Wage Rage: Who Do You Have to Pay What, When … and Why?
Powell Trachtman Logan Carrle & Lombardo, P.C.
MEA General Counsel
Theoretically, what employers owe to their employees is simple. As FDR put it in 1937, employers owe “a fair day’s pay for a fair day’s work.” In the ensuing decades, however, the parameters of that obligation became complicated … very complicated, to the point of being maddeningly indecipherable. Whatever the reason (Greedy employers causing the need for protective legislation? Politicians with social agendas?), the result has been “wage rage” – my term for the frustration employers experience in the attempt to comply with the crazy quilt of wage payment laws they face.
The Top Ten Causes of “Wage Rage”
So what do you do? The first step is to identify the existing and potential wage rage risk factors in your company. The second step is to implement a solution that targets the risks you have identified. For that purpose, I offer (in no particular order) my Top Ten list of the causes of wage rage – consider this as both a checklist of what to look for, and an agenda for a wage rage cure.
1. Exempt, or Non-Exempt?
As most employers know too well, and as reflected in some of the points below, different issues arise depending on whether an employee is “exempt” or “non-exempt” (that is, exempt, or not exempt, from the obligation that the employer pay the employee overtime for all hours worked in excess of 40 hours per week). Discerning the difference between exempt and non-exempt employees can be a complicated and multi-layered inquiry that is about to be made even more amorphous through a series of new regulations that will be enacted in the coming months. If you have doubts about how your workforce is classified, get advice now. This is not an exaggeration: if you misclassify non-exempt employees as exempt, the potential consequences can be disastrous.
2. “Off the clock” hours.
Do you have to pay non-exempt employees for answering emails or catching up on reports at home, or for attending seminars, or for the time they are on-call, on breaks, or travelling?
The answer can be arcane and complex: see the December 2014 Workplace Advisor for some of the details. The upshot is that you must know how these requirements apply to your workplace requirements, and you must implement, and consistently enforce, measures that will comply with the laws that deal with these issues – the potential liabilities are too great to leave this chance.
3. There is no such thing as “comp time” for non-exempt employees.
Here is an all-too-common situation … A non-exempt employee works 45 hours in week one. To avoid paying overtime for the five extra hours, the employer gives the employee five hours of “comp time” during the following week – that is, the employee only works 35 hours, and employer pays for 80 hours of straight time over the two weeks.
There are other permutations of the “comp time” arrangement, but here is the take-away: any non-exempt employee who works more than 40 hours in a week must be paid overtime for those hours, no matter any “comp time” arrangement.
4. Non-exempt employees must be paid overtime even if they are salaried employees.
Many employers believe that if they put a non-exempt employee on a salary, so that the employee earns, for example, $1,500 per week no matter whether the employee works more or less than 40 hours in any given week, they do not owe overtime. Not so — again, non-exempt employees must be paid overtime in any week in which they work more than 40 hours per week. This is true even if the employee agrees with, or, for that matter, requests the guaranteed salary arrangement. Overtime must be paid.
5. Docking the pay of exempt employees.
Let’s suppose that one of your non-exempt employees takes an unauthorized half day off. Or suppose that, due to a diminution in customer demand, you tell a non-exempt employee to only work half days for a week. Your inclination would be to reduce the employee’s pay for the time not worked — no work, no pay. Don’t do this without the proper advice. Docking the pay of an exempt employee can lead to a situation in which the exempt employee will be converted into a non-exempt employee – and you will then owe that employee past and future overtime payments for all hours worked in excess of 40 hours per week.
6. Withholding wages from employees who may owe you money.
Terminated employees often owe money to their employers – unpaid loans or advances, breach of a noncompete causing damages, intentional damage to equipment … and so on. In these kinds of circumstances, employers will often withhold a final paycheck, or earned commissions, or earned bonuses, or other compensation owed to the employee. Don’t do this without legal advice. Long story short: this is a matter of state law, and in most states you must pay what you owe to the employee, and handle your claims against the employee in a separate proceeding, or you will face substantial monetary penalties.
7. Do you have to pay accrued vacation or other PTO when an employee quits?
Check with counsel – this is also a matter of state law, and the law differs from state to state. In Pennsylvania, for example, in the absence of an agreement or stated (and consistently respected) policy to the contrary, an employer is obligated to pay accrued vacation and PTO if the employer typically does so.
8. Joint employers.
In a variety of circumstances, employees can work for more than one employer in a given week – companies sometimes share employees, staffing agencies supply employees, and so on. Suppose those employees end up working a total of 50 hours per week — who is responsible for the overtime? This issue implicates what is known as the “joint employer” doctrine, which is a complex and changing area of law – you will need legal advice.
9. Unpaid interns.
I have written about this before – see the May 2015 Workplace Advisor. Remember: except in very unique circumstances, you must pay interns at least minimum wage and overtime, even if the intern requests an unpaid position to get some experience. The state and federal departments of labor are pursuing this issue vigorously. Be very careful.
10. The disappearing independent contractor.
Employers have attempted to avoid wage payment issues by classifying workers as “independent contractors” instead of employees – the independent contractor classification has been viewed by many employers as a magic bullet with which to defeat overtime, ADA, FMLA, payroll tax and a host of other employment-related requirements.
State and federal governments are cracking down, very hard, on this practice. Some examples … Uber drivers in California have been found to be employees, not independent contractors. UPS and FedEx have been found to have misclassified employees as independent contractors, resulting in millions of dollars in damages and fines. An on-demand cleaning company, Homejoy, went out of business because of lawsuits seeking to reclassify its independent contractors as employees. And Hillary Clinton has made the issue a key focus of her campaign. You will need legal advice to understand where, in your business context, the line may be drawn between employees and independent contractors.
Let us know if we can help.
Michael G. Trachtman is MEA’s general counsel and the President of Powell Trachtman Logan Carrle & Lombardo P.C., a 30+ attorney King of Prussia-based law firm that has represented businesses and business people for over twenty-five years. He can be contacted at email@example.com . See www.powelltrachtman.com for more information.