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?

Related posts:

1. Furloughs, Exempt Employees and Wage & Hour Law
2. Calculating Overtime: Feb. 10 Webinar

And, of course, the idea of unpaid interns sounds pretty attractive (and budget-friendly, especially while the economy is still soft).

But before you rush out to acquire a few college-student indentured servants for the summer, here are a few things to keep in mind. Just as with the regular employee overtime exemption — where it’s the employee’s job duties, not simply their job title, that determines whether they’re eligible for overtime or not — you can’t simply call somebody an “intern” and get away with paying them less than minimum wage (or not paying them at all). There are strict criteria that must be met before you can bring somebody on board without at least paying them minimum wage.

• The idea of unpaid internships is to benefit students by providing them with real-world experience they wouldn’t otherwise get. So any training received by the intern must be general, not for the immediate advantage of the business, and must be for the benefit of the intern. This training may even cause interruptions and slowdowns in normal business operations. So, if you plan to train the intern on your specific business processes so they can help you out by temporarily assuming some of the duties of one of your employees, you’d better be prepared to pay them at least minimum wage for their time.

• For that matter, an unpaid intern can’t be used to replace a paid employee in the first place.

• On the other hand, unpaid interns can do “real work” as long as they’re closely supervised or mentored, are learning and aren’t necessarily creating a final product. You need to determine beforehand if you’ll have sufficient staff to meet this close supervision or mentoring requirement.

• Both the intern and the business must agree that the internship will be unpaid, and that no job is promised at the end of the internship. However, the intern’s high school, tech school or college can partner with businesses to offer internship programs that offer class credit.

Another thing to keep in mind, most interns — being students — will probably be subject to child labor restrictions. You’ll want to make sure you don’t ask your interns to do any work that would be prohibited under these rules. The U.S. DOL takes those kinds of violations very seriously indeed — and child labor is one of their current areas of focus.

Check with your employment law attorney to make sure any internship program you’re planning is set up correctly to keep your business out of trouble. And when in doubt, pay your interns at least minimum wage.

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Now from what I’m hearing, it seems similar suits, as well as suits alleging other illegal “tip pool” arrangements, are potentially one of the Next Big Things in wage and hour litigation.

Recent Actions

For instance, in the case of Orlando Colon, et al. v. Hilton Worldwide, Inc., et al., nine banquet workers at the luxury Waldorf-Astoria hotel in New York City have filed a lawsuit against the hotel and Hilton Worldwide, Inc., seeking class-action certification. They allege banquet customers were assessed a “service charge” which the customers were led to believe was a gratuity to be paid to the service staff. However, while the service fee was 21.5%, according to the complaint only 15% of the charge was distributed to the waitstaff. They complain about “special banquet gratuities” being distributed to non-banquet employees instead of the folks who actually worked the event.

In another New York case, three suite attendants in the Arthur Ashe Stadium at the Billie Jean King National Tennis Center during the U.S. Open Tennis Tournaments have filed lawsuit to recover what they say are gratuities improperly retained by management during the years 2004 through 2009. At issue is a 21% service charge on all catered food and beverages. They’re also claiming underpayment of overtime — a potentially big deal, as the attendants supposedly worked up to 100 hours a week during the tournaments — and are seeking class and collective action certification for this suit.

Your Mileage May Vary

In some cases, the courts have decided a mandatory service charge isn’t a gratuity, because patrons don’t have a choice about paying it. And under federal law, so long as the employer pays the servers at least minimum wage, they don’t have to share the service charge with the wait staff.

But hold on a minute…

See, many states have their own rules. And the way wage and hour law works, when there’s a disagreement between state and federal law, whichever one is more favorable to the employee is the one that “wins.” For instance, in New York and Massachusetts, if the fee is called a service charge and the customer believes the service charge is a gratuity, then no portion of the money can be distributed to anybody other than the waitstaff. That was the basis for Samiento v. World Yacht, Inc. and is the basis for both the Waldorf-Astoria and the U.S. Open cases. Additionally, in New York, the statute of limitations goes back six years instead of the three allowed under the FLSA, which is what enables the U.S. Open suit to stretch all the way back to 2004.

So if you’re in the hospitality industry in New York state, consider yourself alerted.

On the other hand, and over on the other coast, on February 23, 2010 the Ninth Circuit U.S. Court of Appeals in Oregon issued an opinion in the case of Misty Cumbie v. Woody Woo, Inc. that it’s OK under the FLSA for employers to require waitstaff to participate in a ”tip pool“ — and even to give the bulk of the money in the pool to kitchen staff — as long as the employer doesn’t take advantage of the tip credit for the servers’ hourly wage. In the Cumbie case, for instance, the restaurant paid higher than minimum wages to their waitstaff to start with. Because the staff were making over the minimum wage and no tip credit was being taken, the court found there was nothing in the FLSA that would prohibit the tip-sharing arrangement.

So, What Have We Learned From This?

Well, since the Ninth Circuit court’s opinion on tip sharing just came down a couple of weeks ago, there’s no indication yet whether other courts will adopt the same stance. Frankly, if other circuits take a different tack, it wouldn’t be the first time. So relying on this ruling as absolute protection of your tip-sharing arrangement is probably premature… but it does help.

At least under federal law, as long as you’re paying your servers minimum wage with no tip credit, you should be on fairly solid ground if you do mandate tip sharing and give some of the tip money to non-waitstaff personnel. You’ll want to check on your state laws first, though, just to make sure.

When it comes to mandatory “service fees” your best bet is to be very clear with your patrons. Spell it out. If the charge is an “administrative fee” or “facilities charge” that goes to the house and not to the servers, or if the fees are split between the house and the waitstaff, say so. Ambiguous terms such as “service fee” are just asking for trouble.

If you run a banquet hall, catering facility, restaurant, hotel or are otherwise in the hospitality industry: do you charge any sort of “service fee” for special events or large parties? What do you call the fee, and what do you tell the patrons about its distribution? Do you take advantage of the tip credit for your waitstaff, or do you pay them a regular above-minimum wage? Does you mandate tip sharing? If so, which employees participate in the pool?

The real bottom line, of course, is what I almost always end up saying… check with your labor law advisor to make sure whatever you’re doing, whatever you’re thinking about doing, is on the up-and-up. A few minutes and a few dollars spent on a consultation now can save you tens of thousands (or more) on a lawsuit later.

Related posts:

1. Ask the Right People, Ask the Right Questions
2. An Interesting Distinction
3. Get Ready for Another Minimum Wage Increase

Now, of course we know none of the highly intelligent readers here would engage in shady labor practices — such as intentionally classifying employees as “contractors” in order to weasel out of paying the employer’s share of payroll taxes on their earnings — it’s easy for even well-meaning employers to get tripped up by the employee/contractor classification issue.

Thing is, just because you want somebody to be considered independent, that doesn’t necessarily make them independent according to the law. They have to meet certain criteria… and unfortunately, there are some gray areas that make the whole thing kinda tricky to sort out sometimes — not the least of which is that every state seems to have its own ideas, which may or may not agree totally with the Feds. On top of that, it’s rare that any job meets all the criteria, and there’s no hard-and-fast quantifiable way to decide… so it often turns into a subjective judgment.

It’s enough to make your head spin.

But I know a lot of you out there are considering hiring contractors or temps or whatever-you-want-to-call-them, because you need to staff up to meet what looks like increased demand, but you aren’t ready to lock yourself in to hiring more full time staff (only to possibly have to lay them off, with all the hassle and paperwork that entails, should the recovery take longer than expected to get traction).

Adding some urgency to the question is this note from the Obama administration’s budget proposal. In speaking of the 2011 budget for the U.S. Department of Labor, the proposal:

…includes an additional $25 million to target misclassification with 100 additional enforcement personnel and competitive grants to boost States’ incentives and capacity to address this problem.

OK, so this is something you really need to get right.

Fortunately, the IRS offers some assistance. Here’s an article intended to help business owners make the determination whether someone is an employee or a contractor. And if you really get stuck, you can always file a Form SS-8 with the IRS. They’ll make the determination for you and let you know. Keep in mind, though, it can take them up to six months to sort it all out — even the IRS has to puzzle over this stuff from time to time!

Keep in mind also the IRS rules may differ from the rules in your state, so you’ll also want to contact your state Department of Labor to make sure you’re in compliance with their regulations as well.

Ya know, the more I read up on this issue, I’m coming to the conclusion this is probably one of those (many) areas where, if there’s any question at all, you’re better off consulting with your employment law attorney and letting them sort out the complexities. It’s really, really tricky… and there are penalties for getting it wrong.

Now, don’t let this put you off from hiring temps or contractors. Just be careful out there, mmm-kay?

Related posts:

1. New Business Blues
2. Restaurateurs: Finding Wage and Hour Confusing?
3. 19-Jan-2010: FLSA Webinar

It’s an exciting time when, as a new business owner, you start to think about hiring your fist employees. Unfortunately, there are a number of pitfalls of all sorts lurking in the wings waiting to pounce on the unwary entrepreneur. Two common wage and hour issues, for instance, can easily sink your business under an avalanche of back pay, fines and penalties. These are: misclassification and wage deferral.

I’ve mentioned before the problem of misclassification, both in terms of eligibility for overtime and the issue of employees versus independent contractors. Sometimes new business owners are tempted to call everyone who works there an independent contractor in order to avoid having to pay minimum wage. Instead, they’ll “pay” workers in stock or stock options, calling them “contractors” or “consultants” to (apparently) exempt them from minimum wage requirements.

Problem is, there are very specific criteria that must be met before a worker can be considered an independent contractor. Too many business owners want to treat their workers as employees while calling them contractors — a practice that can get you in hot water with the DOL very quickly.

The other classification issue is that of overtime eligibility. The assumption under the law is that every employee must be paid overtime unless they meet certain very specific criteria for exemption. Sometimes, in an attempt to manage cash flow, a new entrepreneur might be tempted to ask overtime-eligible employees to work without being paid for overtime. Unfortunately for the business owner, employees cannot “agree away” their rights, so even if they’re amenable to the owner’s suggestion, it’s not legal.

Knowing this, the business owner might instead try to classify as exempt employees who otherwise should be overtime-eligible, figuring this as a workaround way to save the overtime money. Of course, you know this is also illegal.

The second major pitfall is wage deferral. Again, as with overtime, sometimes a new business owner has cash flow issues and wants to ask employees to work only for “sweat equity” for now, with the promise of pay in the future once the business gets on its feet.

As it happens, though, the law is very clear on this. Employees must be paid at least minimum wage, and in at least some states must be paid at least semi-monthly. (In many states, hourly employees must be paid even more frequently, within a certain number of days after the end of each pay period.)

Sadly, it isn’t simply new businesses that get tripped up by these issues. Even major multi-national corporations have been caught by classification issues, for instance. Whether you’re a new entrepreneur or an experienced business owner, it’s a good idea to invest a few dollars in a consultation with your employment law attorney from time to time just to make sure your payroll practices are — and continue to be — in line with the law.

Related posts:

1. Sobering Statistics
2. Head of the Class(ification)
3. Still Trying to Clean House in California

Thanks to True Slant for bringing this to my attention…

One of the common arguments about why unions, increased business regulation and universal health care are bad is that they’re supposedly a drag on the econonmy and it’s believed they will cause unemployment to rise as businesses lay off workers they can’t afford to keep any more.

Some folks like to cite high unemployment rates in Europe as proof.

Problem is, according to the Center for Economic and Policy Research in Washington, there are only three European countries among the major Organization for Economic Cooperation and Development (OECD) nations that have highter unemployment than the U.S. — Spain, Ireland and France. Germany, the United Kingdom and Italy all have lower unemployment than we do, despite also having government sponsored universal health care, strong unions and (thanks to the E.U. and all its rules) a relatively stringent business regulatory environment.

Et Tu, Lawyers?

From the “even lawyers don’t know everything” department…

The intellectual property law firm of Turocy & Watson has been charged with wage-and-hour violations, accused of misclassifying legal secretary Karla Osolin and approximately 40 others in order to avoid paying overtime.

According to attorney Mark Tabakman, a labor and employment partner at Fox Rothschild who is not involved in the Turocy & Watson case, it’s not unusual for law firms to make this kind of mistake.

“What law firms can learn is what any other employer should be aware of: It should properly classify employees as exempt and non exempt. I’ve seen it in a few law firms — I see it in a lot of companies — that they believe erroneously that paying someone a salary automatically exempts them from overtime. It doesn’t,” he said.

Just goes to show you.

Deliver Us From Illegal Practices

According to the blog of attorney Leonard Leeds “In November, the New York State Department of Labor, in a random sweep of 25 restaurants in Park Slope, Brooklyn, found that only two employers were not violating wage and hour laws. It also found that 207 workers were underpaid by almost $1 million in total. Most delivery workers surveyed were found to work around 70 hours per week while only receiving a weekly salary ranging from $210 to $275.”

Combine this news with the findings in the recently-released Behind the Kitchen Door report about the state of wage-and-hour in the restaurant industry in Chicago, and work life sounds pretty bleak for restaurant workers.

Hospital, Heal Thyself

New Liberty Hospital Corp. in Kansas City recently ended up paying over $282,000 in back wages to over 1,000 employees.

The Liberty Hospital time and attendance tracking system had evidently been configured to automatically deduct 30 mintues from each employees’ time for lunch. The problem with this was pretty much the same problem encountered by any employee who tries to automatically deduct for lunch and/or breaks: what happens when the employee doesn’t actually take the break?

In the case of Liberty Hospital, it was alleged they went ahead and deducted the time anyway. Employees also claimed the company failed to count time worked before the official start or after the official end of the shift unless that time exceeded 12 minutes.

(Actually, rounding is acceptable, as long as it doesn’t exceed 15 minutes and it’s computed consistenly in both directions, not always in favor of the employer. But deducting lunch when the employee didn’t take lunch is always unacceptable.)

While it might seem that programming an automatic lunch deduction into the system would save time and eliminate the necessity for employees to clock out when they go to lunch and clock back in when they return… in the end, those automatic deductions might be more trouble than they’re worth. Especially in a business such as a hospital, where employees may frequently get called away from lunch, necessitating manual adjustment to keep from deducting for “lunch” time they were actually working.

Related posts:

1. If It Ain’t Broke
2. Lunch: Not Automatic

According to their report, a living wage (pay that would allow a worker to support him/herself and a family without government assistance) is about $16.48 an hour. Unfortunately, more than 80% of restaurant workers in the Chicago metropolitan area reportedly make less than $10 an hour, with workers at fast food joints — the lowest-paying among all the different restaurant types — averaging only about $9 a hour.

The report also noted a majority of workers reported minimum wage and overtime violations, health and safety issues and other serious legal violations at the restuarants where they work, while more than a quarter reported working “off the clock” without pay.

While a majority of restaurateurs interviewed for the report say they want to offer better pay and benefits to their employees, for whatever reason they don’t actually do it. Ironically, they also cite “high turnover” as one of the major problems plaguing their industry. One wonders if it’s ever occurred to any of them that if they put their money where their mouths are on this issue, they might be able to reduce their turnover rate… which would, in turn, reduce their costs and allow them to make more profit?

For instance, Mike Romano, restaurant and beverage director of the East Bank Club — where employees get health insurance, paid sick days, no-interest loans to help with family emergencies and a living wage — has noted their turnover rate is only about 13%. This is spectacular in an industry where some businesses experience as high as 100% turnover every few months. Not only do they have an amazing turnover rate, but they’re also making a profit, even though they offer all those benefits to their employees.

What should probably be pretty disturbing for restaurant customers, though, is the news that cooks, servers and busboys consistently come to work sick, because fewer than 10% of them have paid sick days or employer-provided health insurance. Ewwww. Just ewwww. If basic fairness isn’t enough to convince people to start putting pressure on restaurant owners to treat their employees fairly, the issue of customer health should be.

It’s not just Chicago, of course. The U.S. DOL and many state employment commissions and labor departments have identified restaurants — among other historically low-paying industries — as targets for increased scrutiny going forward. So if you have a restaurant, even if it’s not in Chicago, might be a good idea to make sure you’re doing right by your people.

So what do you think? As a restaurant owner, can you offer at least some of these benefits and pay good wages and still make a profit? As a restaurant customer, how do you feel about the way restaurant workers are treated? Are you concerned about getting ill from workers coming in when they’re sick because they can’t afford to stay away from work?

Related posts:

1. Don’t Become A Statistic
2. Notes From The Field
3. The Cost of Non-Compliance

In cases that are somewhat similar, a number of school districts over the years have been found guilty of violating either overtime or minimum wage rules (or both) for failing to add up all an employee’s hours worked regardless of the job they were doing — so, for instance, the math teacher who also coaches girls’ soccer, or the school secretary who also drives a school bus, would find the hours they worked at their two different jobs taken separately rather than added together when calculating overtime.

According to the Fair Labor Standards Act (FLSA), it’s the hours a person works for an enterprise that count, not the hours they work at an individual location or job within that enterprise. For example, multiple locations owned and controlled by the same person or people, and having the same business purpose, are considered an enterprise.

You can’t get out of paying overtime by counting hours worked at different jobs or different locations, all within your business, separately.

Related posts:

1. The Case for Biometrics
2. Now THAT’S an Honest Employer

After overtime payments in the Garbage Division exceeded the budget by approximately $650,000, auditors with the city Finance Department reviewed payroll records and concluded there was “blatant time and attendance fraud to employees earning overtime despite the fact of not working any regular hours during the pay period.”

While the audit only covered fiscal year 2009, the auditors further said they believe the issues could go back as far as 2002.

Apparently part of the problem was that review and approval of timesheets had been delegated to a staff assistant, who “was changing [and making changes to] time and attendance information for her sister, her spouse and another employee who had not worked shifts but who had received regular pay.”

Why Automate?

So how could an automated system have helped? Well…

• An automated system would have allowed easy review and approval of time records directly by supervisors, instead of delegating reviews to the one staff assistant.
• An automated system would have calculated regular hours and overtime pay automatically, eliminating both intentional miscalculations and inadvertent clerical errors.
• An automated system can automatically upload time records to the payroll system or service, further reducing the changes of fraud or mistakes.
• An automated system (at least, the good ones) will retain records of all original employee punches and will maintain an audit trail of any edits or insertions made to the time records, helping discourage abuses in the first place, and making it easier to track them down in the event they do occur.

Plus, if the automated system includes a biometric component, employees will have to be physically present to clock in or out.

Lead Us Not Into Temptation

I know you like to think your own employees are all honest. I’m sure the people in authority at the Department of Public Works thought the same thing about their people — I feel certain if they knew what the staff assistant was up to, they never would have delegated timesheet approval to her.

Of course, it’s likely she might not have started out thinking she was going to help her friends and relatives cheat the city out of money, either. I’m certainly not out to “blame the victim” here, but the city made it almost too easy for her. Even basically well-intentioned people can be tempted.

And it may be true your employees are exceptionally honest. The point is, even honest employees can make unintentional mistakes. And whether the problem is dishonesty or simple human error, an automated system makes it less likely to happen in the first place, and easier to detect and correct when it does.

Still think those handwritten timesheets are good enough for your business?

Related posts:

1. It Only Works If You Use It
2. Calculating Overtime: Feb. 10 Webinar
3. New Secretary of Labor Sworn In

Well, turns out, the answer to that question is “no.” While you can dock the pay of hourly or non-exempt salaried employees when they come in late, take a long lunch or leave early, you can only withhold pay from salaried exempt employees under certain conditions — and usually only in full-day increments.

Dock an exempt employee for a partial day, and you risk having their exempt status revoked, and finding yourself liable for paying them overtime… and not just the one employee, but all other similar exempt employees in your organization. See, employment law doesn’t allow a “head’s I win, tails you lose” scenario. You can’t classify somebody as exempt (so you don’t pay them when they work overtime) and simultaneously dock their pay when they work a few minutes less than a full workday on any given day.

Generally speaking, if a salaried exempt employee works any part of a day, even if it’s just for a few minutes, you have to pay them for the full day. That’s why it’s so important when you’re using unpaid furloughs to cut expenses to make sure all salaried exempt employees are strictly prohibited from even checking their voicemail or business email while on furlough. Even a brief spin through their company email inbox once during a day could leave you liable for paying them for an entire day of work.

You’re not powerless, though. You are permitted to have attendance rules for your workplace and to discipline the employee for punctuality issues (of course, within any constraints placed on you by whatever employment contract might apply, if any). So, for instance, you can follow the usual progressive discipline process just as you would for any infraction of workplace rules. Depending on your state law, in some cases you may be able to suspend the employee for one or more full days without pay or even terminate them. (Although I’d say you probably don’t want to do that unless the problem is exceptionally severe.)

If you find yourself facing this kind of situation, don’t try partial-day docking with exempt employees… but by the same token, don’t give up and assume you can’t do anything. Check with your labor law attorney to make sure of what you’re permitted to do.

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