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Compensation Law Mythbusters
- 1. WAGEOLOGY: COMPENSATION LAW MYTHBUSTERS (AND OTHER TRENDS IN WAGE AND HOUR LAW) Mark Bakker Sarah Sloan Batson Wyche, P.A. www.wyche.com; 864-242-8200 October 28, 2014
- 3. ORIGIN STORY: FAIR LABOR STANDARDS ACT (“FLSA”) FLSA established in 1938 Minimum wage Overtime Child labor Establishment of workweek Record keeping New Deal response to abuse in factory-based jobs
- 4. ARCHAIC LAW APPLIED TO MODERN WORK FLSA not well equipped to address: Telecommuting Flexible hours Technology/communication advances
- 5. POTENTIAL FOR MASSIVE DAMAGES Class and collective actions: groups of employees treated similarly* Penalties on back pay (100% liquidated damages) Recovery of attorneys’ fees *Small $ amount x # of employees x period of time = big compensatory award
- 6. INCREASE IN LITIGATION Between 2001 and 2011 – FLSA lawsuits increased 500% 90% class actions are wage and hour class/collective actions
- 7. INCREASED INVESTIGATION AND ENFORCEMENT BY DOL Increase investigative workforce by over 40% since 2008
- 8. I’M FROM THE GOVERNMENT AND I’M HERE TO HELP
- 9. SIGNIFICANT SETTLEMENTS WITH DOL
- 10. PERFECT STORM Fearing Law Suits Always
- 11. MYTH # 1: MY SMALL BUSINESS DOES NOT HAVE TO WORRY ABOUT LIABILITY Enterprise coverage: all employees of enterprise covered if > 1 employee and > $500K in business Individual coverage: workers engaged in “interstate commerce” or “production of goods for commerce” South Carolina Wage Payment Act exceptions: Domestic employees Fewer than five employees Reality: almost every employee covered
- 12. MYTH #2: MY SALARIED EMPLOYEES ARE NOT ENTITLED TO OVERTIME (EXEMPT) Change the labels: Two tests to be exempt: salaried basis test/duties test Exempt / Nonexempt Salaried / Hourly
- 13. “DUTIES” TEST FOR EXEMPTION Executive Business Owners Administrative Professional Creative Professional Computer Outside Sales Retail Commissioned Sales Employees (OT exception) Highly compensated > $100K/year MUST APPLY FACTS AND CIRCUMSTANCES TO EACH SITUATION
- 14. REPRESENTATIVE EXEMPTION CLASSIFICATIONS Could Be Exempt Registered Nurses Chefs Accountants Engineers Sales Managers Computer Systems Analyst Likely Not Exempt Licensed practical nurses Cooks Bookkeepers Engineering technicians Inside sales positions IT Help Desk
- 15. BEST PRACTICES: EXEMPT CLASSIFICATION Review and analyze job descriptions regularly How job is done v. what is described? Job modifications = change in status? Follow up on reorganization or restructuring Watch increase in hours for positions not clearly exempt Be attentive to employee complaints about misclassification Self-audit (include exemption analysis)
- 16. MYTH #3: I CAN DOCK COMPENSATION FOR EXEMPT EMPLOYEE Standard to Meet Salaried Basis test: (1) Minimum $455/week (2) No reduction for variations in quality or quantity of work (3) Pay full salary for any week in which any work performed regardless of number of days or hours worked Improper deductions from salary can imperil exempt status!
- 17. PERMITTED DEDUCTIONS* (1) Full day absences for personal reasons (2) If sick or disabled, deduction made under PTO plan (3) Offset by jury, witness, or military leave pay (4) Violating safety rules of major significance (5) Suspension due to violation of workplace conduct rules (6) Pro-rata pay for first and last week of employment (7) FMLA absence (full/partial day) * Remember -- analysis is for exempt employees
- 18. EXAMPLES OF UNPERMITTED DEDUCTIONS Absences due to operating requirements of the business Partial day absence to attend parent-teacher conference Company closed due to inclement weather for 2 days Absence of 3 days for jury duty
- 19. SAFE HARBOR Exemption will not be lost if employer Clearly communicated policy that prohibits improper deductions includes complaint mechanism Immediately reimburses employees for improper deductions Makes good faith commitment to comply in the future
- 20. BEST PRACTICES TO AVOID IMPROPER DEDUCTIONS Review policies and handbook provision Create safe harbor policy regarding deductions Do not apply pay docking penalties to exempt employees Train managers on deductions and threats to dock pay Establish and follow formal employee grievance program Take appropriate corrective action
- 21. MYTH # 4: “HOURS WORKED” IS ONLY ACTUAL, AUTHORIZED HOURS WORKED (NONEXEMPT) What counts as “Hours Worked”?
- 22. “HOURS WORKED”: ADJUSTMENTS AND ROUNDING Performing tasks prior to start or after end of work day Work done before and after “clocking out” Time Clock Issues Avoid excessive “long punching” (early and late punching) If you round: ¼ hour increments acceptable only if administer fairly
- 23. “WORKING HOURS”: UNAUTHORIZED TIME OR “OFF THE CLOCK” Unassigned activities by self-motivated employee Unauthorized overtime Working longer than scheduled shift Working from home/mobile device Must compensate for time “suffered or permitted”: If employer knows or should have known that the employee is working or has worked, the time is compensable, even if employer did not authorize the work
- 24. “WORKING HOURS”: BREAKS AND MEALS Breaks < 20 minutes : compensable Breaks > 20 minutes – noncompensable if Uninterrupted Relieved of duty Beware : auto-deductions for meal periods if work being done
- 25. “WORKING HOURS”: TRAINING Classes not compensable if: Attendance outside employee’s normal work hours Attendance voluntary Not directly related to employee’s current job No productive work is performed by employee during training
- 26. “WORKING HOURS”: OTHER “On-Call” time Travel
- 27. BEST PRACTICES FOR DOCUMENTING “HOURS WORKED” Review time-keeping systems Develop detailed understanding of daily practices Understand work habits and customs
- 28. MYTH # 5: WE AGREE THAT YOUR SALARY COVERS ALL THE HOURS WORKED (NONEXEMPT) Corollary: We agree to pay a premium on straight time and pay for all hours worked Think you can contract your way around this problem? Employees cannot waive claims Settlements and releases particularly challenging N COVER ANY ERRORS WITH PAYMENT OR A RELEASE
- 29. MYTH # 6: YOU CANNOT CONTROL OR CONTAIN OVERTIME LIABILITY “Fluctuating Work Week” Requirements Must receive full salary each week Hours must fluctuate Must have clear agreement with employee Must be sufficient to meet minimum wage Pro: Overtime liability significantly less in heavy work weeks Con: Must pay full salary in light work week
- 30. FWW EXAMPLE Employee is Paid $400/week or $10/hr Works 40 Hours Works 50 Hours Works 60 Hours Works 30 Hours FWW $400 (No OT worked) $400/50 x .5 x 10 hrs. (OT) = $40 ($440) $400/60 x .5 x 20 hrs. (OT) = $66.67 ($466.67) $400 Traditional $400 (No OT worked) $400/40 x 1.5 x 10 hrs. (OT) = $150 ($550) $400/40 x 1.5 x 20 hrs. (OT) = $300 ($700) $300
- 32. MYTH # 7: THE INTERN AND VOLUNTEER SOLUTION: THERE IS NO SUCH THING AS A FREE LUNCH
- 33. FLSA INTERNS – 6 CRITERIA 1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment. 2. The internship experience is for the benefit of the intern. 3. The intern does not displace regular employees, but works under close supervision of existing staff.
- 34. FLSA INTERNS – 6 CRITERIA 4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded. 5. The intern is not necessarily entitled to a job at the conclusion of the internship. 6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
- 35. CLASS CREDIT SUPPORTS INTERN CLASSIFICATION “In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit).”
- 36. GLATT V. FOX SEARCHLIGHT PICTURES, INC. Unpaid interns brought class action lawsuit under FLSA against Fox alleging they were misclassified as unpaid interns. Interns were employees under the FLSA: No formal training or education, Routine tasks of employees, and Immediate advantage to Fox.
- 37. RED FLAGS “It would be really good to get some help from an unpaid intern this summer.” “We have a lot that needs to be done; let’s hire an intern.” The program is supposed to benefit the intern, not the employer.
- 39. MYTH # 8: AVOID OVERTIME ISSUES BY PROVIDING “COMP TIME” “Comp time” is not a legal option for private sector businesses Flex time: same work week same payroll period COMP TIME
- 40. MYTH # 9: HIRING INDEPENDENT CONTRACTORS SOLVES MY PROBLEM Benefits of IC relationship: No overtime liability BUT: Scrutinized by DOL and others Crackdown on IC misclassification Enforcement priority DOL Secretary: “workplace fraud”
- 41. DOL TEST: ECONOMIC REALITIES TEST (1) Degree of control (2) Investment in facilities/equipment (3) Opportunity for profit and loss (4) Permanency of the relationship (5) Required skill to perform the work
- 42. PRIMARY ISSUE: CONTROL More control and oversight Less likely worker is an IC
- 43. BEST PRACTICES FOR IC CLASSIFICATION Have written agreements Limit exclusivity Encourage economic independence Enhance flexibility Establish conclusion of the work Disavow employment relationship and benefits Require worker to set up LLC/corporation Consider alternative (temp staffing) Periodically audit and evaluate defensibility of IC status
- 44. MYTH # 10: THIS IS THE COMPANY’S PROBLEM SCWPA: very broad definitions of “Employer” and “Wages” "Employer" means every person, firm, partnership, corporation and any agent or officer of the above classes employing any person in this State "Wages" includes salary, commission, vacation, holiday, and sick leave payments and other compensation due to an employee under employer policy or contract Cases: agents and officers who “knowingly permit” company to violate Act Treble damages and recovery of attorneys fees
- 45. FLSA CASE STUDY: GROCERY STORE CEO LEFT HOLDING THE BAG 2014 case involves OT claims of employees of supermarket chain CEO also named as defendant Supermarket defaulted on settlement
- 46. FLSA CASE STUDY: CEO OF GRISTEDES Court said CEO personally liable for $3.5 million: Worked in corporate office almost daily Dealt regularly with banking and finance Made hiring & firing decisions for high level employees Personally promoted employees Applied “economic reality test” and determined that CEO ”sufficient control” to be held individually liable INCENTIVE TO PAY WAGES FIRST
- 47. REGULATORY CHANGES? March 2014 announcement Decrease OT exceptions Increase salaried minimums Regulatory, not legislative
- 48. MYTHBUSTING TAKEAWAYS Check for compliance in high risk areas: Exempt employee classifications Independent contractor classifications Timekeeping and break practices Stay aware of work practices, job descriptions, work habits Self-audit for red flags Address compliance issues as they arise Watch for regulatory changes!
- 49. WAGEOLOGY: COMPENSATION LAW MYTHBUSTERS (AND OTHER TRENDS IN WAGE AND HOUR LAW) Mark Bakker Sarah Sloan Batson Wyche, P.A. www.wyche.com; 864-242-8200 October 28, 2014