Beware Wage And Hour Law Traps

There are potential legal traps that could cause significant problems for unwary employers, writes Megan E. Moritz. In this column, she outlines five of them.
By Megan E. Moritz | June 05, 2014

Plenty of potential legal snares threaten employers trying to comply with wage and hour laws. Consider the following wage and hour traps for the unwary.

Trap No. 1:  Forgetting other applicable laws.
This article focuses primarily on the federal Fair Labor Standards Act. However, states also have their own wage and hour laws. State law may give employees protections beyond those established under federal law. 

Trap No. 2:  Assuming the risk is lower than it is.
These laws are complicated and it’s relatively easy to stumble into a violation. Unfortunately, claims can be particularly difficult and expensive to defend. 
• Even an inadvertent violation generally results in an award
   of back wages.  
• If a court awards back wages, it also generally awards liquidated
  (double) damages.
•  Legal fees incurred in defending a claim are often high, and
   an employer often pays for the plaintiff’s lawyer where there’s
   been a violation.
•  Plaintiffs can recover two years’ worth of back wages (or three
    if the violation is willful). 
•  Often, a pay practice impacts multiple employees or multiple
We’re also seeing aggressive enforcement efforts by, and cooperation between, federal and state agencies.

Trap No. 3:  Destroying an exemption by making improper salary deductions.
Unless an employee satisfies a particular statutory exemption, most are covered by the FLSA. There are many different exemptions under the act, and each has multiple factors to consider. 
In addition to satisfying job-function requirements for a particular exemption, many also require minimum payment (often $455 per workweek) on a salary basis. Salary basis means the employee must regularly receive a predetermined amount for any week in which he performs any work. Generally speaking, unless the employee performs no work in the workweek, an employer may not change the amount paid based on changes in quality or quantity of work.  The exemption can be destroyed if the employer makes improper deductions. For example, an employer may not dock an exempt employee’s pay for absences caused by the employer (i.e., closing for bad weather or when no work is available). There are only a handful of deductions for partial workweek absences:
• Full-day absences for personal reasons, other than sickness or
• Full-day absences due to illness or disability, if the employer has a
  bona fide paid sick leave policy or practice. 
• Offsetting amounts received as jury or witness fees received
   during such absences.
• Offsetting pay received on military leave. 
• Penalties for violating safety rules of “major significance.” 
• Full-day deductions for unpaid disciplinary suspensions for
  serious misconduct violating written workplace rules. 
• Proportionate deduction in the first and last weeks of employment.
• Deductions for unpaid family and medical leave.

Trap No. 4:  Assuming employees are exempt from overtime or minimum wage requirements because they are paid a salary.
Many employers mistakenly believe they don’t have to keep track of hours worked or pay overtime to employees who are paid a salary rather than hourly. While salary pay often is one requirement for various exemptions, it’s never stands alone. Employers must always look at the actual job duties being performed and decide if they meet a particular exemption.

Trap No. 5:  Forgetting to include bonuses or other incentive pay in nonexempt employee’s overtime rate.
Year-end and other bonus payments made to nonexempt employees frequently cause overtime problems for employers. Overtime pay must be calculated using an employee’s regular rate, which generally includes all amounts paid to an employee during the workweek. FLSA provides a few narrow exceptions. Employers often misapply the exception allowing discretionary bonuses to be excluded overtime calculations. Few bonuses will be considered discretionary under the FLSA. Any bonus tied to production, attendance, efficiency or quality of work must be included in the regular rate, as well as most bonuses announced in advance. If a mid- or year-end bonus is not discretionary, it generally must be apportioned back over the period it covers to determine any additional overtime owed. 
Employers who pay profit-sharing bonuses may exclude those amounts from hourly employees’ regular rates. However, the statutory exception imposes strict guidelines in this.

Author: Megan E. Moritz, Attorney
            BrownWinick Law Firm
            [email protected]