January 23, Top 10 Wage and Hour Compliance Tips

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1 January 23, 2014 Top 10 Wage and Hour Compliance Tips

2 Michael Warren, Esq. Littler Mendelson, P.C. San Jose Office

3 Wage and Hour Risk Areas Overtime and Minimum Wage Meal and Rest Breaks Wage Deductions Independent Contractors Recordkeeping

4 Importance of Compliance DOL/DLSE Investigation or Audit Criminal and Civil Penalties Individual or Class Action Lawsuit Negative Publicity Business Distraction and Expense Impact on Employee Morale and Productivity

5 Potential Wage and Hour Liability FLSA vs. State Law: Whichever Most Favorable to Employee 3-4 Year Exposure FLSA Liquidated Damages Potential Individual Liability Civil Penalties Prejudgment Interest Attorney s Fees and Costs

6 Example of Single Plaintiff Exposure Issue: Exempt Status of Employee Annual Salary of $60,000 Work 50 Hours/Week Potential Exposure for 3 Years of Overtime Wages: $67,500 4 Years = $90,000 Waiting Time Penalties: $7,000 Prejudgment Interest Attorney Fees/Costs

7 Class Action Exposure Examples Exempt Status of Administrative Employees 150 Class Members (Over 3 Years) $24K Salary + 45 Hours/Week Exposure: $675,000/Year ($2 million for 3 Years) Increase to $36K + 50 Hours/Week Exposure $2 million/year ($6 million for 3 Years)

8 #10 Failing to track all work performed

9 Compliance Tip #10: Off-the-Clock Work Examples of Potential Offthe-Clock Work Home/remote work Pre- and post-shift activities Travel time Assumptions (lunch)

10 Adopt Company Policy Prohibiting Off-the-Clock Work Compliance Tip #10: Off-the-Clock Work Implement Complaint/ Reporting System to Ensure Wage and Hour Compliance Publicize Through Written Policy, Posters, etc. Allow Employees to Circumvent Chain of Command

11 Compliance Tip #10: Off-the-Clock Work Reminder Consider using a reminder notice by the time clock: You MUST Record All Hours Worked Every Day Every Shift Every Time

12 #9 Use a time card certification system

13 Compliance Tip #9: Time Card Certification

14 #8 Misclassifying an Employee As Overtime Exempt

15 Compliance Tip #8: Exemption Review When Were OT Exemptions Last Reviewed? What Percentage of Employees Classified as Exempt vs. Non-Exempt? What Specific Exemption(s) Used to Classify Employees as Exempt? Ensure $455/Week Salary

16 Compliance Tip #8: Misclassifying As Exempt There is a presumption that every employee is nonexempt i.e., that he or she must be paid overtime unless the employer can prove otherwise.

17 Which Employees Are Exempt From Overtime Requirements? To prove that an employee is exempt from overtime, the employer must show that the employee spends the majority of time on exempt tasks.

18 Determining an Employee s Primary Duty (or Duties) In California the primary duty test is a quantitative not qualitative test. This means an employee must be spending more than 50% of his or her time performing exempt duties to qualify as exempt. However, as a rule of thumb, an employer should not assume an employee is exempt unless it is clear that she.

19 Don t overuse the Administrative Exemption The most common exemptions are for whitecollar employees: 1. The executive exemption (aka the managerial exemption); 2. The administrative exemption; 3. The professional exemption; and 4. The outside salesperson exemption.

20 Don t overuse the Administrative Exemption Administrative Exemption Duties and Responsibilities involve: Performance of office or non-manual work directly related to management policies or general business operations of the employer or the employer s customers; and

21 Don t overuse the Administrative Exemption Who customarily and regularly exercises discretion and independent judgment; and Regarding matters of consequence, i.e., could lead to serious consequences if not performed correctly.

22 Don t overuse the Administrative Exemption Who regularly and directly assists another in a bona fide executive or administrative capacity, or Who performs, under only general supervision, work along specialized or technical lines requiring special training, experience, or knowledge, or Who executes, under general supervision, special assignments and tasks, and

23 Don t overuse the Administrative Exemption Who is primarily engaged in these duties, i.e., spends more than 50% of their time doing them. Common errors: - Selling/production - Analysts - Clerks/IT/Admin. Assistants - Trainees

24 #7 Make sure your independent contractors are truly independent contractors.

25 Compliance Tip #7: Misclassification of independent contractors The Collision of Two Trends: Flexible Workforce Traditional Rules and Government Revenue

26 Compliance Tip #7: Why Proper Classification Is Important Focus of Most Employment Law Coverage is Employment Status Employment Tax Issues Hard-line Positions by Enforcement Agencies

27 Compliance Tip #7: Why Proper Classification Is Important California imposes new penalties $5,000 to $25,000 per violation for willful misclassification plus notice on website for one year California becomes 12 th state to join federal enforcement program $46 M enforcement effort includes information-sharing

28 Compliance Tip #7: Common Law Test for Independent Contractor Primary Factor: In determining whether one who performs services for another is an employee or an independent contractor, the most important factor is the right to control the manner and means of accomplishing the result desired.

29 Compliance Tip #7: Common Law Test for Independent Contractor Secondary Factors: Whether or not the one performing services is engaged in a distinct occupation or business; The kind of occupation, and particularly whether, in the locality, such work is usually done under the direction of the principal or by a specialist without supervision.

30 #6 Take another look at your paystubs.

31 Compliance Tip #6: Itemized Wage Statements California Labor Code Section Gross wages 2. Total hours worked 3. Number of piece-rate united earned if applicable 4. All deductions 5. Net wages earned 6. Pay period 7. Name and SSN 8. Name and address of employer legal entity 9. All applicable hourly rates and corresponding hours

32 #5 Do not take improper deductions and pay on time.

33 Compliance Tip #5: Deductions and Payment Ensure that Company Policies and Practices Comply with Regulation Requirements: Wage Deduction Regulations L.C. 224 (Lawful Deductions) L.C. 221 (No Self-help) Time of Payment Regulation L.C. 201 (Discharge) L.C. 202 (Quit) L.C. 204 (During Employment)

34 #4 Don t take a break implementing your breaks!

35 Compliance Tip #4: Meal and Rest Breaks Make Sure that Breaks are Provided (or Waived for Meal Periods <6 hours in writing) Timing and Duration Completely Relieved of Duties Missed and Interrupted Breaks Must Be Properly Addressed and Paid Policies and Training Reporting System Effect on Overtime Hours/Pay Review Policies and Forms Regarding Meal Breaks and Waivers

36 Compliance Tip #4: Process for Reporting Missed Breaks

37 Compliance Tip #4: Process for Reporting Missed Breaks

38 #3 Maintain and archive your time and payroll records

39 Compliance Tip #3: Record Keeping Requirements Employee must record actual start and stop time Employer must maintain records (min. 4 yrs/7yrs rec.) Avoid rounding Proper at all? Increment? Balances out?

40 #2 Train your people.

41 Compliance Tip #2: Train Employees and Managers Train non-exempt employees Pay system Proper timekeeping Policy prohibiting off-the-clock work Meal and rest breaks Train managers Requirements of federal and state law Proper timekeeping procedures

42 #1 Don t assume you re in compliance. Do an audit!

43 Why Should We Conduct an Audit? Increased risk of classwide claims Cost / benefit analysis Can t fix what you don t know if broken It s the right thing to do good for business

44 I Have Uncovered a Wage and Hour Compliance Issue Now what do I do?

45 Correcting Self-Discovered Wage & Hour Gaffes Reclassification Minimizing off-the-clock work Payroll programming To pay or not to pay

46 Reclassification Job modification alternatives Hourly or salaried non-exempt Determining an hourly rate Training supervisors on lawful time management techniques Communications with employees and managers

47 Minimizing Off-the-Clock Work Policy enhancements Employee and supervisory training Complaint mechanisms Regular audits Uniform and prompt discipline of employees and supervisors

48 Payroll Programming Supervisory edits Automatic meal period deductions Rounding Programming that prevents Pay checks below minimum wage Salary basis violations

49 To Pay or Not to Pay How do we determine the number of hours worked by employees? Should we pay back wages to former employees? If we pay, can employees still sue us? If we are sued... Will the back wage payments be treated as an admission of liability or an inadmissible subsequent remedial measure? Will we get an off-set for the back wages?

50 Michael Warren, Esq. Littler Mendelson, P.C. San Jose Office (408)