The consequences of breaking overtime-exemption rules are so great that employers
should see audits as a necessity, according to two experts who recently presented
a BLR audio conference.
Thomas Makris of the law firm Pillsbury Winthrop Shaw Pittman, LLP, in California,
said that if an employer is caught breaking overtime rules, its exposure can
be tremendous. Employers could be liable for back wages and liquidated damages.
In addition, the risk of class-action lawsuits has increased significantly in
the last 10 years, he noted. He said one reason audits are important is because
if a challenge of an employee's exempt status comes, the employer has the burden
of proving an exemption exists for the employee.
Besides the legal implications of breaking overtime-exemption rules, there
are practical reasons to conduct audits, according to Adrianne Miller, principal
of The Miller Group, which focuses on strategic HR solutions. She said that
one of the easiest ways to lose employees is when they no longer trust that
their employer is paying them correctly.
Therefore, employers who conduct audits can catch problems early and keep themselves
out of out of trouble with the Department of Labor and employees, Makris and
Miller said. During the audio conference, they offered tips for conducting audits.
The first step is to plan the audit. This includes deciding who should conduct
and participate in the audit, how you will communicate information about the
audit, what techniques you will use to conduct the audit (e.g. review of position
descriptions, exemption-test questionnaire, interviews with managers and employees),
and what you will do with the audit's findings, they said.
Makris said that a tricky part of audits is obtaining accurate information
from employees about their jobs. He said detailed interviews with supervisors
can be a useful tool to help gather accurate information. Miller agreed, saying
that a best practice is to have the manager and employee describe the job and
have HR review the information. She said job titles do not determine exemption.
Makris and Miller said a number of questions should be addressed by the audit,
- How are policies related to exemption status and overtime communicated?
- How does the company evaluate exempt versus nonexempt status?
- Are duties adequately described and evaluated?
- What are the company's policies regarding deductions from exempt employees'
- When was the last time the company reviews the status of the position?
- How has the position changed since the last audit?
- Does the position meet the requirements of the executive, administrative,
professional, computer employee, outside sales, or highly compensated employee
- Do overtime rules specifically entitle the job to overtime (e.g. police
officers and fire fighters)?
Another step is to review your pay practices to ensure that exempt employees
are being paid on a salary basis. Miller and Makris said some questions your
audit should address include:
- Is the employee paid on a salary basis receiving a predetermined amount
of compensation each pay period on a weekly, or less frequent, basis?
- Is the predetermined amount reduced because of variations in the quality
or quantity of work?
- Are any deductions being made from the salary? What are they?
- Is there a clearly communicated policy prohibiting improper deductions?
Is there a complaint mechanism?
- Are employees reimbursed for any improper deductions?
Miller offered these additional tips:
- Establish an audit schedule. She said on-going audits are important.
- Design job descriptions to complement the audit process
- Educate managers about Fair Labor Standards Act rules and the company's
Makris had these suggestions:
- Err on the side of classifying employees as nonexempt
- Seek expert assistance on the audit process
- Remember the purpose of the audit. If it is designed for litigation protection,
it's important to retain the audit's final conclusions and data.
Both experts said it can be difficult to communicate to employees that they
are moving from exempt to nonexempt after an audit. They said many employees
attach a certain level of prestige to an "exempt" job and see a change
to nonexempt as a demotion. When an employee goes from exempt to nonexempt,
it is important for the employer to stress to the employee that it is no demotion
and his pay will increase if he works more than 40 hours, Miller said.