Legal Ease
Wage and Hour Audits May Be Coming
By Richard D. Alaniz, Alaniz Law & Associates
employers for compliance audits with the provisions of the Fair Labor Standards Act (FLSA). Random audits have all but ended for a variety of reasons. In recent years, virtually all WHD investigations have resulted from employee complaints. Referrals by other federal agency or WHD prioritizing a particular industry or geographic area also account for a small number of
I audits. However, random
wage and hour audits may soon be in the picture again. The Biden administration has pledged to aggressively enforce workplace laws and regulations. FLSA wage and hour violations are among the most common employer errors in the workplace. Now is the time for employers to take the necessary steps to ensure their compliance.
The most frequent employer mistake
that generates the greatest liability is the misclassification of employees as “exempt” from overtime pay under the so-called “white collar” exemptions. In order to be exempt, an employee must satisfy both a duties test and a salary test. Currently the salary threshold for exempt status is $684 per week ($35,568 annually). The required duties vary for the “administrative,” “professional,” “executive,” “highly compensated,” “computer,” and “outside sales” exemptions. It is the duties requirements rather than the salary requirements that generate most liability
to employers,
and mistakes under the “administrative” exemption are most common.
A “bona fide administrative
employee” must 1) have the primary duty of performing office or non-manual
52 ❘ October 2021 ®
n the past, the Department of Labor Wage and Hour Division (WHD) would commonly randomly select
work directly related to the management or general business operations of the employer or its customers, and 2) have a primary duty that includes the exercise of discretion and independent judgment with respect to matters of significance. It includes work in such areas as finance, budgeting, purchasing, marketing, personnel management, public relations, legal and regulatory compliance, and similar work. Simply because an employee performs a function that is important to the operation and is paid a salary does not provide exempt status. The duties must be related to running the business and include discretionary decisions on significant business matters. If an employee merely applies standard procedures without exercising discretion on matters of importance, they are not exempt no matter how important their duties. Payroll clerks, accounts receivable, bookkeepers, and similar business-related jobs typically don’t exercise sufficient discretion and independent judgment.
Misclassification involving the other exemptions arise less frequently because the required duties are more straight-forward leaving less uncertainty about their application. A “bona fide executive” must manage the enterprise or a recognized department thereof, regularly direct two or more employees, and have the authority to hire and fire or effectively recommend such action. Cases have arisen where an employee’s duties include some manual or production work, such as stocking shelves. If the employee’s primary duty (50% of their time) is managerial work, the exemption applies. Additionally, while the duties for the “outside sales” exemption are clear, engaging in sales
activity away from the employer’s place of business, it is not uncommon for employers to treat inside sales staff as exempt. That would be a classic case of misclassification and would entitle those misclassified employees to overtime pay for each week they worked more than 40 hours, as well as liquidated (double) damages.
Another type of wage and hour complaint that has increased recently off-the-clock work. These claims often involve work-related duties were performed before punching in or after punching out, such as donning/doffing, gathering supplies, or completing paperwork after punching out. Under the Portal-to-Portal act, certain preliminary and postliminary activities are not considered compensable time. To be considered paid time, the activities must be an integral part of and essential to the employee’s principal activities. Preparing equipment necessary to complete the principal work duties is generally compensable time. Transporting tools and equipment may be paid time depending upon the circumstances. Attending employer-mandated meetings or training is usually considered to be compensable time. Shift-change activities such as roll-calls or instruction meetings have also generally been found to be compensable. One that has arisen with some frequency was the time spent in security screenings. In 2014 the U.S. Supreme Court ruled that such screenings were not compensable because they were neither a principal activity nor integral and indispensable to the work performed by the employees. Under some state laws, such as California, time spent waiting to go through screening is compensable.
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