Common Overtime Mistakes Employers Want To Avoid
The Fair Labor Standards Act (“FLSA”) establishes a minimum wage, overtime pay, record-keeping, and child labor standards affecting both full-time and part-time workers. The Wage and Hour Division (“WHD”) of the Department of Labor (“DOL”) administers and enforces the FLSA. Your company can be surprised by an audit by the WHD of the DOL at any time. Audits can occur for any of the following reasons (and the assigned investigator is not required to disclose the reason for the audit):
- Random selection
- Triggered by a complaint to the DOL by an employee
- Government contract compliance (companies with a GSA Schedule – who do business with the federal government – are audited more frequently than others)
Some of the more common missteps occur in the area of overtime pay for non-exempt employees. Here are some areas where you want to ensure your company is following the rules.
Misclassifying Workers as Contractors
One of the most common mistakes employers make, particularly in more blue-collar industries, is classifying workers as independent contractors (1099), rather than employees (W-2). Independent contractors are not entitled to overtime pay of time and a half. In assessing correct classification, courts look to a series of factors such as the degree of control over the worker, the worker’s investment in equipment, whether special skills are required, the permanency of the relationship, whether there is an opportunity for profit or loss, and whether the services performed are an integral part of the employer’s business. Most often, if the worker is treated as an employee, then more likely than not, they are an employee.
Misclassifying Workers as Exempt
Not all salaried workers are exempt. If an employee makes less than $455 per week ($23,660/year) they are entitled to overtime. Also, an employee who does not qualify for one of the specific exemptions – Executive, Administrative, or Professional – outlined in the FLSA is also entitled to overtime. To read about these exemptions, click here.
Not Keeping Wage and Hour Records
In an audit, you will be required to produce detailed employee payroll records and inadequate record-keeping could make it impossible to defend your company against an overtime wage claim. The FLSA requires employers to maintain certain records for at least three years, including 1) the hours worked each day, 2) total hours worked each workweek, 3) the rate of pay, 4) that basis of pay (i.e., per hour, per week), 5) total daily or weekly straight-time earnings, 6) total overtime per workweek, 7) all additions to or deductions from the employee’s wages, 8) total wages paid per pay period, and 9) date of payment and pay period covered by the payment.
Thanks to the advent of smartphones, today we live in a 24/7/365 connected world. Looking at and responding to emails outside of work can be a big potential problem because employees often fail to record this type of unscheduled work. Companies must either implement strict policies against non-exempt employees working off-the-clock (whether it be virtual or in the office) or set up a clear process and expectation for employees to record this extra time.
Not Accounting for All Compensatable Time
While employers usually account for time spent on primary work duties, they need to be sure to compensate for other time worked – such as at seminars, training, office lunches, receptions, after-hour company events – if the employee’s attendance is generally required or mandatory. Travel time during an employee’s normal shift is generally compensatable, while traveling outside of the normal shift is generally not compensatable, according to the FLSA. Compensating for waiting or “on-call” time generally depends on where the employee is while they are waiting. An employee on-call, but at home, is likely, not entitled to compensation, whereas being on-call at the office is likely compensatable.
It is important to consult with legal counsel to ensure you are in compliance with Wage and Hour Laws and, even if you believe you are, it is recommended that you retain legal counsel if you get selected for an audit. J. Kent Staffing was audited in 2018 and, fortunately, did not have any violations. But – just like getting selected by the IRS for a personal tax audit – the whole process can be very unnerving, even if you know your company is following all of the rules!
The Information Provided Does Not Constitute Legal Advice
J. Kent Staffing is a Denver temporary staffing agency and recruiting firm. Employment laws and regulations vary from state to state and country to country. Therefore, employers, temporary staffing agencies, and direct hire recruiting firms should consult their own labor or employment law attorneys with additional questions or for guidance and more information specific to their country, state and workplace.