wk. plus monthly bonus of about
$700/mo
 She works 50 hours a wee...
DOL’s calculation
2 years overtime on salary:
$6,240
2 years overtime on commission:
$1,680
TOTAL DUE:
$7,920
Private Lawsuit Calculation
3 years overtime on salary: $9,360
3 years overtime on commission: $2,520
Liquidated damages: ...
Calculating Overtime
1) Divide amount of salary, bonus,
commission, etc. received in a week by
the hours worked in the wee...
Wage Calculation Issue:
Using a poorly-drafted pay plan
Sales Pay Plans
1. Wage and hour aspects
2. Contract aspects
Wage and Hour Aspects
• You can pay commissions weekly, bi-
weekly, semi-monthly or monthly.
• You must satisfy minimum wa...
Sales Pay Plans
• Put the pay plan in writing and reissue it
whenever you make a change
• All sales people should punch a ...
CONTRACT
ABC Motors hereby contracts
with XYZ Company to have XYZ
do some work for it and agrees
to pay XYZ about $50,000....
What is…
? “25% gross profit”
? “Commissionable gross”
? “Pack”
? “Market Adjustment”
? “Wholesale reserve”
? “Over/under ...
Sales Pay Plans
• Be sure that you define every important term so that a jury will
understand exactly what you mean.
• Use...
Drafting Managers’ Pay Plans
• Do not use “short hand” terms or dealership industry jargon
• “Salary” or “draw” or “advanc...
Wage Calculation Issue:
Promising an employee a “guarantee”
What is a “guarantee” ?
A. A guarantee of a certain amount of pay?
B. A guarantee of employment for the entire
period of t...
Wage Calculation Issue:
Treating employees as “independent
contractors”
Who is an “independent contractor”?
• No clear line
• Depends on the forum you are in
• Factors to consider:
– The extent ...
Who is an “independent contractor”?
• Factors to Consider:
– The degree of independent business organization and
operation...
• Wage and Hour: failure to pay wages due
• IRS: penalties for failure to withhold taxes
• Unemployment: failure to make p...
Time Records
• The employer shall maintain an accurate record of the
hours worked by each non-exempt employee each
day and...
Federal versus State Law
• Federal law does not preempt state
employment laws
• Employees are entitled to the provision
mo...
State Wage Law Concerns
1. Higher minimum wages
2. Different or non-existent exemptions
3. Wage payment laws
4. Wage deduc...
Some Exemption Examples
• IL and NV do not recognize “partsman”
• MA does not recognize “s,p,m”, but has an
exemption for ...
Payroll Practices: Red Flags
Watch out for “red flags” regarding payroll practices:
– Improper deductions from salaried em...
Questions and Answers
56– KPA CONFIDENTIAL –
QUESTIONS?
James F. Hendricks Jr.
Partner, Chicago Office
312-960-6118
jhendricks@fordharrison.com
Contact Information
58– KPA CONFIDENTIAL –
The recorded webinar and presentation slides will be emailed to
you today inclu...
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Essentials of Wage and Hour Law for Dealerships

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Essentials of Wage and Hour Law for Dealerships February 11, 2010

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Transcript of "Essentials of Wage and Hour Law for Dealerships"

  1. 1. – KPA CONFIDENTIAL – Essentials of Wage and Hour Law for Dealerships February 11, 2010
  2. 2. Questions • If you have questions during the presentation, please submit them using the “Questions” feature • Questions will be answered at the end of the webinar
  3. 3. Essentials of Wage and Hour Law for Dealerships 3– KPA CONFIDENTIAL – •Investigation vs. Lawsuit •Employee Classification •Wage Calculations •Accurate Recordkeeping
  4. 4. Said One Plaintiff’s Wage & Hour Lawyer: “I’m confident that I will be fully employed for the rest of my life, unless they just get rid of the wage/hour laws altogether.”
  5. 5. Why the litigation explosion? • Employers misunderstanding the law • Plaintiff’s lawyers - Plaintiff’s lawyers - Plaintiff’s lawyers - Plaintiff’s lawyers- • Liquidated damages and attorney’s fees • Almost every employee is a potential plaintiff
  6. 6. Recent Settlements or Awards • Wal-Mart Stores $172 Million • Smith Barney $98 Million • USB Financial $87 Million • Starbucks $18 Million • Your Dealership $???
  7. 7. Investigation vs. Lawsuit Federal Investigation • Complaint • Audit D.O.L. vs. Self • Wages Due • Statute of Limitations (2 years) • No attorney fee Employee Lawsuit • Find an attorney • Lawsuit • Wages Due • Statute of Limitations (3 years) • Liquidated Damages • Attorney fees 7– KPA CONFIDENTIAL –
  8. 8. Main Types of Wage and Hour Class and Collective Actions • Misclassification of nonexempt employees • Improper salary deductions • Requiring or permitting “off the clock” work • Miscalculating regular rate for overtime purposes • Failure to comply with more stringent state laws • Poorly drafted pay plans
  9. 9. Impact of State Wage and Hour Laws • State law claims may be brought as class actions as opposed to FLSA collective actions • Class vs. collective actions: – A class member must affirmatively “opt in” to an FLSA collective action in order to participate and be bound by the judgment – Under traditional class actions, each class member is bound by the judgment and notified of award or settlement unless he or she affirmatively “opts out” – Thus, class actions under state law may have very large classes
  10. 10. Federal Exemptions MINIMUM WAGE/ OVERTIME/ RECORDS • Executive • Administrative • Professional • Outside Sales • Highly Compensated OVERTIME ONLY • Salesman • Partsman • Mechanic • Commission-paid • Motor Carrier
  11. 11. Complete Exemptions 1. Executive 2. Administrative 3. Professional 4. Outside sales 5. Highly Compensated Employees Minimum Wage, Overtime and Records
  12. 12. • Is in charge of a department or sub- department, and • Supervises the work of two or more full time employees, and • Receives a salary or guarantee of at least $425/wk Executive Exemption
  13. 13. EXEMPT only means that these employees generally meet all the criteria and are generally exempt from overtime NOT EXEMPT only means that these employees generally do not meet the criteria for this exemption and generally are not exempt WARNING! Job titles are not controlling CAUTION!
  14. 14. Executive Exemption EXEMPT Dealer Dep’t Manager NOT EXEMPT Ass’t Manager CSI Manager Lot Manager Inventory Manager Finance Manager
  15. 15. • Primary duty is performing non-manual work related to management policies or general business operations, and • Exercises discretion and independent judgment with little or no supervision, (holds a position of responsibility) and • Receives a salary or guarantee of at least $425/wk Administrative Exemption
  16. 16. Administrative Exemption EXEMPT  Used Car Buyer  Human Resources Manager  Office Manager NOT EXEMPT Office employees Warranty Admin. Accounts Payable Rental clerk Booker Dispatcher
  17. 17. Outside Sales EXEMPT Wholesale parts sales NOT EXEMPT
  18. 18. • Performs office or non-manual work, and • Is guaranteed total annual compensation of at least $100,000 per year, and • Performs any one of the exempt duties of an executive, administrative or professional employees Highly-Compensated Employees
  19. 19. Partial Exemptions (OVERTIME only) • Salesman • Partsman • Mechanic • Commission-paid • Motor Carrier ???
  20. 20. Salesman EXEMPT  Sales person  Sales associate  Internet sales person  Service Writer NOT EXEMPT  After market sales  Greeter  Finance Manager  Motorcycle salesman  BDC worker Primary duty: selling cars or trucks to the consumer
  21. 21. Service Writers The Department of Labor will no longer deny the OT exemption for (service writers) FOH 24L04(k)
  22. 22. Partsman EXEMPT Parts counter Shipping/receiving Mechanics’ counter Telephone sales NOT EXEMPT Parts driver Parts inventory (computer) Primary duty: stocking, issuing, requisitioning or selling parts
  23. 23. EXEMPT Technician Technician trainee Apprentice Body man After-market installer NOT EXEMPT Quick lube mechanic Detailer New car get ready PDI technician Mechanic Primary duty: performing mechanical or body repair work on a vehicle
  24. 24. Commission-Paid Exemption • Employed at a “retail” dealership, and • Receives the majority of his/her compensation from “commissions”, and • Receives at least time and one-half minimum wage ($12.00) for all hours worked in an overtime week
  25. 25. Commission-Paid EXEMPT Finance Manager Painter Dispatcher Service Foreman “Flat rate” detailer Other managers NOT EXEMPT Warranty clerk  Office employees “Piece rate” detailer
  26. 26. Finance Managers • 9th CIRCUIT OPINION – 2005 F & I Managers ARE Exempt!
  27. 27. Changes to Motor Carrier Act Exemption • Before 2005, the FLSA’s motor carrier exemption applied to all employees who drove a motor vehicle in interstate commerce regardless of the size of the motor vehicle or the number of passengers transported in the vehicle. • As of August 10, 2005, the motor carrier exemption only applies to drivers of vehicles that weigh in excess of 10,001 pounds. Bottom Line Employees who deliver non-hazardous materials in vehicles weighing less than 10,001 pounds (which includes cars and most light trucks) are no longer exempt because they do not drive commercial motor vehicles.
  28. 28. “Are they exempt from overtime?” • What does the employee spend the majority of his time doing? • How is employee’s pay plan structured? • Does employee fit exactly into one of the nine exemptions?
  29. 29. Irrelevant Factors • Employee is paid a salary • We consider employee a “manager” • Employee makes $45,000 • Employee could supervise someone • When employee was hired, we agreed no overtime would be due
  30. 30. Common Classification Mistakes • Not considering differences in state and federal salary and duties tests • Treating trainees as exempt before they fully qualify as exempt • Failing to guarantee the proper minimum salary • Prorating the salary of a part-time exempt employee to less than $455/week • Making improper deductions from salaries of exempt employees
  31. 31. Wage Calculation Issue: Failing to pay all the overtime that is due to an employee
  32. 32. If an employee is not exempt from overtime… The employer must pay overtime premium on all compensation the employee receives $ Hourly wages $ Salary $ Commissions $ Bonuses $ Spiffs $ Payments from the manufacturer
  33. 33. Example  Warranty Administrator is paid salary of $600/wk. plus monthly bonus of about $700/mo  She works 50 hours a week But she’s NOT EXEMPT!!!
  34. 34. DOL’s calculation 2 years overtime on salary: $6,240 2 years overtime on commission: $1,680 TOTAL DUE: $7,920
  35. 35. Private Lawsuit Calculation 3 years overtime on salary: $9,360 3 years overtime on commission: $2,520 Liquidated damages: $11,880 Attorneys fees: $25,000 TOTAL DUE: $48,760
  36. 36. Calculating Overtime 1) Divide amount of salary, bonus, commission, etc. received in a week by the hours worked in the week. 2) Then take ½ of that figure times the number of overtime hours 3) That gives you the additional overtime due
  37. 37. Wage Calculation Issue: Using a poorly-drafted pay plan
  38. 38. Sales Pay Plans 1. Wage and hour aspects 2. Contract aspects
  39. 39. Wage and Hour Aspects • You can pay commissions weekly, bi- weekly, semi-monthly or monthly. • You must satisfy minimum wage on the same basis: weekly, bi-weekly, semi-monthly or monthly • You can “loan” or advance a sales person money to cover the minimum wage and then recoup it in subsequent weeks or months • You must pay for all hours worked: sales meetings, off day deliveries, prospecting, etc.
  40. 40. Sales Pay Plans • Put the pay plan in writing and reissue it whenever you make a change • All sales people should punch a time clock • If they punch in but not out, make an estimate of the hours actually worked and calculate pay on that basis
  41. 41. CONTRACT ABC Motors hereby contracts with XYZ Company to have XYZ do some work for it and agrees to pay XYZ about $50,000. ___________________ For ABC Motors Contract Aspects A pay plan, whether written or oral, is a legally binding contract A court will normally construe a contract against the party who drafted it (you!)
  42. 42. What is… ? “25% gross profit” ? “Commissionable gross” ? “Pack” ? “Market Adjustment” ? “Wholesale reserve” ? “Over/under trade allowance” ? “Inventory adjustment”
  43. 43. Sales Pay Plans • Be sure that you define every important term so that a jury will understand exactly what you mean. • Use examples of how the commissions will be calculated (show the math). • Cover all the common problems:  Split deals  Commission payments after the employee leaves  Right to see how commissions are calculated 43– KPA CONFIDENTIAL –
  44. 44. Drafting Managers’ Pay Plans • Do not use “short hand” terms or dealership industry jargon • “Salary” or “draw” or “advance” or “guaranteed draw” ??? • Refer to lines on the financial statement • Explain in detail how compensation will be calculated for first and last month of employment • Provide for inventory and accounting adjustments. • Watch out for “guarantees”
  45. 45. Wage Calculation Issue: Promising an employee a “guarantee”
  46. 46. What is a “guarantee” ? A. A guarantee of a certain amount of pay? B. A guarantee of employment for the entire period of the guarantee?
  47. 47. Wage Calculation Issue: Treating employees as “independent contractors”
  48. 48. Who is an “independent contractor”? • No clear line • Depends on the forum you are in • Factors to consider: – The extent to which services rendered by an individual are an integral part of the principal’s business – The permanency of the relationship between the individual and the principal – The amount of investment in facilities and equipment by the individual – The opportunities for profit or loss by the individual and the method of compensation
  49. 49. Who is an “independent contractor”? • Factors to Consider: – The degree of independent business organization and operation by the individual – The degree and nature of control of the individual by the principal – The degree of independent judgment exercised by the individual who performs the services – Performance of the same or similar services by the individual for third parties in addition to the principal – Employment of the individual by the principal in any other capacity – A comparison of the relationship to other independent contractor operations of a similar nature in the industry – The right of either party to terminate the relationship on short notice without penalty
  50. 50. • Wage and Hour: failure to pay wages due • IRS: penalties for failure to withhold taxes • Unemployment: failure to make proper contributions • Negligent hiring / retention • Unemployment compensation • Workers compensation • Negligence toward third party Your Potential Liability
  51. 51. Time Records • The employer shall maintain an accurate record of the hours worked by each non-exempt employee each day and each week • The employer can delegate this duty to employees, but it remains responsible for compliance • No required format: Punched time cards, handwritten time sheets, computer log, etc., so long as they are accurate • There is no fine for failing to require employees to keep accurate records • However, without good time records, you are at your employees’ mercy • Most accurate: Punched time card
  52. 52. Federal versus State Law • Federal law does not preempt state employment laws • Employees are entitled to the provision most favorable to them
  53. 53. State Wage Law Concerns 1. Higher minimum wages 2. Different or non-existent exemptions 3. Wage payment laws 4. Wage deduction laws 5. “Living wage” laws
  54. 54. Some Exemption Examples • IL and NV do not recognize “partsman” • MA does not recognize “s,p,m”, but has an exemption for “garageman” • NY recognizes “s,p,m” only if they receive 1½ times the NY minimum wage • NV and CA require OT after 8 hours in a day
  55. 55. Payroll Practices: Red Flags Watch out for “red flags” regarding payroll practices: – Improper deductions from salaried employees – Improper calculation of “regular rate” – Job descriptions for exempt employees that do not reflect exempt duties – Nonexempt employees working through meal breaks – Nonexempt employees performing work before or after they punch or log in/out – Employees who routinely stay late but have no overtime – Not complying with employer’s own written policies
  56. 56. Questions and Answers 56– KPA CONFIDENTIAL – QUESTIONS?
  57. 57. James F. Hendricks Jr. Partner, Chicago Office 312-960-6118 jhendricks@fordharrison.com
  58. 58. Contact Information 58– KPA CONFIDENTIAL – The recorded webinar and presentation slides will be emailed to you today including your local representative’s contact information. www.kpaonline.com bross@kpaonline.com 866-356-1735
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