With much attention being given to a recent increase in the federal minimum wage, its "ripple effect" and impact on the cost of doing business, now is an opportune time to alert accountants and independent businesses to some of the pitfalls that can be the basis for unpleasant, time-consuming and costly confrontations with agents of the Federal Wage-Hour Division.
On the surface, wage-hour requirements appear to be simple and uncomplicated. However, audits conducted by U.S. Department of Labor (DOL) investigators indicate otherwise as businesses throughout the U.S. have to pay about $150 million in back pay each year for violating minimum wage and overtime standards.
Since a disproportionate amount of violations involve small business owners, the question may be raised as to whether independent businesses set out to evade the minimum wage and overtime standards. The answer is a resounding "NO."
Why, then, do many independent businesses find themselves confronted with thousands of dollars in assessments when their businesses come "under the gun" of an audit by a U.S. DOL investigator? Unfortunately, too many business concerns are too complacent and not familiar with the very strict requirements placed upon their employment practices in the wage-hour area.
Failure of an employer to realize what constitutes compensable hours of work and the misclassification of salaried employees as managerial employees account for the vast majority of problems upon an audit by the U.S. Department of Labor.
As one probably realizes, it is a rare exception to find employees appearing on payroll records at rates less than the legal minimum. Although pay records may indicate all employees being paid at the legal minimum, substantial violations can still exist because an employer doesn't pay for all the hours that may be viewed as compensable by a DOL investigator.
Compensable Hours of Work
To avoid unneccesary assessments, an independent business should be aware of the following activities that are viewed as compensable hours under wage-hour regulations.
* Duties undertaken by
employees each day to prepare or
"get ready" their work area
prior to scheduled starting
time. * Work performed by
employees who eat at a desk and
answer the phone or perform
other duties while eating
lunch. * Work done by employees who
stay on beyond their regular
scheduled quitting time to
take care of paperwork. * Attendance at meetings
scheduled during an employee's
time off or before or after the
employee's work day. * Work performed by
employees who work split shifts and
who do not leave the
premises for the few hours between
shifts. Often, to ease the
boredom of off duty time
between shifts, employees
perform various duties of their
own volition or help out when
asked by someone in
management. * Paying for scheduled work
hours each day and week and
ignoring actual hours of work.
Any of these activities that are performed by one or more employees can be the basis for minimum wage and/or substantial overtime assessments, as a DOL investigation covers two and sometimes three years.
While the Wage-Hour Law does provide an exemption from overtime for some managerial and administrative employees that meet very strict tests, businesses are taken by surprise when they learn that many salaried employees are entitled to overtime pay as are hourly employees. Merely paying an employee a weekly salary does not excuse an employer from having to pay overtime.
Often a business owner is aware of the problems of paying a salary; therefore, the owner establishes pay plans that involve the payment of wages for what the DOL calls a "fixed work week," which supposedly includes "built in" overtime. During an audit, interviews with employees and especially former employees generally reveal that employees are working varying hours and not the fixed number of hours that are mechanically shown on the interviews, the investigator views the entire pay plan as invalid and computes overtime assessments that can be very costly. Thousands of employers each year are required to pay back pay for precisely this kind of violation. Furthermore, federal courts consistently support the Department of Labor's position.
A very significant amendment to the law that has received very little media attention is the authority of the Department of Labor to levy fines of up to $1,000 for each violation. For example, if 10 employees were found to be improperly paid, the fine can be as much as $10,000 in addition to back pay owed. Since the DOL will use the fines to finance further enforcement, it is expected that the fines will be a regular part of the new enforcement program.
Although there are many other pressing issues facing independent businesses, making the Wage-Hour Law the number one priority for just one day or part of a day can eliminate many potential problems. The independent business owner doesn't have to be at the mercy of a U.S. Department of Labor investigator. Assistance is readily available from outside sources. An in-depth preventive review and analysis of pay practices and policies prevents problems.
Gerald J. Stefamick is a former wage-hour investigator, having worked for the U.S. Department of Labor for 10 years. For the past 14 years he has owned a wage-hour and business consulting firm based out of Ashland, Pennsylvania. He has worked with many different types of businesses in over 25 states and enjoys an excellent relationship with many states and a number of trade associations Stefanick assists accountants, attorneys and independent businesses before, during or after a U.S. Department of Labor audit.
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|Author:||Stefanick, Gerald J.|
|Publication:||The National Public Accountant|
|Date:||Oct 1, 1990|
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