Ten Mistakes Managing Wage and Hour Classifications

Mistake #1. Failure to pay the minimum wage

We’ll pay you $5 an hour until you learn the ropes; then you move up to $7 an hour.

Virtually all employees are entitled to receive at least the minimum wage (the federal minimum wage is $7.25 per hour; many states have higher minimum wages) for all hours worked. Special arrangements may be made for waitstaff (although their tips have to put them above the minimum wage) and for certain training situations. LME Creative Human Resource Solutions can help you work through these issues.

Mistake #2. Failure to pay for all hours worked

Be sure to stay close to your phone tonight in case that customer calls in from the West Coast.

Clock out before you set up for tomorrow, OK?

Employers must pay nonexempt employees for all hours worked, even if the employee has volunteered to do the work without pay and even if you’ve

forbidden the employee to do work. (You can discipline the employee in this situation, but you have to pay for the hours.)

Some violations are blatant, like “clock out and continue working,” but some are not so obvious. For example, expecting nonexempt workers to take customer calls off hours, or insisting that they answer the phones during an unpaid lunch break. Be careful with non-exempt employees that have blackberries and smartphones and answer emails after hours.

Mistake #3. Misclassifying as exempt

Your title is Assistant Manager; you’re exempt.

You get a salary—so you’re obviously exempt.

Organizations may wish to classify workers as exempt to avoid paying overtime and/or to avoid paying for extra hours worked. Unfortunately, an employee’s title doesn’t mean anything, and the fact that the person is paid on a salary basis doesn’t mean anything—it’s the job duties that determine whether a worker is exempt. There are very specific guidelines from the Department of Labor for the main types of exemptions—administrative, executive, creative, and outside sales. LME Creative Human Resource Solutions can help you make sure your employees are classified correctly.

Mistake #4. Misclassifying as independent contractors

You’ll be working alongside our regular employees but you’ll be an independent contractor.

Of course he’s an independent contractor—we signed an agreement.

Many employers are tempted to classify workers as independent contractors because it avoids many of the payments that have to be made to employees and on their behalf (e.g., Social Security). But many so-called independent contractors are really employees. In particular, the more control the employer has over how the person does the job (giving explicit instructions, providing materials and tools, dictating hours, being the only customer), the more

likely that worker is not an independent contractor. For sure, if the person is sitting right with the regular employees, doing the same work, the person is likely an employee.

Detailed sets of criteria from the DOL and the IRS help you make the determination of employee versus independent contractor.

Mistake #5. Failure to properly calculate and pay overtime

We don’t pay overtime. If you don’t want the extra hours, just say so.

I need you to work 50 hours this week; you can take some comp time next week instead of claiming the overtime.

Employers can’t avoid their obligation to pay overtime. Under federal law,

except in very limited circumstances, overtime at the rate of 11⁄2 times the regular rate is due for all hours worked over 40 in a workweek. Private employers may not use a “comp time” system.

Another very common violation is failure to pay overtime based on the “regular rate” of pay, which includes any nondiscretionary bonuses. So, for example, if at the end of the month workers get a production bonus, you have to go back and recalculate their overtime premium.

Mistake #6. Inappropriate deductions

Just because you’re a manager, it doesn’t mean you can come in late. I‘m docking you a half-day’s pay.

Sorry to hear that you are leaving. The amount due on the loan the company made to you is coming right out of your final paycheck.

There are a number of restrictions on deductions from pay. For example, for exempt employees, partial-day deductions are generally prohibited. Such deductions would be treating the exempt employee like an hourly employee, and the exemption could be lost. Detailed rules exist regarding deductions for meals and lodging, clothing and protective gear, donning and doffing time, shortages and damage, and so on.

Finally, many states have specific rules governing final paychecks.

Mistake #7. Forgetting state law

Here we are in California, and we pay overtime just like the federal law requires.

Many states have their own laws regarding wage and hour. For example, in California:

• All travel time is paid time (whereas under federal law, only travel time that coincides with the normal work day is compensable).

• Overtime at 11/2 times the employee’s regular rate is owed for hours worked in excess of 8 hours a day, or for the first 8 hours worked on the seventh consecutive day worked in a workweek. (These payments are not owed under federal law.)

• Double-time must be paid for hours worked in excess of 12 in a workday or worked in excess of 8 on the seventh consecutive day worked in any workweek. (These payments are not owed under federal law.)

Mistake #8. Making “side agreements”

I’m out of overtime this month. Work off the clock this week and I’ll make it up to you next month.

Agreements like this likely violate the FLSA. Employees can’t waive their right to overtime or pay for hours worked—even if they agree, even if they are eager to help out by doing a little work on the side without pay.

Mistake #9. Assuming that interns do not have to be paid

You’ll be working for us as an intern, so you won’t be paid, but you will learn a lot.

Many managers and supervisors think that if someone is an “intern” that means they don’t have to be paid. Actually, DOL’s Wage/Hour Division has detailed and strict guidelines for when an internship can be unpaid, and most internships don’t pass their test.

Briefly, unpaid interns can’t do regular company work; they have to be in a learning capacity. Certain circumstances, like getting college credit, may alter the situation. Check the guidelines before establishing an unpaid intern program.

Mistake #10. Failure to observe rules regarding youth employment

Jimmie, I know it’s a school day, but can you stay a few more hours?

Tracy, hop on the fork lift, take this load of cardboard out back, and run it through the crusher, will you?

There are very clearly-spelled-out rules governing the work hours and type of work for younger workers. Make sure to review them with supervisors when you hire young workers.

Bonus Mistake—Failure to keep accurate records

In most of the judgments against employers for wage and hour failures, there’s an additional charge—failure to keep accurate records. Besides being a violation itself, it also leads to an unpleasant situation: In the absence of records, courts tend to take the employee’s word for how many hours were worked.

OK, that’s our top 10 Mistakes—plus one—of managing wage and hour. LME Creative Human Resource Solutions can help your organization avoid them and stay hassle and lawsuit free.