Contract signing iStock_000000739804XSmall.jpgIowa is the latest State to sign a Memorandum of Understanding and join forces with the U.S. Department of Labor to combat employee misclassification.  Although Labor Secretary Solis has announced her resignation, it appears that the Misclassification Initiative that she championed continues, at least for now.

As mentioned in a previous post, these Memorandums of Understanding with state government agencies arose as part of the DOL’s Misclassification Initiative, with the goal of preventing, detecting and remedying employee misclassification.  Iowa is now the fourteenth State to sign one of these Memorandums after California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.  The Memorandums allow the DOL to share information and to coordinate efforts with participating states as part of its Misclassification Initiative.

For nearly sixteen months, the DOL has been going after employers who misclassify employees as independent contractors.  Since September 2011, the Wage and Hour Division has collected more than $9.5 million in back wages, primarily for minimum wage and overtime violations under the FLSA, which resulted from more than 11,400 workers being misclassified as independent contractors or otherwise not properly treated as employees.  The DOL has stated that this represents an 80% increase in back pay and 50% increase in the number of workers receiving back pay since these agreements have been implemented between the DOL and the States. 

Insight for Employers

It is important to remember that whether a worker is an independent contractor or an employee is a very fact specific analysis.  If the misclassification of a worker as an independent contractor occurs, these employees may be denied appropriate wages and benefits.  Similar to the misclassification of an employee as exempt, failure to properly classify a worker as an employee may lead to significant liability.  Because of the amount of money at issue when employee(s) are misclassified, it may be worth a few minutes of your time to confirm with an experienced employment attorney that your workers are properly classified.  

iStock_WageIncrease.XSmall.jpgWith the New Year comes a minimum wage increase in 10 states:  Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont and Washington.  Each of these states has a higher minimum wage rate than the federal minimum of $7.25/hour.  Employers in these states are required to pay the higher state minimum wage.

In addition to these 10 states, 9 other states plus the District of Columbia have a higher minimum wage requirement than the federal rate.  While not law yet, several other states have been engaged in efforts to increase their minimum wages.  Democratic leaders in the House have also indicated that raising the federal minimum wage is a priority, however, no such legislation has been voted on.

This serves as a reminder to employers to check applicable state laws where they have employees to ensure that they are paying at least the proper minimum wage.

iStock_SantaMoney.XSmall.jpgAs 2012 comes to a close, we inevitably receive questions related to year-end bonuses.  Last year, I posted about whether employers were required to pay a pro-rata bonus to those employees who left their employment before the bonus was paid out.  This year, I thought it might be helpful to remind employers of certain rules relating to bonus payments made to non-exempt employees.

Bonus Payments and Overtime

The Fair Labor Standards Act (FLSA) requires that overtime pay be determined using the employee’s “regular rate” of pay, which includes all earnings paid to the employee during the workweek.  However, the FLSA specifically provides that certain earnings may be excluded from the regular rate, including certain bonuses where:

(a) the bonus remains completely within the employer’s discretion, which the employer exercises close to the end of the period for which the bonus is paid, and is in no way required by any contract, agreement, or promise such that employees may expect the bonus, or

(b) the bonus payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift or savings plan; 29 CFR § 778.200(a). 

 

Continue Reading Don’t Forget to Include Non-Discretionary Bonuses in Overtime

webinar_cropped18912405.jpgSome of the most common questions we receive from clients involve how to properly compensate non-exempt employees. Join me on Thursday, November 29, 2012, at 11:00 a.m. CST, for a two-hour live webcast entitled “Understanding FLSA’s Compensable Time Requirements for Non-Exempt Employees.”  I will be serving on a panel in which we will address the following topics:

  • Compliance with FLSA’s compensable time requirements
  • Calculating the amount of money a non-exempt employee should receive for all hours worked
  • Practical Solutions on some of the common pitfalls for employers
  • Training your staff and establishing clear policies about non-exempt employees working hours
  • Legal Issues involved in case errors in compliance are identified
  • Recent DOL changes concerning salaried exempt employees
  • And a lot more!

Thanks to The Knowledge Group for inviting me to present this program.  As a client or friend of the Firm we can offer registration for this webinar at the discounted price of $25.  Please e-mail Maryanne Adams at mca@franczek.com if you wish to register for the webcast for the $25 fee.  More information on the webcast and general registration is available through The Knowledge Group.

Thumbnail image for CalculatorIf you are a regular reader of this blog, you are hopefully familiar by now with the notion that exempt employees generally must be paid their full weekly salary for all workweeks in which they perform any work. There are certain limited exceptions to this rule. For example, if an exempt employee starts or ends employment mid-workweek, the employer may prorate the employee’s salary accordingly. This calculation is easy fairly easy if the employer uses a weekly pay period – just take the regular weekly salary, divide by the number of days that salary usually covers (e.g., 5), and multiply by the number of days the employee was employed. 

But what if an employer pays salaried employees semi-monthly? In that scenario, the employer divides the employee’s salary into 24 semi-monthly pay periods. However, because the pay period is no longer tied to the workweek, different pay periods can have different numbers of working days. There are at least a couple of different ways an employer could prorate an employee’s pay under these circumstances: 

1. Calculate a day rate for each pay period by dividing the semi-monthly salary by the number of working days during the pay period. Then, multiply the day rate by the number of days worked during the pay period to calculate the employee’s salary.

2. Alternatively, an employer could calculate a day rate by dividing an employee’s annual salary by the 52 weeks in the year, then dividing by the number of working days per week. The day rate is then multiplied by the actual number of days worked.

Which method is correct?

That was the issue addressed in a recent decision by a federal district court in the Western District of Washington.pdf. The plaintiff in that case alleged that his employer violated the Fair Labor Standards Act and the Washington Minimum Wage Act by using method 1, effectively shorting him by $41.31 for his first week of employment, and $73.43 for his final week. 

The court’s conclusion? The FLSA does not mandate one specific method for prorating an exempt employee’s salary in situations where deductions are permitted. Rather, 29 C.F.R. § 541.602(c) says that an employer may “use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee.” 

Because the deduction calculated using method 2 is proportional to the amount of time actually missed during a given pay period, the court held that method was permissible under the rules. 

Insights for Employers

  1. Yes, the plaintiff in this lawsuit literally made a federal case out of a $114.74 shortage. Why did he bother? And why would his employer pay its lawyers to take the case to summary judgment, rather than just writing the guy a check? Two words: class action. This case wasn’t about one employee, it was about however many salaried exempt employees the employer had hired over the preceding three years, and even more so, about the fees the plaintiffs’ attorneys could recover if they won or extracted a favorable settlement. Even small wage and hour issues can add up to big dollars. 
  2. Although the Washington State case dealt with prorating salary at the beginning and end of employment, the court’s conclusion appears to apply equally to prorating an exempt employee’s salary for other reasons permitted by the regulations, such as when an employee is absent for personal reasons. 
  3. Remember, this a decision by one district court. While the court’s conclusion appears sound and should apply elsewhere, at least for purposes of federal law, results may vary in your jurisdiction. Consult your wage and hour lawyer before relying on this decision. 

election-day-347x284.jpgAs mentioned in a recent FR alert, “Time Off to Vote?,” written by my colleague Sally J. Scott, Illinois requires employers to allow employees who are eligible to vote up to two hours of paid time off while polls are open (from 6:00 a.m. to 7:00 p.m.) on Election Day. For wage and hour purposes, employers should consider the following when determining whether an employee is entitled to this type of paid leave:

  • Employees must request leave before Election Day, and employers can specify when employees are permitted to be absent.
  • If an employee’s work day begins less than 2 hours after polls open and ends less than 2 hours before polls close, the employee must be allowed a 2-hour paid absence during working hours.
    • For example, an employee who works from 7:30 a.m. to 5:30 p.m. would be entitled to up to two hours of paid time off to vote.
  • If an employee’s work day begins at least 2 hours after polls open or ends at least 2 hours before polls close, the employee may be required to vote outside of working hours.
    • For example, an employee who begins work at 8:00 a.m. or ends work by 5:00 p.m. may be required to vote outside of work hours.

Employers should be sure to check the state laws in which they have employees in order to be prepared for Election Day on Tuesday, November 6.  Also, employers should check any relevant collective bargaining agreements or past practice to determine whether such leave would be considered hours worked for overtime purposes.

Direct Deposit Slip iStock_000017654852XSmall.jpgQ. We would like to require employees to accept pay via direct deposit. Is this permitted?

A. Direct deposit is an increasingly common method of paying employees, with numerous advantages for employees (fewer trips to the bank, no worry about losing a check) and employers (reduced cost and administrative hassle).

The Fair Labor Standards Act does not directly answer this question. However, in its interpretive regulations, the U.S. Department of Labor states that the FLSA requires payment “in cash or negotiable instrument payable at par,” except under limited circumstances in which employers are permitted to record a credit for board, lodging, and other facilities. 29 CFR § 531.27. That of course begs the question of whether direct deposit into a bank account qualifies as a “cash equivalent.” The regulations do not address that question, but in Section 30c00(b) of its Field Operations Handbook, the DOL says the following:

The payment of wages through direct deposit into an employee’s bank account is an acceptable method of payment, provided employees have the option of receiving payment by cash or check directly from the employer. As an alternative, the employer may make arrangements for employees to cash a check drawn against the employer’s payroll deposit account, if it is at a place convenient to their employment and without charge to them. [Emphasis added.]

So, at least according to the U.S. Department of Labor, employers can pay employees via direct deposit, but have to allow employees the option of receiving payment by cash or check. (Note – we strongly recommend against paying employees in cash.) 

Most states also have laws that govern when and how employers must pay employees. While a handful of states permit employers to mandate direct deposit (usually with some restrictions), most, like Illinois, allow direct deposit only with the agreement of the employee. The Society of Human Resources Management has a useful compilation of state laws on wage payments and direct deposit available here. 

 

Shortly after my co-author, Bill Pokorny, wrote about celebrity and Iron Chef Mario Batali’s multi-million dollar settlement of a class action tip pooling lawsuit, another celebrity chef here in Chicago was sued for violating tip pooling laws.  In March 2012, a lawsuit was filed against Master Chef Graham Elliot by 14 former employees over tip pooling requirements at his self-titled restaurant.

Gregory Curtis, a former waiter at Graham Elliot, claimed that he and others were forced to participate in a tip pool that included bartenders, bussers, food runners and cooks.  Under federal law, employees may be required to participate in a tip pool only if the tips are distributed among employees who “customarily and regularly receive tips,” and this generally is limited to personnel such as servers, bussers and service bartenders.  Curtis alleged that food runners and cooks do not customarily and regularly receive tips and so they may not participate in a tip pool.  Due to the inclusion of such “back of the house” employees in the tip pool, Curtis claimed he was entitled to lost wages.  For a good summary of tip pooling rules, see Bill’s prior blog post. 

After litigating this case for over a year, this week, Graham Elliot reached an undisclosed settlement with Curtis and the other waiters.  If the allegations are true, Graham Elliot’s tip pool did not appear to meet the requirements of federal law. 

While tip pooling is generally limited to the hospitality industry, this is another example of a celebrity experiencing some difficulty navigating wage and hour laws.  Employers can feel better knowing that not even the rich and famous are exempt from compliance with the FLSA and related state laws.  Even the most brilliant chefs must ensure that their businesses comply with wage and hour laws.  More than ever, employees are aware of their rights, particularly as it relates to wages.  While I truly enjoy the brilliance of these celebrity chefs and the meals they create (Bobby Flay is a favorite!), the regulatory side to running a restaurant cannot take a back seat.    

The lesson learned here is this – whether you are a celebrity chef or a more run-of-the mill type of business, all employers must comply with applicable federal and state wage and hour laws.  Given the complexities of wage and hour laws, employers should seek the advice of employment counsel for effective ways to comply with those laws. 

Dollar.Stacked.XSmall.jpgOn September 12, 2012, Family Dollar announced that it will pay up to $14 million to settle a class action in the Southern District of New York.  Similar to other class actions filed against Family Dollar over the years, New York store managers claimed that the Company failed to pay them overtime.  Although the agreement has not yet been finalized, the proposed settlement would affect more than 1,700 store managers in New York who are covered by the certified class. 

As we mentioned in our prior blog post back in April, court rulings have come down on both sides of the issue as to whether store managers at discount retailers, such as Family Dollar, are exempt from overtime.  Back in 2008, the Eleventh Circuit upheld a $35.6 million judgment in favor of Family Dollar Stores managers on the basis that those managers did not meet the executive exemption.  Since then, court rulings addressing this issue have varied depending upon the facts of each case.  Most recently, in April 2012, a federal district court in South Carolina determined that two Dollar General store managers met the executive exemption from overtime pay under the FLSA.  Gooden v. Dolgencorp and Thomas v. Dolgencorp.  Similarly, in August 2012, a North Carolina district court found that a Family Dollar store manager met the executive exemption.  Ward v. Family Dollar Stores.   

Given some of the more recent rulings finding that the executive exemption applied to store managers, it is not entirely clear why Family Dollar chose to settle this New York class action.  Needless to say, each case must be reviewed based upon its own set of individual circumstances.  Like all employers, Family Dollar likely looked at the facts and risks associated with further litigation and made a determination as to whether the settlement made sense.  In any event, this case does not suggest that Family Dollar and other retailers cannot meet the executive exemption by demonstrating that management is the primary duty for its store managers in the future.  At most, this is a reminder to employers that such a determination will always be based on the specific facts at issue and the individuals involved.

money6694778.jpgWhile we generally look at overtime as a “wage and hour” issue, I am once again reminded of how overtime is connected to other employment statutes.  Recently, on an issue of first impression, the First Circuit found that the Family and Medical Leave Act (FMLA) allows a prevailing plaintiff to recover lost overtime as part of a back-pay award.  Pagan-Colon v. Walgreens of San Patricio Inc.

Pagan, an assistant manager at a Walgreens in Puerto Rico, brought a lawsuit under the FMLA alleging that he was fired in retaliation for taking a medical leave absence.  In addition to other damages, Pagan claimed he was entitled to overtime wages under the FMLA as part of “other compensation denied or lost.”  At the district court level, the jury returned a verdict in favor of Pagan on his FMLA retaliation claim. As part of his back-pay award, the district court included $20,637 in lost overtime wages.  In affirming the overtime award, the First Circuit reasoned that, under the FMLA, a prevailing plaintiff may recover “any wages, salary, employment benefits or other compensation denied or lost” due to violation of the statute and that overtime pay certainly falls into the category of “other compensation.” 

To calculate overtime owed, the district court estimated that Pagan would have worked 6.5 hours of overtime per week over the 125-week period between his termination and the judgment.  The district court obtained the 6.5 hours per week figure by using a year-to-date average of Pagan’s weekly hours during the four months preceding his termination.  The district court implicitly assumed that the year-to-date average was more reliable than a 12-month average for determining how much overtime Pagan would have worked going forward if he was not terminated.  The First Circuit found no “clear error” in the district court’s calculation of overtime.

Insight for Employers

This decision may not be an anomaly.  There have been other federal appellate courts that included overtime wages as part of a back-pay award under other employment statutes, such as Title VII.  Accordingly, employers should be aware of whether the appellate court(s) where they are located allow the inclusion of overtime in back-pay awards and how that overtime may be calculated.  When looking at potential damages in an employment claim, employers should consider whether including any potential overtime owed in the calculation of back-pay is appropriate.