Former DOL admin: 4 risky pay practices the feds have a field day with

With the DOL’s overtime changes under construction, some employers are putting pay-process reviews on the back burner, but that could be a very costly mistake. 
There are plenty of risky payroll practices employers may not even know could put them at risk for wage-and-hour violations.
At the 2017 SHRM Conference & Exposition, former DOL Wage-and-Hour Administrator and Littler employment attorney Tammy McCutchen warned employers to be on the lookout for the following high-risk pay practices:

Red Flags

1. Business deductions. Employers often get into trouble when they make deductions from non-exempt staffers’ paychecks for things like equipment, uniforms and unreturned company property.
What to do to stay safe: If you have to deduct business expenses from an employee’s paycheck, always get the staffer’s written authorization and make sure the deductions never drop the employee’s compensation to below the minimum wage ($7.25 an hour). Even better: Don’t make all of the deductions in a single paycheck. Instead, spread out the amounts over multiple pay periods.
One exception to this practice is if you’re located in California. If your company operates in the Golden State, don’t make any business deductions at all, McCutchen warns.
2. Those little “extras.” It’s very common for employers to forget to include weekly “extras” in their overtime pay calculations. Some examples of the extras that must be included:

  • Shift differential compensation
  • Job differential compensation
  • On-call pay, and
  • Prizes and awards.

What to do to stay safe: These little extras must be added to other wages to get the correct regular rate of pay and avoid FLSA issues. McCutchen says ensuring each pay code in your system is flagged as included or not included in OT calculations can prevent mistakes from happening here.
3. Scheduled-shift payments. Automatically paying employees based on their scheduled shift can often lead to problems, McCutchen warns.
What to do to stay safe: For your time-keeping to be as accurate as possible, it’s critical to require employees to punch in and out when they start and stop working, and then have them certify that the hours they worked are accurate.
Also, employers should be on the lookout for the following red flags of inaccurate or false time-keeping:

  • Same in and out time every single day
  • Same exact out/in time for meal period breaks every day
  • No out/in times for meal breaks
  • Time punch always occurs at the exact time the shift begins, and
  • Time punches for all or most employees are at almost the exact same time.

4. Exemptions. Classifying an employee as exempt isn’t always so cut and dried. For one thing, employers can get in trouble when they simply assume all salaried workers are OT-exempt. Other problems occur when employers fail to analyze both federal and state laws, fail to analyze whether the specific job duties qualify for the exemption and make deductions from exempt employees pay.
What to do to stay safe: McCutchen offered the following plan to avoid issues with exempt employees:

  1. Create a process to review the job duties regularly for new and changing jobs (most positions change over time).
  2. Audit all jobs in the lowest two pay categories at least every other year.