Compliance Outlook: Avoiding Common Wage-Hour Violations

Punch Clock

The Trump administration’s presumptive focus on job growth and deregulation may seem a breath of fresh air to many employers after years under the watchful eye of the Perez Labor Department. Although the pendulum may swing slowly in employers’ favor over the next few years, the reality on the ground is that wage-hour claims continue to proliferate in state and federal courts across the country.

In a recent webinar hosted by Jackson Lewis P.C., principal Eric Magnus discussed hot topics in wage-hour law and provided best practices for compliance in areas that may trip up unwary employers well into the new administration’s tenure.

Donning and Doffing—When Do I Have to Pay?

Should employees be paid for time spent “donning and doffing” uniforms or protective gear at the workplace? Though one circuit court says no, Magnus noted that the weight of developing case law nationwide—including dicta in a recent U.S. Supreme Court case—seems to indicate that payment should be provided for these activities. 

Although in most jurisdictions the employer must pay if it requires employees to perform donning and doffing activities at the workplace, an important caveat is that such payment typically isn’t required if the employee is given the option to don equipment at home or if the piece of equipment is optional and not required for the job.

Automatic Meal Breaks—Get Rid of Them!

Magnus also noted that his firm no longer counsels clients to automatically deduct time for employee meal breaks under any circumstances. Besides the fact that the Labor Department views automatic meal breaks as “technical violation[s] of the FLSA,” Magnus explained that by using them, “you’re creating a time record you know to be inaccurate,” which is “the best way to ensure you get sued for a wage-hour violation.”

Just One More E-mail…

The hottest off-the-clock case trend involves employee use of personal digital assistants and smart phones outside of regular work hours. Many employers still permit nonexempt employees to access e-mail or other work during non-work time without a mechanism for capturing that time. The choice is stark, Magnus said. “If you’re going to allow a nonexempt employee to work away from the office, you have to have a way to capture that time.”

So how can employers limit exposure to off-the-clock work claims? Magnus offered some tips:

  • Get rid of rounding practices—like automatic meal breaks, these create inaccurate time records on their face.

  • Add policies to employee handbooks that prohibit off-the-clock work and subject violators to discipline up to termination.

  • Ensure there’s a paper trail for audits if supervisors can modify employee time records.

  • Don’t issue smart-phones to nonexempt employees or permit them to telecommute without a clear policy governing what they can do and when.

  • Pay attention to time records. “No one works exactly eight hours and zero seconds every day,” and records showing no variation are a big tell to the DOL for workplace audits of off-the-clock time.

Independent Contractor or Employee? Try to Be Sure.

Independent contractor misclassification claims remain “a real hot area of the law.” It may come as a surprise that these cases typically arise when workers try to claim unemployment benefits following completion of a job and discover that the employment office has no record of them as employees because the company had classified them as independent contractors. 

Despite a 2015 DOL administrative interpretation simplifying the test to determine whether a worker is an employee or independent contractor, Magnus cautioned. “No one has any idea what the DOL’s view is under the Trump administration. It wouldn’t surprise anybody if everything I’m about to say is reversed within the next four years.”

For now, Magnus said he provides to clients an independent contractor agreement that has all the terms currently required by the DOL. “If you can’t meet all of the elements that are in this contract, you’re putting yourself at risk for a finding the person is an employee, not an independent contractor,” he tells clients. 

He also stressed that an employee can’t “waive” employee status, so the parties’ intent as to whether the worker is an independent contractor is “essentially irrelevant” when the government gets involved. Magnus cautioned that in most states the burden of proving an independent contractor relationship is on the employer because the state DOL has a tax interest in finding that the worker is an employee.

Limit Your Misclassification Exposure

One of the primary problems with misclassification cases, according to Magnus, is that the vast majority of employers don’t keep records of the hours worked by their exempt employees. This can leave an employer in a bind when someone challenges their exempt status and the employer has no time records.

To best position yourself to rebut misclassification challenges, Magnus recommended the following:

  • Audit your positions – take a look at “close” positions to ensure they’re properly classified.

  • If you decide to classify a position as exempt, but you aren’t 100 percent sold on it, have the person accurately record their hours anyway.

  • Using employee “badge” records creates a more defensible position, even if they’re not 100 percent accurate for all hours worked.

  • Keep accurate records of exempt employees’ days not worked to prevent inaccurate claims down the road.

Be Careful with that Tip Credit

Another area ripe for wage-hour litigation is where employers improperly claim the tip credit and underpay tipped employees. 

Magnus noted that “dual job” claims have been on the rise. It isn’t uncommon for servers to spend a lot of time doing non-tipped work, such as cleaning or working in the kitchen. DOL guidance says employers can’t claim the tip credit if employees spend more than 20 percent of their time engaged in non-tipped work, but employers’ records seldom distinguish between time spent engaged in tipped versus non-tipped tasks, and this ambiguity is dangerous, Magnus said. 

Though it’s ok for tipped employees to do a small amount of non-tipped work—particularly where directly related to the services they provide—Magnus cautioned employers not to let tipped employees do so much non-tipped work that they inappropriately substitute for people entitled to minimum wage.

Another interesting wrinkle that may come as a surprise to many employers is that mandatory service charges for large parties don’t constitute tips under the law and, therefore, don’t satisfy the tip credit. The answer, Magnus said, is to call it a “suggested percentage” of tip, rather than a mandatory charge. 

Finally, need some good advice regarding tipped employees and declaring tips? Employers don’t have much interest in forcing employees to claim all cash tips, Magnus noted, except that it can get you audited by the IRS. He advised that any employer with tipped employees should mandate that all tips be declared subject to discipline. “The best practice,” he said, “is to have employees turn in cash tips and reissue them in the form of a payroll check.”

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