FLSA claims shoot up 77%: Are you at risk?
August 5, 2009 by Bill MeltzerPosted in: Employment law, FLSA, Pay and benefits, Records documentation, Special Report - Benefits
You’re not imagining things if it seems like you read about more pay-related employee lawsuits and court awards than ever before.
When the feds changed FLSA’s overtime rules, some experts said fears of a lawsuit explosion were unfounded. But there’s been a 77% rise in FLSA lawsuits tied to wage-and-hour disputes since 2004, according to the National Employment Lawyers’ Association.
Also, over the same period, there’s been an 11% increase in wage- and-hour enforcement actions by the DOL. Here are the biggest problem areas to watch for:
- unpaid or underpaid overtime due to alleged job misclassification
- requiring employees to use their own money for company purposes (e.g., employees must buy their own uniform or equipment), and
- supervisors who fudge time reports.
Another factor: High-profile lawsuits against big companies – including Wal-Mart, Pep Boys and Dollar General – have brought attention to FLSA regs and have spurred copycat suits against smaller employers who’ve employed similar practices.
To date, retail giant Wal-Mart Stores has paid an estimated $640 million to settle dozens of wage-and-hour lawsuits across the nation that accused the world’s largest retailer of forcing hourly-wage employees to work through breaks and off the clock.
Regardless of the business you’re in or your personal opinion of Wal-Mart’s pay and benefits policies, the company’s legal problems offer you an opportunity to grab the attention of supervisors and senior management to get serious about FLSA compliance.
Here are two key take-aways to hammer home in management training:
1. FLSA compliance starts upstairs
Unless senior management and supervisors in your organization realize that no firm is immune from OT lawsuits, there’s little you can do to safeguard the company from costly errors.
That’s because many OT payment errors stem from firms using outdated record-keeping systems that’ll take time and money to correct. It’s unfair for anyone to expect you – or Payroll – to singlehandedly find and fix every possible calculation glitch.
In the end, taking the time to review and upgrade your record-keeping system more than pays for itself compared to the risk of FLSA violations.
Roughly 85% of the U.S. workforce is OT-eligible. And since 2004, employers have had to pay out $1.5 billion in OT lawsuits. It hasn’t just been the Wal-Marts and Smith-Barneys that’ve been targeted, either. Small firms also get nabbed.
2. Start with record-keeping systems
By far, the biggest mistake employers of all sizes make is to over-rely on time cards or time sheets to record the hours worked by their non-exempt employees.
FLSA also requires employers to record (and pay any related OT for) certain off-the-clock work activities. These errors can occur either on the front or back end of your firm’s compensation system.
The biggest front-end danger area: FLSA requires employers to track and pay for time non-exempt employees spend logging onto computers or donning safety equipment. Another common slip-up: lack of a tracking system for work-related travel time by non-exempts.
On the back end of record keeping, FLSA requires your company to track total compensation (not just base pay) when calculating overtime rates. This includes bonuses, money from PTO buy-backs, wellness incentives with monetary value and other forms of compensation.
Tags: compliance, fair labor standards act, FLSA
August 6th, 2009 at 9:06 am
After being in business for over 50 years, dont recall a time when and employee was over paid (and it does happen) that employee notify payroll of the error.
August 6th, 2009 at 9:50 am
How do you figure in total compensation for OT? Do you take the previous quarter or year to date and average it in? Some bonuses are based on profit, safety, or attendance.
August 6th, 2009 at 11:19 am
That’s sad Tyrone. I have had it happen several times at my company and the EE lets us know immediately. It may be the people you are hiring. ????????
August 6th, 2009 at 11:37 am
Just this morning, I saw a supervisor walk to an hourly employee’s desk at 7:45 a.m. and begin talking about work problems asking her to look at such-and-such account on the computer. Supervisors have been told over and over again that work begins at 8:00 a.m. for hourly employees and not before unless they want to authorize overtime for the employee. I’ll be watching the timesheet to see if he paid her overtime.
August 6th, 2009 at 11:49 am
I’ve had a couple of people let me know that they were overpaid but that’s over the last 25 years…it’s very rare that they point it out. Maybe you don’t work with several different rates for working in special areas or doing special work, Johanna. Our payroll is very complicated, (union electricians out of 9 locals…sometimes doing tunnel work, bridge work, high time, cable-splicing or welding, etc.) and they seem to always know immediately when they are underpaid!
I can relate, Tyrone.
August 6th, 2009 at 11:54 am
Regarding the last paragraph: “On the back end of record keeping, FLSA requires your company to track total compensation (not just base pay) when calculating overtime rates. This includes bonuses, money from PTO buy-backs, wellness incentives with monetary value and other forms of compensation.”
Can someone please explain that one to me? I was under the impression that overtime was figured as “time and a half”, or the employee’s hourly rate plus half their hourly rate… would paid insurance premiums need to be considered as an “other form of compensation” in computing an overtime rate?
August 6th, 2009 at 12:52 pm
Mary B,
Many people do not know that you have to calculate a “regular rate” of pay for an hourly employee before calculating the OT rate. so for instance, if an employee makes an hourly rate and then recvs commissions in that pay period, you would need to add the reg wages + commission and divide by number of hours worked in the week to get the regular rate of pay then multiply that figure times 1.5 to calc the OT rate.
August 6th, 2009 at 1:09 pm
So, what is the reaction of the company when an employee discovers this little tidbit and mentions it to payroll or HR? If the employee is terminated for being a trouble maker, sure, they could take the company to court, but how does that help the employee’s job situation in the meantime? They would be taking a risk. Maybe the company will decide to stop the bonuses instead.
August 6th, 2009 at 2:58 pm
We just got done with a DOL audit regrading an OT complaint. On thing the DOL inspector said he would like to see to alleviate time challenges is a good timekeeping system where it is not left up to the supervisor or he employee to estimate when they started or ednded work. We are now looking at clock in/out alternatives that will serve the wide variety of hourly employees we have, from those who do nothing but desk work to those who never see the inside of a building.
August 6th, 2009 at 6:28 pm
The employer’s share of insurance premiums, 401(k) or some profit sharing plans are not considered when calculating overtime. Neither are “discretionary bonuses” which would be bonuses or gifts which are completely discretionary, based on no objective criteria and are not routine.
August 7th, 2009 at 7:30 am
What about inappropriate deductions from salaried employees? The focus seems to be on the non exempt but what about the exempt professionals?