The US Department of Labor (DOL) announced plans earlier this year to hire at least 100 new wage and hour investigators. This reflects and increase in departmental compliance enforcement efforts. Frankly, every business owner and executive should have this on their radar. Additional investigators will lead to the DOL pursuing more violations and potentially imposing higher penalties on violators.
To avoid getting caught in the DOL’s crosshairs, employers should pay attention to a few questions regarding wage and hour compliance practices.
Have you properly classified employees and contractors?
One of the greatest mistakes business leaders make is assuming the answer is “yes” without looking into it. Too many companies misclassify employees as “independent contractors” to reduce costs and avoid liability, but this mistake can be costly. The DOL’s press release specifically calls out “worker misclassification as independent contractors” as one of their investigators’ compliance responsibilities. We can expect this to be a specific area of concern for their new investigators.
Here’s a simple test to determine whether an employee should be classified as one. Do you control when, where, and how they get work done? If you do, they’re considered an employee. To be an independent contractor, you’ll only have control over the worker’s results. You cannot require specific workday schedules, control the products or software they use to produce their work, or prevent them from working with other companies.
Are you paying employees for all worked hours?
This is another issue that commonly trips companies up, but the current environment is making those slip-ups more risky. With the increased popularity of remote work, the potential for off-the-clock work has dramatically increased. While communication tools — Slack, Microsoft Teams, and other instant messaging softwares — have improved the effectiveness of remote work, there’s increased danger of employees working unrecorded hours.
It’s critical to update employee training and company handbooks to cover this issue. Even small amounts of time — a quick email, or a chat message sent here or there — can lead to expensive violations. Check that you have processes and policies in place to ensure employees are compensated for all their work time, not just during standard hours.
Are you using the “salary exempt” label properly?
Many companies fall into the compliance trap of paying an employee a salary to avoid paying overtime wages. But not all salaried employees qualify for overtime wage exemptions. Many companies don’t realize the government may still require them to track salaried employee hours and pay overtime to some salaried employees. The DOL has had this on their radar for the last several years, and we don’t see that changing in the near future.
In the ongoing case of Payton-Fernandez v. Burlington Stores, Inc. et al. (2022), a former Burlington Coat Factory (BCF) store assistant manager is alleging that the company misclassified their assistant managers as “overtime exempt” to avoid paying overtime wages. While this particular case is ongoing, it notes two recently resolved cases against the company alleging the same thing. After nearly a decade of litigation, they resolved those cases through mediation, with BCF paying $19.6 million in the settlement.
Save yourself the headache and make sure that your employees are properly classified as exempt or non-exempt before it becomes a legal issue.
In short, pay attention to wage and hour compliance!
As a society, we’re coming out of two years of transition and challenge. We must now adjust how we do business. In those adjustments, wage and hour concerns haven’t been top-of-mind for many employers. This recent announcement by the DOL is a good reminder to review current policies. Make sure you haven’t drifted into dangerous territory!
For more information on properly classifying employees and assessing your business’ risk, download our free Overtime Guide.