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Why You Cant Afford to Ignore Wage and Hour Compliance

Why You Cant Afford to Ignore Wage and Hour Compliance

Wage and Hour Take Center Stage


In recent years wage and hour investigations and litigation have taken off, with challenges occurring at the federal, state, and local levels. From the difficulty of consistently applying corporate wage and hour practices to the complexities of applicable regulations, the rise in wage and hour cases has several causes. Cases might arise from employees growing awareness of their rights especially in the current economic downturn or increased attention from the plaintiffs bar. But no matter how a wage and hour lawsuit or investigation is triggered, the reality is that these cases are costly, timeconsuming, and can have a significant impact on the financial health of the companies involved. A quick look at the numbers tells the story. An estimated 70 percent of employers are out of compliance with FLSA, according to the DOL $1.4 billion in back wages has been recovered since 2001 by the Department of Labors (DOL) Wage and Hour Division on behalf of more than two million employees More than $252 million was paid out in 2008 for the 10 largest class action wage and hour settlements1 The DOL Wage and Hour Division recived an 18% increase in budget for fiscal 2010 Do you know whether your company is handling the following wage and hour conditions correctly? Could your organization be part of the vast majority of employers that are out of compliance with FLSA? When are exempt employees eligible for overtime? When does worker classification change from independent contractor to employee? When do donning and doffing duties, or other similar activities, become compensable time? How do you deal with unapproved overtime? When is work performed off the clock, like remote network access and checking email at 3 a.m. from a smart phone, compensable?
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According to attorney Paul DeCamp, former administrator of the U.S. Department of Labors Wage and Hour Division and now a partner in the Washington, D.C., region office of Jackson Lewis LLP and national chair of the firms wage and hour practice group, these are just some of the issues that can lead companies into trouble with wage and hour compliance. Depending on the exact employment circumstances, the industry youre operating in, and unique state and local laws, your company could be liable for wage and hour violations in each of these situations.

Investment in wage and hour compliance should really be seen as part of risk management for the business. Its an investment that always pays dividends.

Paul DeCamp

Jackson Lewis LLP

Cases on the Rise


The increase in wage and hour litigation has many causes, and the troubled economy is at the forefront. Employment litigation is countercyclical, says DeCamp. The volume goes up when the economy is bad. And employers should be aware that there will always be some percentage of your employees who will talk to a lawyer after a separation. According to DeCamp, what may begin as a conversation about perceived unfair termination or discrimination can easily turn into a discussion of possible wage and hour violations. Attorneys know that wage and hour cases are often easier to prove than traditional employment discrimination cases. Wage and hour cases tend to be about how people are paid for what they do at their jobs, and those are pretty objective facts, says DeCamp. Unlike in a discrimination case, you generally dont have to prove what someones intentions were or what they were thinking. Wage and hour cases can also be very lucrative. Most employers do not want to take these cases to trial, because the potential exposure is very high. If

Class Action Workplace Litigation Hot Item in 08. www.law.com. January 21, 2009

Why You Cant Afford to Ignore Wage and Hour Compliance

employees can get a class certified, there is a high likelihood that there will be a settlement, and then you have attorneys fees, liquidated damages, and other kinds of enhanced remedies. The increase in wage and hour cases has raised the issues profile among plaintiffs attorneys, employees, and the media. In some areas, attorneys are actively seeking wage and hour cases in companies and industries that are likely to have violations, reaching out to potentially affected employees through advertising and even billboards. The plaintiffs bar is very organized, says DeCamp. They meet and plot out the latest theories of liability and are always looking for practices in industries that are noncompliant or arguably noncompliant and that lend themselves to class litigation. They understand that if one employer in an industry has a problem there may be others with the same problem and so there will be copycat suits filed in rapid succession.

As Secretary of Labor, I am committed to ensuring that every worker is paid at least the minimum wage, that those who work overtime are properly compensated, that child labor laws are strictly enforced, and that every worker is provided a safe and healthful environment.

Hilda Solis

Secretary of Labor

New announcement from the DOL


President Barack Obama is widely viewed as pro-labor and his appointment of Secretary of Labor, Hilda Solis, seems to reflect this perspective. Not long after she took office Solis announced that the Department of Labors Wage and Hour Division had begun the process of hiring 250 new field investigators to bolster the agencys enforcement capabilities. And, just recently The U.S. Department of Labor (DOL) announced availability of a new timesheet application enabling employees to independently track their hours to help determine the wages they are owed. Consequently, if an organization is still relying on manual or outdated timekeeping systems they now face increased exposure to wage and hour audits and/or lawsuits. DOL audits can have significant financial ramifications, are a major blow to productivity and employee relations, and put companies under increased scrutiny. This development is the latest challenge employers face in running their businesses. With the DOLs new resources, employers can expect to face additional pressure from the government.

Weve found that wage and hour compliance is one of the most difficult and persistent problems for employers, says DeCamp. And its become an even greater challenge during the current economic conditions. As a result of employer efforts to stay competitive, employees may have a wider range of responsibilities. The line between exempt and nonexempt employee classifications may blur. Now is the time for employers to conduct workplace law compliance reviews, including checks of their wage and hour policies and practices, before a government compliance officer arrives on the premises.

Whats the Damage?


If your company is found to be noncompliant with wage and hour policies, the penalties, both monetary and nonmonetary, can be significant. Monetary penalties include compensatory damages of up to two years back pay, with three years pay often sought for willful violations. The awarding of liquidated damages can double back pay damages. And defending wage and hour claims can be very costly, according to DeCamp. Depending on the scope of the claim and the risk of liability, these cases very quickly get into the hundreds of thousands of dollars in defense costs, and thats before you ever get near a courtroom. There tends to be a lot of discovery and a lot of fighting over whether the case is proper for class certification, because the number of plaintiffs drives the exposure. If the

Why You Cant Afford to Ignore Wage and Hour Compliance

exposure for one person is in the hundreds or low thousands of dollars, thats a manageable settlement. But when you multiply that amount by hundreds or thousands of employees it becomes a different dynamic, and you can quickly get into the tens of millions of dollars. DeCamp refers to defending a wage and hour case as a real distraction for a company. Executives and other high-level personnel must spend hours tied up in depositions, and the discovery process can be very timeconsuming and taxing. Relationships with employees and customers can also be negatively affected. What you worry about is the us against them mentality that can start to take over, especially in a class action litigation. You have a situation where employees are soliciting other workers, saying

the company has been cheating us. Obviously this is very destructive to employee morale. Accompanying media stories can also damage a companys reputation with customers and prospective employees, who may not want to deal with an organization that is perceived as having violated its employees rights.

Whos at Risk?
Unfortunately, there isnt one typical profile that identifies companies at risk of wage and hour violations. Weaknesses can be found in companies both large and small, startup and mature, across every industry. And too often companies dont even realize that what theyre doing is noncompliant. DeCamp describes some common scenarios:

A FLSA CHALLenge in ACTion


Tulsa Public Schools, the largest public school district in Oklahoma, serves more than 40,000 students in the City of Tulsa. The district spends in excess of $230 million on payroll for a staff of 7,100, including 3,400 nonexempt employees. As in many understaffed school districts, Tulsa Public Schools hourly employees traditionally fill multiple roles. A school custodian keeping score at a basketball game or a secretary working after school as a tutor are not uncommon occurrences. While these practices supported a low-key, family atmosphere that many valued, the schools compensation policies were loosely defined and time tracking was honorbased. This lack of clear, consistent time and labor policies made Tulsa Public Schools a potential target for Fair Labor Standards Act (FLSA) compliance claims. The School Litigation Group, a Mississippi-based group of plaintiffs attorneys, approached Tulsas nonexempt employees to invoke FLSA regulations and challenge the district on uncompensated overtime. When a handful of Tulsa employees responded to the groups advertising, the Department of Labor initiated a preliminary investigation a potential first step toward enforcement. Anne Elfrink, director of accounting for Tulsa Public Schools, was concerned about this DOL investigation, which had the potential to lead to further action by the School Litigation Group. Elfrink knew that the time and attendance records at the school could be a problem. For nonexempt employees, the district used paper timesheets that were prepared by site secretaries at Tulsas 100 locations and signed by school principals who often had no knowledge of employees actual schedules. Because of redundant data entry and an inherent lack of accountability, the system generated problems such as lost or unsigned timesheets, which required manual intervention. Elfrink was already seeking an automated solution to improve and consolidate time and attendance and the districts processing of over 10,000 paychecks each month. The threat of an investigation, combined with the efficiency goals Elfrink had identified, spurred Tulsa Public Schools to implement Kronos time and attendance solution, Workforce Timekeeper. A successful response As part of its investigation, the Department of Labor requested a pre-audit meeting, which coincided with Tulsas Workforce Timekeeper implementation. By the time the investigation began, most of the districts nonexempt employees were using Workforce Timekeeper. As a result, when the Department of Labor asked to see the recent hours and overtime of specific employees, Tulsa Public Schools simply printed the relevant information from Workforce Timekeeper and its internal payroll systems. The two exactly coincided, Elfrink says. Because no violations were found, no enforcement was taken against the school district, something Elfrink attributes to the record keeping that Workforce Timekeeper provides. As a result of Tulsas successful proof of compliance, no further investigations have been initiated.

Why You Cant Afford to Ignore Wage and Hour Compliance

Newly established companies often lack the internal HR and legal resources to establish compliant wage and hour policies. Typically, all of the companys energies are directed toward getting the business up and running, and little or no thought has been directed toward creating and implementing compliant policies. In mature industries, HR practices tend to converge whether or not they are compliant. For example, if a certain kind of worker is treated as an independent contractor at company A, competitive pressures will likely lead company B to do the same. A successful legal challenge to one company in a mature industry can open the floodgates of litigation within that industry. Companies may have established compliant policies at the corporate level, but if enforcement, training, or understanding is lacking, these policies may not be followed properly at the local level. According to DeCamp, There are ambiguities in the law itself and sometimes the court disagrees with how a company has established its policies.

among the items of compensation youll have to provide are timesheets, records that show how many hours were worked, overtime hours, what pay employees received, whether it was straight pay or overtime, wage basis, deductions, and more, says DeCamp. This documentation is not something you want to be thinking about for the first time when the DOL or a lawyer comes calling.

Getting policies right, every time


One of the worst mistakes a company can make regarding wage and hour compliance is thinking that once theyve established wage and hour policies they dont need to think about them again. In fact, these policies wont support compliance unless they are interpreted, applied, and enforced accurately and consistently across your company, in every department, division, and location. Its important to help managers understand how to apply the laws, and prevent them from going rogue to play favorites, increase their own compensation, or treat some employees unfairly.

What Can You Do? Five Steps to Follow Why is it So Hard to Be Compliant?
The laws governing wage and hour issues are complex, vary from one jurisdiction to the next, and change over time. Ignorance of the law is no excuse; companies must be compliant with all relevant federal, state, and local wage and hour regulations. For companies with operations in multiple states, compliance is a complicated and ongoing process. For example, the California meal and rest break laws contain strict guidelines and levies that are unique to the state. And while federal statutes require companies to maintain wage and hour records for three years, the state of New York requires six years. Compliance is further complicated when companies use manual or semi-manual systems for employee time and pay policies, such as tracking and totaling hours worked and calculating pay and overtime. In these scenarios, it is nearly impossible to pay employees correctly 100 percent of the time, creating errors that leave an organization open to wage and hour claims. Manual systems may also complicate or not even include record keeping, a critical component in your defense against wage and hour claims. If challenged, A culture of compliance: According to DeCamp, the first step that a company needs to take is to be aware of wage and hour laws and to adopt a culture of compliance. You need to comply with these laws theyre serious. Many companies tend to think that as long as theyve acted ethically and treated people fairly, theyve done enough. But this doesnt work and it can lead you in the wrong direction. Companies are often shocked to learn that they can be on the hook for many millions of dollars for unintentional errors. Know what you need to know: Next, take the time to find out whats really going on in your organization, both at headquarters and in the field. There may be great policies that have been crafted by lawyers and then put on the shelf and forgotten and then you find out that in your dozens, hundreds, or thousands of locations, people are carrying out practices that in no way resemble what you think your compliance policies are. You need to know what you need to know. Examine your policies and applicable laws and review annually. Whats happening on the ground?: Third, DeCamp recommends identifying any incentives that managers may

Why You Cant Afford to Ignore Wage and Hour Compliance

have to engage in dysfunctional behavior. If managers are compensated based on whether they stay within their labor budgets, they may be tempted to shave time or encourage employees to work off the clock. Its important to understand how managers and supervisors might inadvertently be placed in a position to violate labor laws. Training, training, training: Fourth, train people, over and over and over again. With annual turnover in many industries as high as 50 to 200 percent, its critically important that both employees and managers are up to speed with policies. And dont train people just when theyre hired, but throughout their employment, so they come to see compliance as part of their job performance. Automate: Finally, companies need to automate, to the extent possible, all policies for timekeeping, scheduling, tracking overtime, and other employee time and pay information, says DeCamp. You need to have this information built into an automated system that will track it for you, because that really reduces the possibility of human error. The alternative is having information managed by hand, or entered into a computer by hand and that is just prone to error. Having automated systems in place to manage wage and hour policies really enhances compliance significantly. This leads to reduced exposure, reduced risk of violations, and overall cost savings.

Centralized, automated, tracked


Kronos eliminates the problem of inconsistent or inaccurate policy interpretation by centralizing pay and work rules on a single database and applying them through automated procedures. Once decisions are made at the corporate level on how to comply with federal, state, and local laws that govern things like minimum wage, overtime, and meal and rest breaks, local managers dont have to spend their time working to get payroll right. Companies can have confidence that policies are being applied correctly. With pay rules automated, companies can have confidence that employees are being paid correctly and that their documented wage and hour policies are being followed. Configured pay rules are automatically applied to actual time worked, reducing mistakes. Automation helps you manage time and attendance policy violations that could expose your company to risk. Examples include: With a manual system or disparate system, breaks can be deducted even if they werent taken. Kronos uses configured pay rules to automatically determine if breaks should be paid or unpaid. With paper timecards, employees may not be paid overtime, whether or not it was approved. An automated system applies your overtime pay rules directly to employee timecards so employees receive proper credit for overtime hours worked. Another advantage of an automated system is that it lets you see, in real time, whether the time being captured is realistic and accurate. Manual systems where workers self-report their time often record that every employee worked 9 to 5 every day, but this is almost never the case in the real world. Loose timekeeping like this is a red flag for a DOL investigation or a lawsuit. Automation captures actual time worked, and easy real-time reporting lets you monitor actual employee time patterns and identify and correct problems before they escalate. With this detailed tracking you can respond quickly and effectively to internal and external audits and lawsuits. You can access detailed records of timecard transactions for any point in time, as far back as you require. All timekeeping actions are logged in the central database and can be accessed through standard reports, helping

Automating Workforce Management Processes to Minimize Compliance Risk


Companies seeking to minimize compliance risk should look for a workforce management solution that centralizes wage and hour policy administration, facilitates local policy enforcement, and creates detailed audit records. Manual, non-automated, or disparate systems cant provide the accuracy and responsiveness you need to maintain wage and hour compliance. Kronos Workforce Central helps organizations minimize compliance risk with automation, centralization, and consistency. Wage and hour policies are defined once and applied the same way, every time, reducing human error. This allows policies to be enforced more accurately and consistently, so employees know they are being treated fairly. And full audit capabilities ease the burden of compliance with detailed audit tracking.

Why You Cant Afford to Ignore Wage and Hour Compliance

you avoid challenges, and reducing the cost and effort associated with preparing for audits and legal action. And because employees know that the Kronos system maintains accurate records, employers are less likely to be accused of malfeasance.

Wage and Hour Compliance: A Step Worth Taking


When dollars are short theres always a temptation to cut compliance and legal budgets and focus dollars on core functions like keeping the business alive, says DeCamp. But spending time and money on wage and hour compliance is a worthwhile investment, particularly in a down economy. What companies need to understand is that if you skimp on wage and hour compliance when times are tough, what youre going to find is that it will inevitably lead to enhanced exposure and liability down the road. Investment in wage and hour compliance should really be seen as part of risk management for the business. Its an investment that always pays dividends.

Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), the Davis-Bacon Act, the Service Contract Act, and close to 70 other federal statutes on behalf of roughly 135 million workers in 7.3 million workplaces around the country. He was in charge of close to 1,300 employees in more than 220 offices nationwide, operating on an annual budget of more than $170 million. Mr. DeCamp was responsible for enforcement policy, field operations, strategic planning, budgeting, interagency coordination, media relations, responding to congressional requests, legislation, regulations, opinion letters, compliance assistance, stakeholder communication, and personnel. He has testified before Congress on a variety of wage and hour issues. Under his tenure, the Wage and Hour Division recovered the highest level of back wages in a fiscal year in the agencys history, and he oversaw the agencys largest-ever recovery from a private-sector employer.

About Kronos
Kronos helps organizations across a variety of industries manage their most valuable, and expensive, strategic asset their workforce. How? By giving them the tools they need to help them control labor costs. Minimize compliance risk. And improve workforce productivity. The easy-to-own workforce management solutions from Kronos make complete automation and high-quality information a reality. Our time and attendance, scheduling, absence management, HR and payroll, hiring, and labor analytics solutions give Kronos customers the edge they need to compete in the global marketplace. With thousands of installations in organizations of all sizes including over half the Fortune 1000 were proving workforce management doesnt have to be so hard. For more information about Kronos solutions, please call (800) 225-1561 or visit kronos.com.

About Jackson Lewis


Jackson Lewis LLP is dedicated to representing management exclusively in workplace law. With offices in 40 cities and with more than 520 attorneys, Jackson Lewis has developed specialized expertise in every aspect of employment, labor, benefits, and immigration law. Additional information about Jackson Lewis LLP can be found at www.jacksonlewis.com. Paul DeCamp is a partner in the Washington, D.C. Region office of Jackson Lewis LLP and national chair of the firms Wage and Hour Practice Group. He is a nationally recognized expert in wage and hour law. He joined the firm in 2008 upon completing his service as administrator of the U.S. Department of Labors Wage and Hour Division. Appointed by President George W. Bush, he led the federal agency that interprets and enforces the Fair

The information presented in this document highlights several examples of federal and/or state labor law requirements. Kronos Incorporated makes no guarantees as to the completeness or accuracy of these summarized requirements. This document in no way suggests or offers any labor law guidance, or legal advice of any kind, and should not be construed as such. If you need legal advice in relation to labor law compliance issues, please consult your qualified legal advisor.

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2009, Kronos Incorporated. Kronos, the Kronos logo, and Workforce Central are registered trademarks and Workforce Timekeeper is a trademark of Kronos Incorporated or a related company. All other product and company names are used for identification purposes only and may be the trademarks of their respective owners. All specifications are subject to change. All rights reserved. CV-0060