You will need Adobe Acrobat Reader to view some these linked files. Click here to download the reader now.

Ray’s Story – A Wage and Hour Saga

Ray (not his real name) called me toward the end of March telling me that he was referred to us because he was being audited by the Wage and Hour Division of the Department of Labor. He informed me that the investigator was going to do an audit on April 3.

For some background information, Ray started his business of laying floors five years ago. Little did he know at the time that the bottom would totally drop out of the construction industry shortly after he started his business. But he persevered and his business grew despite the Great Recession. Unfortunately, it did not get to the point that he made much money. In fact, he was going from week to week – just like a large majority of the small businesses today.

To his credit, Ray did his research. He looked on the Wage and Hour website so he would know what the rules are regarding paying overtime and the difference between hourly and salaried employees. He is an honest business person and wanted to do things right. Ray set up a time recording and recordkeeping system and paid his employees for all hours reported including overtime. Ray truly made a good faith effort to know the rules and to pay his people by those rules.

The Investigation
The investigator arrived at 9:00 sharp on the day of the audit and introduced himself very politely and presented his wage and hour investigator “badge” (I think the investigators get this feeling of power by showing a “badge”). The next words out of his mouth were, “You should not worry too much about this audit because our primary objective is to educate small businesses on compliance with the wage and hour laws.”

Ray had all of the requested material available for the investigator. During the audit, the investigator was very supportive and understanding. He made no “educational” comments and after about two hours, he walked out with a two foot stack of papers.

The “Education” Came From Back Pay Awards
The end result is this – Ray got hit with a number of what I consider to be de-minimus violations. One example is a misinterpretation of starting times for his hourly employees. In many cases, the employees had to travel out of town, so they would meet at a certain spot to carpool it to the work site. This carpool arrangement was not required, but agreed to by the employees. The rule in this case is if employees did not do any work from the meeting time to the time they arrived at the worksite, then the work day would start upon arrival at the job site and the travel time would not be considered paid time. However, if one person took ten seconds to move a shovel from one vehicle to another, then the workday started when the employee picked up the shovel and then had to be paid for all of the travel time to the worksite. When the employees told the investigator they had done some work at the meeting site before travelling, Ray had to pay back pay to all of those people in the carpool for two additional hours of travel time at time and a half.

Another violation was deducting the cost of uniforms out of the pay of exempt (or salaried) employees. The employees went through a few logo T-shirts a week. So to offset the cost of the shirts, Ray deducted $20 every two weeks out of the checks of all employees. Under the wage and hour rules, companies cannot deduct the cost of uniforms from the pay of exempt employees. Strangely enough, it is acceptable to take such deductions from hourly employees as long as the deductions do not bring the employees’ pay below minimum wage.

No Good Deed Goes Unpunished
Ray did make one glaring mistake. An old friend of his who had not worked in months asked Ray to help him out by hiring him. Ray offered this old friend a job, but the friend asked for more money. Ray agreed to the higher pay with the stipulation that the employee would get paid as if he were a salaried employee. The friend agreed. After a few weeks of working more hours than he was used to, the friend asked to be put on an hourly basis. Ray again agreed, but cut the hourly rate to the original offer. All was good.

The problem with this arrangement is when the investigator spoke to the friend, the friend told the investigator about the long hours and no overtime payment. Now Ray has to pay this “friend” back overtime pay at the higher pay rate. According to Ray, this is not his friend’s fault as all the friend did was tell the truth.

The Appeal
This decision was appealed to the Small Business Ombudsman Program in Washington, D.C. to no avail. The premise of the appeal was that the violations found are not covered by statute (with the exception of the employee who was not paid overtime for the first few weeks). The violations were administrative decisions that have been made with regard to what constitutes the start of a work day and deductions from the pay of exempt employees. The Wage and Hour Divisions response was not quite correct as they cited in their response that they had an obligation to go by what is stated in the Fair Labor Standards Act. The fact is, the Wage and Hour Division could have slapped Ray’s hand and told him to stop some of his practices without requiring all of the back pay. But that is not the route they chose to go.

Just as an FYI, the Wage and Hour Guidance on deductions for uniforms is silent on the issue of deductions for exempt employees –
https://www.dol.gov/whd/regs/compliance/whdfs16.pdf.

Additionally, the last Federal Register published on this topic on August 23, 2004 is also silent on this specific topic –
https://www.dol.gov/whd/regs/compliance/fairpay/regulations.pdf. The W&H response to the appeal also pointed to their interactive website that employers can use. Go ahead try it out. See if you can get through it without saying, “What?!” Here’s the link -
https://www.dol.gov/elaws/esa/flsa/scope/screen24.asp. It is as clear as mud.

The Travesty
Ray was forced to go back two years to pay all of those employees who worked those extra 10 seconds overtime compensation for sitting in a truck for two hours. He also had to go back two years to pay all those salaried employees (there were 5 people in this group) for the $20 he deducted every two weeks. This alone amounted to $2,500.

Ray will eventually pay what the Department of Labor says he owes. It will not be easy for him and has set his business back tremendously. But he will pay. He made changes to his pay practices the day he received the notice.

Bottom Line
Wage and Hour Investigations are “Not About Education”
The Wage and Hour Division is not about “educating” businesses on the regulations. They are about finding things wrong and having the employer pay back pay. At a wage and hour seminar held on the 13th of June by Jackson, Lewis, a prominent Employment & Labor Law firm, one of the attorneys stated a Wage and Hour Investigator told the attorney while inspecting a client’s site, “I cannot leave without finding something wrong.” So much for “education?!?”

Know the Wage and Hour rules as they pertain to your business and industry. There are many different ways to pay your employees and they vary greatly from business to business.

Don’t assume you know the rules or that you will not get caught. That’s what Ray thought.

Have an expert in Wage and Hour regulations look at you pay practices to ensure they are in compliance.

The Required Disclaimer
The McKenzie Mailer is for informational purposes only and does not constitute legal advice. Before implementing any action on this subject, contact an expert in the field.

Members of TeamMcKenzie
Chuck Petruska – Senior Advisor
Peggie Leitereg – Senior Advisor
Terrie McDonald – Client Services Specialist

Thank you for reading The McKenzie Mailer.

Bob McKenzie, President
McKenzieHR
potential@mckenziehr.com