The Fair Labor Standards Act, along with state wage payment laws, covers practically every aspect related to someone’s pay and work hours. By not complying with these important standards, employers are constantly bumping into wage and hour issues. Violations can be significant and employers’ potential financial risks are great. Wise employers should be well versed in these issues, and should understand where these commercial insurance claims come from and how they can prevent their operations from falling victim.
Failure to pay overtime is the most often cited violation for employers. The U.S. Department of Labor for combats purported misclassification in two principal areas:
- Employees who are wrongly deemed to be exempt from overtime;
- “Independent contractors” who, in fact, are employees.
Misclassification cases often arise because employers classify the job as exempt based only on the job title, or even the employee’s desire to be “salaried.”
Carefully evaluate the actual job duties to see if they qualify for exemption. Whether the employee is paid hourly or is salaried has no bearing on whether a job is exempt or not. Exempt positions must pass both a salary and duties test. The duty categories include executive, administrative, professional, and outside sales. Generally, duties that suggest the position is exempt include:
- Directing and supervising the work of others;
- Having the authority to hire, fire, and promote and exercising independent judgment and discretion.
Administrative exemption is often troublesome for employers. Someone exempted as an administrator, for example, must do office or “non-manual” work related to “the management or general business operations” of the company. The worker’s primary duty must include “discretion and independent judgment with respect to matters of significance.”
Highly compensated loan officers, financial advisers, stockbrokers, traders, and similarly situated personnel have brought collective actions against their firms, claiming to have been misclassified as exempt administrative personnel or exempt “highly compensated employees.” These plaintiffs frequently claim they perform production-type duties for the employer and emphasize their lack of management duties or involvement in strategic decision-making or analysis, stating their work is performed under strict limiting guidelines.
Off-the-clock claims relate to situations in which employers force or pressure nonexempt workers to work outside of hours that are not clocked in. This issue raises an interesting question for professional services firms: are employers required to pay nonexempt employees for checking email while at home? What if the employer didn’t directly ask them to do so? The technical answer is yes—employers are required to pay employees for this time. Other tricky areas include attendance at training sessions after work or on weekends.
Many companies believe that if they pay employees on a biweekly basis, an employee’s working time can be averaged over that pay period. But that’s not true for the majority of positions. For the purpose of calculating overtime, the FLSA considers each “workweek” on a standalone basis, and requires that overtime be paid for any hours worked in excess of 40 hours in that single seven-day workweek.
No matter the size of your business or the type of operation, employment claims can arise, and without the right commercial insurance program, your
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