Use a wage and hour audit to proactively head off claims

"Wage Wars: Workers are Winning Huge Overtime Lawsuits," graces the cover of this week's BusinessWeek magazine. It should serve as a harsh wake up call for all companies. The article cites recent huge wage and hour settlements and verdicts, including an $18 million settlement paid by Starbuck's and eight and nine figure jury verdicts against Wal-Mart. In fact, the article estimates that American companies have collectively paid over $1 billion to settle these types of claims over the past few years.

The sweatshops of the 1920s and 1930s that led to the passage of the Fair Labor Standards Act and its 40-hour workweek are virtually non-existent. Nonetheless, claims for unpaid overtime continue to rise, more than doubling in the federal courts from 2001 to 2006. Almost always, these cases are not the result of the intentional withholding of overtime premiums. Instead, they fall into two classes: off-the-clock pay claims and the misclassification of employees. The former concerns pay for working through lunch breaks, donning and doffing gear, and required travel time. Regarding the latter, employees fall into two basic classes for coverage by the FLSA, exempt and non-exempt. Companies and the employees themselves often mistakenly assume that white collar employees are exempt, and blue collar employees are not. Paying an employee a salary (as opposed to an hourly wage), however, is not enough to qualify an employee as exempt. The FLSA only provides an exemption if an employee meets the specific qualifications for the executive, administrative, professional, outside sales, or computer employee exemptions. These exemptions are highly fact specific, and wholly depend of the nature of the actual work performed, and not a job title. For example, merely labeling an employee as a manager or supervisor is not enough to qualify an employee for the executive exemption, unless that salaried employee customarily and regularly directs the work of two or more other employees, and has the authority to hire or fire. The other exemptions have similarly stringent requirements (click here for a copy of the federal regulations on these exemptions).

The question is not whether companies need to audit their workforces for wage and hour compliance, but whether they properly prioritize doing so before someone calls them on it. According to the BusinessWeek article: "While violations appear widespread, employees themselves rarely think to make wage and hour claims. Instead, they usually have it suggested to them by lawyers." It is immeasurably less expensive to get out in front of a potential problem and audit on the front-end instead of settling a claim on the back-end. The time for companies to get their hands around these confusing issues is now, and not when employees or their representatives start asking the difficult questions about how employees are classified and who is paid what.