What you don’t know can hurt you, particularly if a disgruntled employee does know the ins and outs of employment law. Certainly it is fertile ground — employers spent nearly $500 million settling wage-and-hour lawsuits at both the state and federal level last year, mostly due to compensation rules that are too often misunderstood or misapplied even by the most seasoned HR professional. Here’s what you need to know to avoid contributing to that pool!
“Salaried employees” may well be entitled to overtime pay.
Salaried employees are exempt from overtime pay, but the key is properly defining “salaried” employees. To qualify for exemption from overtime, employees generally must be paid not less than $455 per week on a salary basis, with some exceptions. According to the U.S. Department of Labor Wage and Hour Division, “A ‘salary basis’ means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis.
Here’s what you might not know: “The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. An exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.” Also note that “if the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a ‘salary basis.’ If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” (Rethink making employees take vacation days for ‘Snow Days’ or other business interruption times.)
If you lose the exemption status for a worker due to having made a practice of making improper salary deductions, you will be fighting an uphill, very expensive “back pay” battle in court for all similarly affected employees.
A non-exempt worker’s pay may begin to accrue before he or she actually starts working.
Workers are entitled to “stand-by time,” which is usually defined and settled to the benefit of the employee. For example, employees at the Oscar Mayer meat processing plant in Davenport, Iowa filed a class-action lawsuit seeking compensation and back pay for time spent putting on and taking off their safety equipment — uniforms, safety footwear, hard hats, hairnets, glasses, and other equipment. The attorneys for the four plaintiffs in the case sought to represent a class of 1,750 employees at the plant, naming Oscar Mayer’s parent company, Northfield, Ill.-based Kraft Foods, Inc. Kraft spokeswoman Rachel Larsen responded that the company believed it was in full compliance with state and federal law.
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Similar company lawsuits were then filed in Naperville, Champaign, Chicago, and Granite City, Ill., and Madison. To what result? In the last case alone, about 1,300 current and former employees, dating back to mid-2005, prevailed and shared about $4 million in back pay, said attorney Jim Olson of the Lawton & Cates law firm, which initiated the class-action lawsuit in 2007.
The U.S. Supreme Court refused to hear Kraft’s appeal — despite its seasoned HR team and expensive attorneys. The court has stated that the test to determine whether or not an employee needs to be compensated for stand-by time is whether the time is spent predominantly for the employer’s or employee’s benefit. So when in doubt, err on the side of extra pay for the employee.
Don’t substitute comp time for overtime pay.
According to the Fair Labor Standards Act, an employer is required to pay non-exempt employees one-and-a-half times their regular rate of pay for hours worked over 40 in a single workweek. Period, end of bargaining rights. An employer cannot (and should not) pay comp time in lieu of overtime pay — even if the employee requests it. In the public sector, this choice does exist; state and federal workers have the option to choose between the two.
However, private-sector employers must stay away from the temptation to exchange one for the other until this political hot potato wins the support of both the House and the Senate — which it has not yet done. In the meantime, the exchange is illegal. If you offer flex time, make sure to track hours so that workers are not accruing more than 40 hours total in a given week or, oops, you owe time and a half.
If employment law today resembles rocket science, well, it is complicated. The best defense is routine “duty of care” training for managers as well as HR directors, as many of these mistakes fall within a manager’s authority and mistakes most often happen almost as a knee-jerk response to a situation.
Ignorance of the law is not defensible, so put your company’s money where it will do you the most good: in preventive training.
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