Q. For years we've paid all our employees, from the receptionist to the drivers, a regular salary instead of an hourly rate. It's just simpler and our employees have preferred it. We don't dock employees when they leave in mid-afternoon for a dental appointment, and they don't feel bad if they have to work after five. Several of our employees' spouses drop them off early because they commute together. These employees hang out before 8 a.m. and I've never checked to see if they work or not. I suspect they mostly talk, but I still let them go at 4:30 because that makes it easier for them to commute home.
Last week, my friend's company got hit with an overtime lawsuit by an employee he'd paid a salary but who the Department of Labor said should be hourly. He wound up paying ten grand over and above the overtime pay the employee claimed she was owed. He felt burned because he knows the employee didn't work all the hours she claimed, but he didn't have time sheets to counter her lies. He also got stuck paying for her attorney.
Knowing any one of my employees could take me to the Department of Labor scares the heck out of me. How do I fix this? If I start asking for time sheets and paying hourly, with overtime, it'll cause a big stir. Some of my employees will probably realize they should have been paid differently for years and might feel tempted to take us to the cleaners.
A. When employees think their employer has been fair, they rarely file lawsuits. Still, the fact that your company hasn't handled employee pay correctly leaves your company vulnerable.
You're not alone. According to the U.S. Department of Labor, as many as 70 percent of employers don't fully comply with the Fair Labor Standards Act. Meanwhile, employee overtime claims escalate. According to plaintiff's attorney Wes Redmond going after errant employers is "like shooting fish in a barrel."
As an employer who has ignored overtime law, you're caught in a pay-me-now or pay-me-later dilemma. Make your decision on what to do next based on what's right, but get this cleaned up now, before any of your employees realize you're a perfect target.
Non-exempt employees deserve overtime pay when they work more than eight hours in a day or 40 in a week -- even if you let them work less than eight hours on another day. Because you don't require time sheets, you lack an accurate defense if one of your employees decides to claim overtime pay for hours never worked. According to federal and state regulators, employers are required to keep records.
Smaller employers may find paying non-exempt staff on a salaried basis administratively simpler than having to track and record all hours worked in a week and adjust payroll each pay period. If these employers open and close their operations at specific times, the chance of incurring overtime is unlikely. If you choose this route, ask your early-arriving employees not to work until the workday starts.
Finally, if you violate the labor standards act or the Alaska Wage and Hour Act statutes, any one of your employees may sue you for the overtime due them during the last two years, plus attorneys' fees and an equal dollar amount called liquidated damages. If, however, you fix this situation now by paying any non-exempt employees the overtime you feel they may be owed and one of your employees takes you to the Department of Labor, the investigator handling the claim may negotiate a lesser amount of liquidated damages. Also, according to Alaska Department of Labor officials, an employer and employee may sign off on an agreed amount of past overtime compensation and thus prevent potential future liquidated damages. Further, when the labor department handles the situation, you avoid attorney fees.
So come clean.
Dr. Lynne Curry is a management/employee trainer and owner of the consulting firm The Growth Company Inc. Send your questions to her at thegrowthcompany.com.