This article, written by attorney Brian Bouchard, was originally published by compensation.blr.com and can be found here.
We visit the doctor and the optometrist once a year and our dentists at least twice a year. Why? We attend the appointments not because they’re necessarily fun but because they’re vital for maintaining good health and wellness. They provide assurance that if things aren’t so good, we have the chance to correct course. All too often, however, our businesses don’t undergo similar compliance checkups, especially in the wage and hour field, where audits are vitally needed.
Hefty penalties, back wages looming
Recent media stories about the U.S. Department of Labor (USDOL) investigations into LaBelle Winery and Dos Amigos are uncomfortably prescient. Going through a USDOL or a New Hampshire Department of Labor (NHDOL) investigation isn’t enjoyable, but it’s worse when hefty penalties and back wages lurk on the other side. Federal lawsuits filed by employees over the failure to pay wages are often worse given the litigation’s adversarial nature and the threat of liquidated damages and the payment of mandatory attorneys’ fees. Class actions are in a class of their own.
Many wage and hour violations can be identified and cured with periodic compliance monitoring. Trust when I say that correcting a violation in advance is far healthier for your bottom line than defending an unlawful practice in court. Wage cases often aren’t a question of win or lose but rather of how much.
Not convinced yet? The Fair Labor Standards Act (FLSA) imposes liquidated damages for wage and hour violations. “Liquidated damages” are a penalty equal to the back wages owed to an employee. One way to avoid them is to convince the court the error was in “good faith” and that the company reasonably believed it complied. Periodic checkups will improve the viability of a good-faith defense (if one is needed at all). Simply saying “I thought we were incompliance” won’t be enough.
9 ways to get started
Wage and hour checkups should be a routine business practice. Here are some tips on where and how to begin:
Get back to basics. If asked, could your business produce the time records, I-9 forms (with supporting documents), personnel files, payroll records, benefits records, and commission/on-target earnings records for all employees within a week or two of being asked? More important, are your business records accurate?
Inaccurate time records are an evergreen litigation source for plaintiffs’ attorneys. Employees may clock in and out regularly but then perform off-the-clock work that isn’t being compensated. Businesses are obligated to track all hours worked for nonexempt employees, and when they fail to do so, aggrieved employees need only estimate their hours for the payment of back wages and liquidated damages.
Focus on exemptions. Overtime exemptions are nuanced and occasionally inapposite to a modern economy. Some exemptions are obvious. The company CEO? She’s likely exempt. But is the company bookkeeper really exercising the discretion and independent judgment needed to qualify for the administrative exemption? Probably not.
Overtime misclassifications are costly mistakes because unpaid hours add up quickly, and there often aren’t records to determine the exact amount of time worked.
Monitor technology use. Time spent commuting generally isn’t compensable. But if a nonexempt employee sends e-mails from home in the morning and then drives to the office, the time spent traveling may become covered.
Understand compensable time. Businesses are often surprised about what time is compensable. Travel time, on-call time, lunch breaks, trainings, and pre/postwork activities can all be compensable depending on the circumstances. Just because employees aren’t in the office doesn’t mean they’re not working.
Ensure child labor law compliance. New Hampshire has strict child labor requirements, and every year, the violations are in the NHDOL’s top 10 list of wage and hour infractions. Any company hiring minors should proceed cautiously. Carefully check to ensure the appropriate releases have been obtained and that a minor’s hours don’t exceed what the law prescribes.
Don’t rely on industry custom. I hear it all the time: “Brian, no one in our industry pays their employees for that.” My response is twofold: (1) How empirical is your data really, and (2) industry practice is irrelevant. If you’re in a group of cars going 90 mph and you’re the one who gets pulled over, guess who’s getting the ticket.
Don’t ignore industry-specific laws. At the same time, companies should be mindful that certain industries are governed by unique laws. The restaurant industry, for example, has specific requirements for employers using a tip credit and unyielding protocols around tip-pooling.
Don’t rely on Internet searches. Google is a wonderful tool. Articles like this one are useful tools as well. But when it comes to nuanced questions, there is no replacement for statutes, regulations, administrative decisions, and case law. Agencies like the USDOL base their decisions on those primary sources.
Get into the nitty-gritty of the primary sources, but don’t go fishing in the dark either. Work with qualified professionals to understand and apply the law.
Work with qualified professionals. Every company should work with qualified compensation specialists who are facile with the primary sources mentioned above. The FLSA was enacted in 1938. Some of its provisions are arcane and many of its regulations confounding. For example, the Act doesn’t even define what constitutes work. Knowing what “work” means and when it is compensable requires a comprehensive understanding of the law’s structure and intent and the case law interpreting it.
To confound matters further, New Hampshire state law sometimes follows the FLSA, other times imposes standards different from the federal law, and occasionally is silent. Use professionals to unmuddy the waters.
Bottom line
Every business has a hierarchy of needs, which may not include wage and hour monitoring, but don’t wait until legal action is threatened to address ongoing violations. By then, it’s often too late.