1. Sebaly Shillito + Dyer, A Legal Professional Association
1
Karl R. Ulrich, Esq.
OSBA Board Certified Labor & Employment Law
Specialist
2. Sebaly Shillito + Dyer, A Legal Professional Association
DOL/WHD Audits On the Rise
GAO criticism in 2009 leads to expanded
enforcement.
WHD investigations up 42% from 2011 to 2012.
2
3. Sebaly Shillito + Dyer, A Legal Professional Association
What Triggers a DOL Audit?
Complaint
“Directed Investigation” (where no employee complaint
has been filed)
Random selection
Follow-up to a prior investigation
.
3
4. Sebaly Shillito + Dyer, A Legal Professional Association
Potential Sanctions for
Noncompliance
Private Actions
Minimum Wage and Overtime violation – Penalty = amount of
unpaid minimum wage or unpaid overtime compensation, plus
an equal amount as liquidated damages
Retaliation – Penalty = employment, reinstatement, promotion,
and/or lost wages, plus liquidated damages
Attorney’s fee and costs
DOL Actions
Oversees payment to employees of unpaid minimum wages or
overtime
DOL may bring court action to enforce
5. Sebaly Shillito + Dyer, A Legal Professional Association
Criminal Sanctions
Willful prohibited act:
Fine of not more than $10,000, and/or
Prison term up to 6 months for repeat offender
Includes a violation of the recordkeeping requirements
Repeat violations of minimum wage and overtime
provisions
Civil penalty up to $1,100 for each violation
5
6. Sebaly Shillito + Dyer, A Legal Professional Association
Investigation Tools
The DOL may inspect records, gather data, and
question employees as part of the investigation.
The DOL may also show up unannounced
Administrative subpoena power
6
7. Sebaly Shillito + Dyer, A Legal Professional Association
Subpoena Power is VERY Broad
Issued by the DOL without court involvement
DOL may investigate any fact or matter it deems
necessary or appropriate to determine the existence of
a violation
Subpoenas may relate to any matter under
investigation
7
8. Sebaly Shillito + Dyer, A Legal Professional Association
Recent Local Statistics
Local WHD Cases from findings ending in the years
2008 through 2013:
Ohio - 195 cases with Civil Monetary Penalties assessed,
which ranged up to $247,500
Kentucky – 133 cases with Civil Monetary Penalties
assessed, which ranged up to $57,600
8
9. Sebaly Shillito + Dyer, A Legal Professional Association
Reviewing Your Practices
Four Key Audit Areas
• Overtime
• Exemptions
• Employee vs. Independent Contractor Classification
• Recordkeeping
9
10. Sebaly Shillito + Dyer, A Legal Professional Association
Overtime
Non-exempt employees - overtime for hours
over 40 in a workweek
Overtime rate = 1.5 x “regular rate” of pay
“Regular rate” is calculated by dividing the total
work week pay by the number of hours actually
worked
Example: $600 (total workweek pay)/ 40
(hours actually worked) = $15 regular rate
of pay
10
11. Sebaly Shillito + Dyer, A Legal Professional Association
Your Overtime Practices
What is the “Regular Rate”?
• Usually hourly rate = regular rate.
• Can be different rates for different types of work.
“Regular rate” is then a “weighted average.”
• Can be based upon a salaried rates – fixed amount for
any number of hours less than 40.
• May include things in addition to the typical hourly
rate.
11
12. Sebaly Shillito + Dyer, A Legal Professional Association
Your Overtime Practices
Not included in “Regular Rate”:
• Holiday Gifts
• Vacation, holiday, sick pay (pay in lieu of work)
• Reimbursements for expenses
• “Discretionary” bonuses
• Employer contributions to retirement plans
12
13. Sebaly Shillito + Dyer, A Legal Professional Association
Your Overtime Practices
Overtime is:
Calculated per work week (not averaged over two work
weeks)
Paid whether or not specifically “authorized” or
“directed.” The law says “suffered or permitted” to work.
If employer “knew or had reason to know” that work was
performed, it must be paid.
13
14. Sebaly Shillito + Dyer, A Legal Professional Association
“Know or Reason to Know?”
Employer actually observes work being performed.
Employer observes that too much work product exists
for the amount of time actually recorded/authorized.
Employee is known to have previously engaged in a
pattern of working excess time.
Employer would NOT “know or have reason to know”
if employee submitted inaccurate timesheets and no
other circumstances exist to put employer on notice of
excess time.
14
15. Sebaly Shillito + Dyer, A Legal Professional Association
What is “Time Worked?”
• Only time actually worked is included in meeting the
40 hour threshold.
• Lunch – not compensable only if 30 minutes or more
and relieved of all duties and free to leave duty post.
• Break time (20 minutes or less) is included as hours
worked and is compensable.
Other compensable work time includes time spent
dressing in work gear, training, and work-time traveling
15
16. Sebaly Shillito + Dyer, A Legal Professional Association
Overtime Must be Specifically
Calculated
Fixed sums of overtime payment are not permitted
under the FLSA
Employers must actually calculate and pay overtime for
each workweek when overtime is worked
Private employers may not offer “comp time” in lieu of
overtime pay; public employers – 480/240 hours caps
16
17. Sebaly Shillito + Dyer, A Legal Professional Association
Recommendations
Establish an accurate and precise timekeeping system
that tracks employee time.
Institute a policy where supervisors review and sign off
on time cards for each pay period.
Update policies to clarify what is and isn’t “time
worked” and “regular rate”.
Monitor overtime for each work week.
Unauthorized overtime is a disciplinary issue.
17
18. Sebaly Shillito + Dyer, A Legal Professional Association
Exemptions
Executive
Administrative
Professional
Employees in Computer-Related Occupations
Outside Sales
18
19. Sebaly Shillito + Dyer, A Legal Professional Association
Exemption Requirements
Two basic tests:
Duties Test
Salary Basis Test
19
20. Sebaly Shillito + Dyer, A Legal Professional Association
“Primary duty” means the principal, main, major or
most important duty that the employee
performs. Determination of an employee’s primary
duty must be based on all the facts in a particular case,
with the major emphasis on the character of the
employee’s job as a whole.
20
Primary Duty Test
21. Sebaly Shillito + Dyer, A Legal Professional Association
Salary
Generally, an employer must pay a salaried employee
the full, predetermined salary for each pay period
regardless of the number of hours the employee
worked. Also, the full salary must be paid regardless
of the quality of the work
However, there are exceptions…
21
22. Sebaly Shillito + Dyer, A Legal Professional Association
Permissible Deductions From
Salary
• any week in which no work is performed;
• an employee is absent for at least a full day for personal
reasons other than sickness or disability;
• absences of full days for sickness or disability if part of
boni fide plan of compensation replacement;
• may offset jury or witness fees, or for temporary
military duty pay;
22
23. Sebaly Shillito + Dyer, A Legal Professional Association
Permissible Deductions From
Salary
• penalties imposed for safety infractions of major
significance;
• unpaid disciplinary suspensions of at least one full day
for workplace conduct infractions;
• less than one full week of work in the first or last week
of employment; or
• unpaid leave taken under the FMLA.
23
24. Sebaly Shillito + Dyer, A Legal Professional Association
Impermissible Deductions
Less than full day absence (except incremental FMLA
leave)
For absences caused by employer, operating
conditions, or lack of work (so long as employee is
otherwise ready willing and able to work.)
24
25. Sebaly Shillito + Dyer, A Legal Professional Association
Recommendations
Create accurate job descriptions and update them on a
regular basis.
Have a policy in your handbook which prohibits
improper deductions and which:
Includes a complaint mechanism; and
Commits to reimbursing employees for any improper
deductions.
25
26. Sebaly Shillito + Dyer, A Legal Professional Association
Employee vs. Independent
Contractor
Independent Contractors are not subject to the FLSA
overtime or minimum wage requirements.
The phrase “1099 Employee” is a misnomer
26
27. Sebaly Shillito + Dyer, A Legal Professional Association
The DOL Misclassification Initiative
2011 – DOL and IRS agree to coordinate enforcement
efforts and share information.
Formal agreements exist between DOL and 14 state
agencies (Ohio and Kentucky not yet among them).
However, Ohio Department of Job and Family Services
says it will share information with the IRS.
27
28. Sebaly Shillito + Dyer, A Legal Professional Association
Economic Reality Test
We generally consider the following factors when
determining if a worker is an employee or independent
contractor:
Is the work an integral part of the employer’s business?
Does the worker’s managerial skill affect his or her
opportunity for profit and loss?
Relative investments of the worker and the employer
The worker’s skill and initiative
The permanency of the worker’s relationship with the
employer
Employer control of employment relationship
28
29. Sebaly Shillito + Dyer, A Legal Professional Association
Recommendations
Review all independent contractor classifications with
legal counsel.
Contractors should have contracts.
Proper status as contractors should be carefully
documented.
29
30. Sebaly Shillito + Dyer, A Legal Professional Association
Recordkeeping
No particular form is required, but the records must
include certain identifying information about the
employee and data about hours worked and wages
earned
Reproductions must be clear and identifiable by date
or pay period
Extensions or transcriptions of the information must
be made available upon request
30
31. Sebaly Shillito + Dyer, A Legal Professional Association
Basic Records an Employer Must Maintain
Employee’s full name and social security number
Address, including zip code
Birth date, if younger than 19
Sex and occupation
Time and day of week when employee’s workweek begins
Hours worked each day
Total hours worked each workweek
Basis on which employee’s wages are paid (e.g., $9 per hour); regular hourly pay
rate
Total daily or weekly straight-time earnings; total overtime earnings for the
workweek
All additions to or deductions from the employee’s wages
Total wages paid; date of payment and the pay period covered by the payment
32. Sebaly Shillito + Dyer, A Legal Professional Association
Records to be Retained for At Least
3 Years
Payroll records
Collective bargaining agreements, plans, trusts, and
employment contracts
Sales and purchase records – a record of (1) total dollar
volume of sales or business, and (2) total volume of
goods purchased or received
33. Sebaly Shillito + Dyer, A Legal Professional Association
Records to be Retained for At Least
2 Years
Time cards
Piece work tickets
Wage rate tables
Work and time schedules
Order, shipping, and billing records
Records of additions to and deductions from wages
34. Sebaly Shillito + Dyer, A Legal Professional Association
34
QUESTIONS?