Legal Pitfalls of Wage and Hour Issues

Confused by wage-related legislative changes? What about proper classification of employees, minimum wage pay, and overtime pay calculations? Our recent Chicago Restaurant CFO Roundtable examined these issues featuring Jeffrey Risch and Ryan Jacobson, partners with SmithAmundsen. They shared their professional insight regarding these legal pitfalls, providing attendees with plenty of food for thought.

One area of concern? President Obama’s order for the U.S. Department of Labor (DOL) to review and revise white collar exemptions. This allows certain white collar employees to be exempt from minimum wage and overtime requirements under the Fair Labor Standards Act. Anticipated exemption changes include revised salary and duty requirements, which would provide a larger net for non-exempt employees and their entitlement to overtime pay and could result in employee classification changes. Though new legislation is not expected until 2015, strong opposition may cause any proposed changes to be scaled back, so stay tuned!

In anticipation of these changes, what should employers do now?
  • review current exempt and non-exempt employee classifications to ensure compliance
  • review pay policies/work rules for compliance or potential updating
  • ensure processes are in place to track hours for any whose exempt status may be questionable
  • re-evaluate proposed additional benefits or salary increases for current exempt staff
Failure to properly establish exemptions can cause real problems. “Employers have the burden of proving that an employee is exempt from overtime pay,” warned Risch. “Wage and hour calculations and classifications need to be handled correctly 24/7 – all the time. Otherwise, resulting DOL audits, lawsuits, back wages, penalties, and legal fees can create costly headaches.”

Tipped employees create other issues in regard to the minimum wage credit, tip pooling, and dual jobs. Again, employers – not employees – bear the burden of tip documentation including tip amounts, tip pooling allocations, cash tips and actual hours worked. “Keep in mind that employers can be creative in placing internal controls on employees to ensure proper and accurate record keeping,” said Risch.

Compliance with meal break, rest break, and “day of rest” requirements is also important so that hours worked are appropriately counted.

Risch also discussed a variety of related non-exempt staff issues including:
  • compensable (rest periods of at least 30 minutes) vs. non-compensable (jury duty) time
  • wait time compensation (e.g. employee who must stay and run the dishwasher before closing with no other tasks to perform)
  • on duty vs. off duty time, split shifts, and layover time
  • on-call time (pager, smart phone, and cell phone use can result in relaxation of compensability)
  • off-the-clock unauthorized work (training supervisors on this issue can help avoid paying unplanned and unapproved overtime)
“The U.S. DOL is taking a hard look at the food industry with a crackdown on compliance with wage and hour issues,” cautioned Risch. “They are well-funded for wage/hour enforcement and continuing to hire more investigators to assist in their efforts. Illinois is also cracking down with substantial increases in employer penalties to the employee, the employee’s attorney and the Illinois DOL, including a 2 percent per month interest rate on back wage assessment – so employers beware!”

Overall, employers must show a good faith effort to curb and correct unlawful pay practices. This can be done by conducting routine audits. Note that it is imperative to have a written policy and complaint mechanism for employees to bring issues related to meals, breaks and/or uncompensated time to the attention of HR/management for prompt remedial action.

“Good policies should also address payroll integrity issues such as falsifying time records, not reporting accurate information, and working off the clock,” concluded Risch. Compliance and documentation is a continual employer responsibility, and implementation of and adherence to appropriate policies and procedures can help.