Businesses understand they have to pay overtime to certain employees, but wage and hour laws are fraught with details that can catch employers in legal traps. The rules may seem clear, but in practice they can be vague and subject to interpretation.
As legal experts explained at NJBIA’s seminar on Feb. 22, interpreting wage and hour laws incorrectly can be an expensive mistake.
With that in mind, here are three legal wage and hour traps discussed at the seminar that could be a problem for employers.
Legal Trap 1: Having “an understanding” with your employee.
Even if an hourly employee agrees to be paid for a set period of time regardless of how long they actually work, that agreement is not legally binding and is, in fact, unlawful. By law, non-exempt employees must be paid for every hour they work, and they have to be paid overtime for every hour over 40 hours per week that they work, regardless of whether they “agree” or tell you “it’s fine.” .
As Marianne Tolomeo of Connell Foley LLP explained, employees cannot waive their statutory protections.
“To think you have an agreement with an employee and that you’re all on the same page is not a safe assumption,” she said. “You never know what is going to be the state of affairs six months from now or a year for now.” Employers simply cannot contract away their legal obligation to pay employees in accordance with the wage and hour laws.
Get the most out of your employees. Join us for March 20 for A Roadmap for Performance Management & Coaching
If you have a falling out with that person, the employee could make a complaint, leaving you liable for 2 to 3 years of back pay and overtime. Plus, the violation likely will not be limited to one person; if he or she complains to the Department of Labor, inspectors may well show up at your business to inspect your records, Tolomeo said. Any “understandings” with other employees will likely result in penalties as well.
Legal Trap 2: Docking the pay of salaried employees.
Just because you pay someone a salary doesn’t mean that person is exempt from overtime. To begin with, exempt employees must make at least $455 per week. But there’s a second part of the equation—the duties test—and this one is anything but clear. In fact, simply docking an exempt employee’s pay for a couple of hours could change their designation.
Employees must receive a full salary for any week in which they perform any work, according to Fox Rothschild attorney Wayne Pinkstone. In most circumstances, employers are prohibited from deducting less than a full day’s pay for time an exempt employee did not work. The danger isn’t that you have to pay them back, which you do, but that docking their pay like a non-exempt employee will potentially lead the Department of Labor or court classifying them as non-exempt. That can add up to a costly mistake.
“If they’re re- classified as non-exempt, that means that they are going to say that for the last three years, they have worked 100 hours per week, and the 60 hours a week extra that they worked should be calculated at time-and-a-half,” Pinkstone said. This allegation, even if it’s inaccurate, may be hard to defend, particularly since most employers do not keep documentation showing how many hours a week an exempt employee really works.
The danger extends to other employees as well, Tomoleo added. If an “actual practice” of improper salary deductions is found, the exemption is lost during the time period of the deductions for employees in the same job classification working for the same managers responsible for the improper deductions. There is, however, “safe harbor” protection if the employer :(a) has a “clearly communicated” policy prohibiting improper deductions, including a complaint mechanism; (b) reimburses employees for any improper deductions; and (c) makes a good faith commitment to comply in the future.
Legal Trap 3.Classifying computer techs as exempt.
The law says that an employee who is classified as exempt must have job duties that warrant the exemption. These include administrative duties, executive duties, and computer professional.
Although all exemptions can be difficult to decipher and understand, application of the computer professional exemption provides an example of the ways businesses can easily misclassify their employees. Not everyone in your IT department automatically qualifies as a computer professional under the duties test.
A job title or even a job description is not enough; classification is based on what the employee actually does for the company. The computer professional exemption applies to those with a higher skill level who do things like programming analysis application Pinkstone explained. Computer techs and those manning a help desk typically don’t qualify under the computer professional exemption.
“I will get questions about techs and help desk folks,” Pinkstone said. “Because they are obviously helping with computer systems, it’s easy to think they fall under this exemption, and they may not.”
As with legal trap 2, the danger is having the employee re-classified as non-exempt and entitled to overtime pay for their past work.
