Is it Really Off the Clock?

Employers that pay attention to their workforce generally know whether their employees are productively engaged and really working when they are on the clock. While the issue may seem clear-cut, not all employers have a solid grasp on what is and isn’t compensable work time. How wage and hour laws apply to your business is not always a matter of common sense. Many employers fail to put the right wage and hour policies in place based on how the laws apply to their particular business and their employees’ duties and routines.

For employers who may think that a few lost minutes here or there are no big deal, think again.

More and more lawsuits are being brought under wage and hour laws challenging payroll practices across industry lines. As it turns out, a little bit of time can go a long way in wage and hour lawsuits. Even if you take just fifteen minutes of daily work time not properly accounted for, it adds up to a lot when one starts counting all the days in the work weeks going back three years (and in some states like New Jersey – going back six years multiplied by the number of employees involved). For just one employee, the liability for such a fifteen-minute error can range from one to two full months’ of compensation. For multiple employees, the problem can easily grow from the equivalent of months of unpaid wages to years of unpaid wages.

But wait, it gets worse! State and federal wage and hour laws have fee-shifting provisions that require an employer to pay an employee’s attorneys’ fees and costs in a lawsuit where an employee is awarded back wages. These laws also have penalty provisions requiring payment of liquidated damages – the doubling or tripling of all damages awarded for unpaid wages due.

When you put these ingredients together, it makes a perfect recipe for an ever-increasing number of wage claims, as well as a greater chance that your company will be faced with a wage and hour lawsuit. The following discusses what you can start doing to protect your company.

Be Certain That You are Properly Classifying Different Types of Employees

Some employees must be paid on an hourly basis and at an overtime rate of one and one-half times their regular rate for all hours worked over 40 in a workweek. Other employees may be paid on a salary basis depending upon their duties and rate of compensation. Hourly employees are referred to as “non-exempt” and salaried employees are “exempt” – as in exempt or not exempt from overtime pay. The primary categories of “exempt” employees include administrative, executives and salespersons as well as “highly compensated employees.” Yet, far too many employers pay their employees on an hourly or salary basis without actually knowing the rules – therefore misclassifying their employees. Just because a person is a “manager” does not make him exempt as an “executive” employee, and just because a person works in an office does not make him exempt as an “administrative” employee. For example, to classify for the administrative exemption, an employee must exercise discretion and independent judgment with respect to matters of significance in the company – so every “administrative assistant” is not going to be exempt. The fact is that no employer can afford to misclassify even one employee.

Have Some Basic Policies in Place for Hourly Employees

The law defines time spent working, or “compensable” work time, as including all time that an employee is “suffered or permitted” to work. Under this definition, an employee who claims (truthfully or not) that he routinely worked during his lunch break, and his manager knew about it, will have a cognizable claim not just for unpaid wages, but perhaps significant overtime wages.

In order to protect against such claims, every employer needs to have clear and basic policies in place. These policies must: (1) require hourly employees to record their working hours, clocking in and clocking out during their scheduled shift; (2) forbid any work when an employee is on lunch, and before or after a work shift, i.e., when not clocked in; and (3) prohibit working overtime without specific permission. Note that an employee who works without permission must still be paid – but that employee can be disciplined up to and including discharge for failure to follow company policies. When employers do not use actual time clocks or their equivalents, it is even more critical for a strict protocol to be developed and implemented to have employees report, document, and sign-off on their time.

Beyond such basics, some difficult issues can arise when dealing with employees paid on an hourly basis (non-exempt). For example:

• If employees are provided a work vehicle that they may take home, when does their workday begin and end? What about their lunch period? How do you effectively track their working time?
• If some of your employees must be “on-call,” when and how do you have to compensate them?
• For construction company employees whose workday officially begins at a worksite, what if an employee first reports to the company’s shop and then gets a ride in a company work truck or from a fellow employee? When should they start getting paid? What policies and practices does any employer need to protect against wages claims?

There are no “one size fits all” answers. In each instance above, more information regarding the particular facts is needed. The particular tasks that the employees are engaged in and the ground rules that the employer puts into place, or fails to put into place, will determine the answers. Significantly, it is up to you as the employer to put the right policies and practices in place and make sure they are implemented and followed.

The risks are too great for an employer not to know exactly how the wage and hour laws apply to all of their workers. Because the wage and hour laws can present both complicated legal issues and business decisions, it is essential for an employer to obtain legal guidance to classify all of their employees properly and establish the right employment policies to prevent lawsuits from arising in the first place.