Employers are facing increased scrutiny over their pay practices from both the U.S. Department of Labor (DOL) and the Washington State Department of Labor & Industries (L&I). In 2010, Secretary of Labor Hilda Solis stepped up enforcement of federal wage and hour laws by hiring 250 additional investigators to snare employers who are violating wage laws. Likewise, L&I began using blogs—including Nailed, its fraud prevention and compliance blog,—Facebook, and Twitter to gather information needed to catch scofflaws.
The DOL surveyed more than 4,000 workers in three cities and concluded that “employment and labor laws are regularly and systematically violated,” with 1.1 million workers having at least one pay-based violation per week. Claiming violations in virtually every major urban industry, the report found:
- 76% of the workers who had worked overtime were paid incorrectly.
- 26% were not paid minimum wage.
- 69% percent of workers had meal break violations.
- 20% of the workers reported complaints, with 43% reporting retaliation.
The study concluded that front-line workers lose more than $56.4 million per week in underpaid wages. Among the areas of its enforcement focus, DOL continues its efforts on so-called “low wage” industries, independent contractors, misclassifications, and unpaid off-the-clock work.
Consequences to Employers for Failing to Comply
In my experience, most employers try hard to comply with the law and avoid costly litigation. The laws can be complicated though, and employers occasionally get tripped up without realizing it. Employers should remember that the DOL, L&I, and employees see a big target on their collective backs. The DOL can show up at your business with no warning, ask to see your records and interview employees on a moment’s notice. The risk of not paying employees correctly can be severe, including:
What Should You Do?
Start by conducting an internal audit to examine your business’s pay practices. If you have doubts, contact your employment attorney to get clarification. Consider having your attorney conduct the audit (or participate in the process), which will provide some protection to your analysis under the attorney-client privilege. To help you get started, here is a list of ten considerations for avoiding wage and hour mistakes:
1. Is Your Employee Really Exempt from Overtime? One of the most common mistakes is assuming that employees are exempt and you do not have to pay them overtime, when, in fact, they are not exempt. Before classifying any job as “exempt,” consider conducting a review of the job position and actual duties to ensure they are in line with the state and federal government’s definitions. Never assume that an employee is exempt from overtime requirements simply because he or she is paid a salary!
2. Are Your Job Classifications Right? Along with mistakes in exempt status, some employers misclassify temporary employees, part-time workers, or independent contractors. Check to see if you have properly determined, which of your workers are actual “employees.”
3. Have You Paid for “All Hours Worked”? “Off the clock” problems often arise with work outside the office (e.g. travel time, “telecommute” work). Likewise, employers run into trouble when they don’t pay for activities they think are not “work” but, in fact, are compensable under the wage laws (e.g. volunteer or training time, or pre/post-work activities). If the employer permits the work and it benefits the employer, the time may have to be paid.
4. Did You Calculate Overtime Pay Correctly? Check to see if you are accurately calculating overtime pay. Miscalculations can include failing to include all forms of qualifying compensation (e.g. bonuses, commissions) in the weekly regular rate, or failing to determine overtime on a weekly basis. On the flip side, some employers actually over pay by including vacation, sick leave, or paid holidays in their overtime calculations.
5. Do You Provide Rest and Meal Breaks to Your Employees? Although federal law does not require rest and meal breaks for employees, Washington State law most definitely does. Rest breaks are required (a 10 minute break for every 4 hours of work, between the 2nd and 3rd hour), must be paid, and cannot be waived by the employee. Meal breaks must be provided for 30 minutes, uninterrupted, for every 5 hours of work. For a meal period to be unpaid, it must be at least 30 minutes and the employee must be completely relieved of duty.
6. Do You Pay Your Employees for Overtime with “Comp Time”? While Washington state permits the use of “comp time” in place of overtime pay, federal law generally does not permit use of comp time by private employers for hourly (i.e. nonexempt) employees. You will need to determine whether your business is covered by the federal Fair Labor Standards Act before you can use comp time for nonexempt employees.
7. Never Assume Compliance with Federal Wage Laws Equals Compliance with Washington State Law. They are not always the same.
8. Are Your Deductions from the Paycheck Correct? Watch out for improper use of wage deductions. For example, Washington does not permit pay deductions for product breakage, unless it was due to the employee’s dishonest or willful act.
9. Do Your Pay Practices Match Your Policies? When did you last update your employee handbook or personnel policies? It is important to ensure that your pay practices match what is in your official policies.
10. Check Your Record-Keeping. Make sure you are keeping the right records, as the burden of proving that you are in compliance will ultimately rest on you, the employer.
With some up-front analysis, your business can avoid costly litigation and be ready if the DOL or L&I knocks at your door. Sharing lessons learned from prior experiences is one way to avoid future problems. What are the wage/hour issues that you see as the thorniest problem areas? Please add your comments below.
Nancy Anderson, a shareholder in Graham & Dunn’s Labor and Employment team, brings with her nearly twenty years of experience in representing and advising employers on all types of employment law claims and compliance with federal and state labor and employment law. She is a regular speaker on wage/hour and employment law issues, and has authored numerous articles on defending wage and hour claims and class actions. In the coming months, Nancy will continue to write in more detail on this issue as well as other suggested topics.