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Are You Playing “Bet Your Business” with Wage and Hours?


You’re cruising on the “Highway Of Business” at what appears to be a nice comfortable clip. You think you know the possible headaches, the rules and posted speed limits. However you may not be aware of the recent speed limits that have been posted in languages you may not understand, and in places many of us have not ever seen or even would ever guess where to look.

What’s going on? A hundred years of case law plus a complex assortment of specific employer laws makes the workplace very complicated. Not being aware of these complexities and not having a strategy to deal with them will make the future very dicey, in fact risky. In addition, many employers may not realize that everyday practices that they have used for years may have become unwise, if not illegal. Lets keep it simple and look at one we all feel is pretty easy, the Fair Labor Standards Act or FLSA.

FLSA is a wage and hour law created a generation ago. The theory behind its adoption was to increase workers in the workplace by requiring employers to pay overtime to those employees who worked more than 40 hours a week. The reasoning was that employers would add employees to avoid paying overtime to their existing workforce.

FLSA created a distinction between hourly, generally non-exempt workers, and those that would be exempt from overtime. Rules were promulgated defining categories of exemption and how overtime would be calculated for those deemed non-exempt. Over the years , employers grew confident that they understood these distinctions, which basically looked at job function, whether the employee exercised independent judgment and some manner of supervision over other employees, and whether the employee exceeded a certain salary threshold. People began to feel comfortable distinguishing between roles specified in FLSA definitions.

However, things we took for granted as firm rules may have begun to change. Many of us believed that “professional” or “white-collar” employees, who typically are paid on a salary rather than hourly basis, such as members of an employer’s sales force, are not due overtime. Increasingly, however, such employees have been found to be non-exempt. This leads to an additional issue: how are their work hours calculated?

In the modern, electronic world many people including these salesmen have started routinely to take work home and put in many hours outside of the traditional, nine to five, workday. At home, work can be undertaken on phones, laptop computers, Blackberries, PDAs or other new electronic devices. To simply keep up with e-mail for both client and work requests, these items have become a requirement for survival. In fact, many successful people believe in order to get ahead you may have to work 60 hours a week at some point. But, here’s where it gets interesting. By failing to count the hours worked at home, at night or while on vacation or elsewhere, employers may be found to have violated the FLSA by improperly calculating hours worked and, correspondingly, by failing to pay overtime on those hours when they exceed 40 hours in a week. If an employer is found to have violated the FLSA in this matter, that employer may be liable for back wages and penalties for both a complaining employee and any other employees similarly situated and similarly compensated. It has been reported that claims under FLSA have been generating more than a billion dollars a year in back pay for various plaintiffs.

It is no longer clear that everyone who is an office “professional” is automatically placed in an exempt category. Despite the fact that the rules that we used to test hourly versus exempt were quite rigorous, these missing hours might be portrayed by a plaintiff to a sympathetic jury as work hours due and owing by the employer.

Recently plaintiff’s attorneys have argued the notion that sales employees can be considered hourly employees in certain situations. You can imagine the damage and the potential liability if a substantial amount of overtime owed to people who routinely attend trade shows, networking sessions or other necessities for their livelihood.

Lets suppose a dedicated office employee has worked her way up the corporate ladder and has recently assumed a split role: one as the assistant to the CEO (his right arm) and the other as the company’s HR person. She now earns as much money as anyone. She even carries out the wishes of the CEO. She is a big deal and exempt, right? Oops. This person in all likelihood will be non-exempt – it might depend on her role in HR unless she also acts as CEO during the CEO’s absence. I wonder if this CEO or the CEO’s Executive Assistant/HR person would have guessed that?

We have been told that many of us desire work at home – a lifestyle option that is growing in favor. It is suggested that in 7 years many of us will be working from home. Technology makes it easy. In fact, energy mandates may force this option on us even faster. What is required for this situation to control overtime?

How can we cope with this rapidly changing landscape? What are the pitfalls?

First of all, employers must recognize there are several FLSA areas that are of particular interest to aggressive plaintiff’s lawyers. These lawyers are acting like modern-day bounty hunters; if they get you, they get paid. So they have a serious incentive to seek out clients that they feel have been improperly classified as exempt and not paid overtime or clients whose hours were improperly calculated.

Here are just a few real FLSA situations that might affect a business dramatically.

  1. Assuming office and professional workers are all exempt employees
  2. Misclassifying non exempt employees
  3. Misclassifying independent contractors
  4. Docking hourly employees for working unapproved overtime
  5. Not calculating as time worked the labor of employees who were not “punched in” or who were otherwise “off the clock”
  6. Careless lunch hours where employees double duty by covering a reception a desk, etc.
  7. Swapping time off for overtime pay

The steps can a reasonable business owner take to catch up to these new perspectives in what constitutes an overtime employee status or other areas where claims can arise?

  1. Get proper counsel ahead of time on FLSA or other employment issues
  2. Introduce formal policies into your handbook , e.g. employees are treated as hourly and non-exempt unless proven otherwise.
  3. Communicate with employees your polices on overtime.
  4. Make sure your human resource professionals are conversant with these issues.
  5. If you are doing HR yourself, get competent help.
  6. Know definitions have changed and you should act accordingly.
  7. Purchase insurance from specialists.
  8. Use the insurance application process as a risk management process – to vet your polices and procedures.
  9. Be very careful with independent contractor classifications even in contracts.
  10. Use well crafted employment contracts.

The landscape has changed regarding wage and hour laws. You need to adapt and be prepared for these changes. You must understand that the complaint of a dissatisfied employee can result in a tremendous claim, one which can even bankrupt an organization. Numerous companies have been sued over these issues. So don’t wait until it is too late. Get started right now on the risk management process to get up to speed on the changes in law and make sure your business is safe.

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