The U.S. Department of Labor (DOL) recently updated its annual statistics that reflect the volume of back wages collected through compliance audits. The figures provide a clear reminder that while the Trump administration is widely viewed as more employer-friendly than the Obama administration, enforcing the Fair Labor Standards Act (FLSA) is still front and center on the agency’s dashboard.
Some of the DOL’s eye-catching numbers include collecting more than $270,000,000 (yes, million) in back wages on behalf of more than 240,000 workers, and that was just in fiscal year 2017 alone. That figure was an increase from each of the previous years. All employers are fair game (employee complaints are believed to be the largest source, although the DOL won’t disclose the reason for an audit), but the agency has emphasized its efforts in what it describes as low-wage/high-violation industries. They include construction, food services, health care, and retail, among many others.
Regardless of your industry, audits can be scary because of the FLSA’s technical and detailed nature. While the law has many facets, here are a few common areas where the DOL often finds violations.
Properly Calculate ‘Regular Rate’
“Regular rate” is the FLSA’s term for the hourly rate at which overtime is calculated. It’s essentially a blended rate that includes nearly all of the wages an employee receives for working. In my experience, this is the most common reason that back wages are found to be owed.
Some payments, such as vacation pay and many benefit plan contributions, are specifically excluded, but most wage-based payments must be included. Shift differentials, on-call payments, performance or incentive bonuses, and commissions are just some of the payments that the DOL often flags. When the payments are directly attributable to a specific workweek, they must be included in that week’s overtime calculations. When a payment is earned over a period of time, like many bonuses and commissions, it must be fairly allocated over the workweeks in which it was earned. Then, overtime should be recalculated to include those amounts in any weeks in which overtime was actually worked.
Ensure all working hours are captured
Timekeeping is another area where the DOL often finds issues. Without mandating any particular system, the FLSA simply requires you to keep track of the hours your nonexempt employees work. In a nutshell, working time is compensable when the employee performs tasks at the employer’s direction or on its behalf. The litmus test is whether the employer knows or reasonably should have known about the employee’s work.
That test is generally straightforward for an employee’s normal working hours. It can be challenging, however, when employees are working away from their regular worksite (such as from home or otherwise remotely). Even for employees working at their normal worksite, breaks can be a source of problems. Rest breaks (essentially anything shorter than 20 minutes) must be treated as working time. Meal breaks can be excluded, but the break generally must be at least 30 minutes in length, and the employee must be completely relieved of job duties.
Be careful with the kiddos
Apart from minimum wage and overtime, the FLSA also gives the DOL the authority to enforce its child labor regulations. The rules against allowing a minor to work in a hazardous occupation are relatively straightforward, but tasks that fall within the prohibitions can be somewhat counterintuitive. For example, even though Kansas fully licenses drivers at age 17, the child labor rules prohibit regular driving for anyone under 18.
The regulations also limit the hours during the day (nothing before 7:00 a.m. or after 7:00 p.m. or 9:00 p.m.) and total hours that anyone under age 16 can work. The limits vary during the summer months and depending on whether school is in session.
Give your company a self-check
An internal self-audit is a valuable tool for identifying potential FLSA issues so you can address them long before the DOL arrives. A comprehensive self-audit with the assistance of outside counsel is best. If that seems too daunting, however, little things such as periodically spot-checking timekeeping and payroll records and chatting with your nonexempt employees (to gauge their understanding of your rules/policies) are simple tasks that can identify problems.
Job descriptions are often relevant in the context of exempt classification decisions. Consequently, you should review the documents to ensure they accurately reflect the position’s duties and support the exempt classification.
Don’t be afraid to ask for help
If you have concerns about your company’s FLSA compliance, consider reaching out to your wage and hour counsel for assistance. The level of outside counsel’s involvement is entirely up to you and can vary from hands-off general guidance to more active hands-on assistance. In either case, counsel’s input can help you focus on the right issues and identify potential concerns. It also allows for the possibility that your self-review efforts will be protected by the attorney-client privilege.
Forrest Rhodes is an employment lawyer with Foulston Siefkin LLP, where he frequently advises clients on FLSA matters, and a contributor to Kansas Employment Law Letter. He may be contacted at email@example.com.