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December 18, 2006
How to Avoid Common Wage & Hour Mistakes

Two of the best ways to prevent common mistakes involving wage & hour rules are conducting regular audits and educating decision makers, according to two experts who recently led a BLR audio conference.

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Stuart W. Miller of the law Firm Davis Wright Tremaine LLP said that one of the most common wage & hour mistakes is misclassifying workers as exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act. He said that one reason employers misclassify workers is that they rely on outdated or inaccurate information about job duties. He emphasized that job duties evolve, so HR must monitor them closely.

Another common mistake is misclassifying employees as independent contractors. He said employers should thoroughly evaluate whether workers satisfy the requirements under federal and state law, regulations, and case law covering independent contractors to be sure they are classifying workers correctly.

Miller said other common wage & hour mistakes include:

  • Unpaid off-the-clock work by nonexempt employees
  • Poor recordkeeping of work hours
  • Missed or denied meal or break periods in violation of state wage & hour laws
  • Improper deductions from exempt employees' pay
  • Failure to pay employees properly for travel time or work preparation time
  • Incorrect calculations of workers' regular rate of pay for the purposes of calculating overtime.

To prevent, identify, and remedy wage & hour violations, employers should conduct audits regularly and educate decision makers regularly, Miller said. He recommended that employers work with their employment counsel when conducting the audits.

During the audit, employers should identity all the employees who are classified as exempt, narrow them down to the "gray area" cases, and evaluate their status based on federal and state standards.

He said employers should interview more than one manager with knowledge of the employee's job duties. He said that because managers tend to overstate the discretion and independent judgment an employee exercises, it is important for the employer to ask probing questions, challenge generalizations, and request specific examples.

During the audit, employers should also review job descriptions to ensure that they accurately reflect job duties and responsibilities.

Miller's other audit tips included:

  • Reclassify misclassified employees, or, if feasible and desirable, modify job duties.
  • Calculate the "unfunded liability" for overtime and benefits for misclassified employees. The federal statute of limitations is 2 years for non-willful violations and 3 years for willful violations, he said.
  • Implement a system for ensuring that existing and new employees are classified properly.

He also said the audit should include a check of whether the employer is providing legally required meal and rest periods under state law. He noted that this area has been the subject of an increasing amount of litigation in California in recent years. He said employers should check recordkeeping, interview supervisors, take corrective action, calculate the unfunded liability for meal and rest period violations, and develop a system for monitoring meal & rest period usage.

Lloyd W. Aubry, Jr., of the San Francisco offices of the Morrison & Foerster law firm identified several issues employers should watch in 2007 and beyond, including:

  • More wage & hour legislation on the federal level when Democrats take control of Congress in January, such an increase to the federal minimum wage
  • Efforts to require paid sick leave. In November, San Francisco voters approved an ordinance that requires employers to offer paid sick leave to employees in the city. Aubry said he wonders if other jurisdictions will follow San Francisco ' lead. U.S. Senator and some other Democrats would like Congress to approve a federal mandate on paid sick leave.
  • More recordkeeping complaints. He said employers need to pay careful attention to rules because it is easy to violate them.

Order a CD copy of the Wage & Hour Strategies audio conference.

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