Creative Accounting
Posted on 10-Mar-10 by The Timekeeper
There’s a saying that “the road to hell is paved with good intentions.” Sometimes I read a story where I’m sure the employer did something with the best of intentions… but unfortunately ran afoul of one or another provision of wage and hour law.
Consider the case of the Husky Energy Corporation, of Lima, Ohio. Some time ago, they changed from a standard eight-hour shift to 12-hour shifts for some of their workers. As a result, these employees began working a schedule of 60 hours one week, 24 hours the next.
The company decided to get creative, and instead of paying time-and-a-half overtime for 20 hours every other week, the company established an “adjusted” hourly rate so all hours were paid at the same rate.
I’m guessing the “adjusted” rate was enough of a raise over the old hourly rate that at least most of the employees found their new paychecks acceptable. And I’m willing to bet it made payroll accounting easier for Husky. A real win-win situation, right?
Unfortunately, not under federal wage and hour law. The law says employees can’t negotiate away their wage and hour rights. The idea, as I understand it, is employers generally wield enough power in the employee-employer relationship that they can coerce their workers into making “voluntary” agreements, even if those agreements might not be in the workers’ ultimate best interests. So to protect the workers, the law is the law, and neither the employees nor the company can change it, even by mutual agreement. For instance, workers can’t “decide” to work for less than minimum wage — and they can’t “decide” to forego overtime pay that’s due to them.
(As an aside, note this places in jeopardy many “comp time” programs for overtime-eligible employees. I know some people would probably rather have the time off than the extra pay, but under the law, that isn’t allowed for overtime-eligible employees. On the other hand, if a business wants to offer comp time to salaried exempt employees, they can… because the law says they don’t have to pay those employees any overtime in the first place. Anything the company does to compensate salaried exempt employees for extra time worked is above and beyond the legal minimum already. But I digress.)
In this case, the federal law is very clear. For any work week in which an overtime-eligible employee puts in more than 40 hours, the employer is liable for paying time-and-a-half overtime for all hours over 40. (Some states, such as California, require time-and-a-half for any hours worked over eight in any given work day. Check with your lawyer to find out if this applies to you.)
The fact that over the two week pay period the employees were only working 84 hours (a total of four hours of overtime over the course of a standard two-week, 80-hour pay period) didn’t matter. It’s work week, not pay period, that determines how overtime pay should be calculated. Because these workers were paid by the hour, they must be paid at the overtime rate for all hours worked over 40 in a work week — in other words, 20 hours of overtime (at time-and-a-half) every other week.
Of course, in the weeks when they only worked 24 hours, they only had to be paid for 24 hours…
(Another digression: for salaried workers there is something called the “fluctuating work week” method of calculating overtime. Note, however, it only applies to overtime-eligible salaried workers, and it is merely an alternate way of calculating their overtime pay, not a way of getting out of paying overtime entirely. We’ll talk about it soon.)
So, bottom line, Husky ended up having to fork over $969,182 in back wages for unpaid overtime to 173 workers. And they had to establish new hourly rates (more likely, go back to somewhere in the vicinity of their old hourly rates before the work-week change… but I digress yet again.) that they will use for calculating time-and-a-half overtime for the 60 hour weeks going forward.
What makes this particularly relevant is that there are lots of companies out there trying “creative solutions” these days to cut labor costs, hopefully without laying off employees. They need to make sure their inventive cost-cutting moves don’t end up costing them a lot more in the end in back wages and penalties.
How about you? Have you ever gotten burned by trying a great new idea for payroll without vetting it with your labor law attorney first? Do you think employers and employees should be allowed to voluntarily negotiate work and payroll rules that don’t conform to the law?
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