3. KPA – Company Profile
• Nationwide
compliance expert on
Safety, Environmental,
HR
• Colorado
Headquarters
• 23 Years Experience
• 3000 + Clients
– Dealerships, Service,
Repair
• 20 Offices Serving 41
States
• Compliance products
and services
– OSHA
– DOT
– EPA
– Workers’ Comp
– Background checking
– Onboarding
– Harassment
– Red Flags
– Onsite inspections
– Online and onsite
training and tracking
– And many more…
4. Essentials of Wage and Hour Law for
Dealerships
4– KPA CONFIDENTIAL –
•Investigation vs. Lawsuit
•Employee Classification
•Wage Calculations
•Accurate Recordkeeping
5. 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.”
6. 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
7. Recent Settlements or Awards
• Wal-Mart Stores $172 Million
• Smith Barney $98 Million
• USB Financial $87 Million
• Starbucks $18 Million
• Your Dealership $???
8. 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
8– KPA CONFIDENTIAL –
9. 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
10. 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
11. Federal Exemptions
MINIMUM WAGE/
OVERTIME/ RECORDS
• Executive
• Administrative
• Professional
• Outside Sales
• Highly Compensated
OVERTIME ONLY
• Salesman
• Partsman
• Mechanic
• Commission-paid
• Motor Carrier
12. Complete Exemptions
1. Executive
2. Administrative
3. Professional
4. Outside sales
5. Highly Compensated Employees
Minimum Wage, Overtime and Records
13. • 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 $455/wk
Executive Exemption
14. 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!
16. • 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
$455/wk
Administrative Exemption
17. Administrative Exemption
EXEMPT
Used Car Buyer
Human Resources
Manager
Office Manager
NOT EXEMPT
Office employees
Warranty Admin.
Accounts Payable
Rental clerk
Booker
Dispatcher
19. • 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
21. 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
25. 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 ($10.88) for all hours worked in an
overtime week
28. 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.
29. “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?
30. 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
31. 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
33. 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
34. 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!!!
35. DOL’s calculation
2 years overtime on salary:
$6,240
2 years overtime on commission:
$1,680
TOTAL DUE:
$7,920
36. 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
37. 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
40. 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.
41. 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
42. 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!)
44. 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
44– KPA CONFIDENTIAL –
45. 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”
49. 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
50. 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
51. • 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
52. 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
53. Federal versus State Law
• Federal law does not preempt state
employment laws
• Employees are entitled to the provision
most favorable to them
54. 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
55. 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
56. 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
57. James F. Hendricks Jr.
Partner, Chicago Office
312-960-6118
jhendricks@fordharrison.com
