In the Office – Five Regulations You Can't Ignore

When it comes to compliance with the U.S. Department of Labor’s wage and hour regulations, most green industry professionals are confused by the sheer number of regulations that apply to them and are disturbed by the department’s fluctuating opinions and interpretations of the regulations. Many well-intended employers, including lawn and landscape firms, have found themselves caught in the trap of the government’s unusual wage and hour enforcement principles that seem, at times, to be more illogical than legal.

WHAT TO DO? Each year, thousands of businesses are investigated by the U.S. Department of Labor Wage and Hour Division and are found guilty of violating provisions of the Fair Labor Standards Act even though their employees were paid generously and fairly, and even though they made every effort to comply with the regulations. In many cases, employers end up paying the price because of a lack of understanding or knowledge of the regulations.

In addressing and resolving thousands of pay issues and questions across the country, we have found that green industry owners most commonly misunderstand five federal requirements.  Noncompliance in these five areas alone often results in huge back-wage liabilities. (Note: this list is not all-inclusive and only contains federal requirements. Some states have more stringent regulations.)  Let’s take a look at each:

1. Proper classification of employees as “exempt” or “nonexempt” from overtime — Many owners are under the mistaken belief that simply paying a person a salary automatically exempts him or her from federal Fair Labor Standards Act requirements. This is not true. In order for an individual to be classified as exempt from overtime, in addition to receiving a guaranteed salary, he or she must meet a number of “job duty” tests outlined in one of the few federal exemptions from overtime. 

For example, to qualify for the common “Executive” exemption, a manager would have to supervise at least two full-time employees and would have to spend a minimum of 50 percent of his or her time in “supervisory duties.” Contrary to popular belief, these tests are not easy to meet. The DOL’s definition of supervisory duties is limited to upper-level duties such as:  training employees; appraising productivity; planning and apportioning work; determining the types of materials, supplies, or tools; controlling the flow and distribution of materials; and maintaining time records. In addition, the individual should have and exercise the authority to hire, fire and change the status of workers. 

Many managers (especially office managers and crew managers) do not meet these requirements and are misclassified under the Executive Exemption.  Employees who do not qualify for this (or any other) overtime exemption must maintain a time record and must be paid time and one-half for all hours worked more than 40 per week. (Some states, like California, have even more restrictive overtime requirements.)

2. Maintaining true and accurate records of all hours of work — According to the department, all nonexempt employees must maintain true and accurate records of their work time. To meet this federal Wage and Hour Division requirement, the employee must record the exact time in and exact time out each day, including meal times. Times should not be rounded; they should be recorded exactly to the minute. Employers must ensure that nonexempt employees record all of their hours of work, including meeting time, compensable travel time, waiting time and others. It is not necessary for nonexempt employees to punch a time clock. The records, however, must be “true and accurate.” 

In the absence of accurate time records, a government investigator will typically interview employees and construct an amount of overtime he or she believes the employees have worked. This “constructive overtime” is then used to calculate back wages for current and former employees who have worked in the past two or three years.

3. Ensuring all deductions from pay are proper — Employees who are classified as exempt from overtime must receive their full salary each week, regardless of the quantity or quality of their work. The only exceptions would be for legally authorized deductions such as: insurances, taxes, garnishments, full-day absences for personal reasons, or full-day absences due to an illness that occurs prior to an employee qualifying for a bona fide sick pay plan, or after the employee exhausts accrued time under the plan. Deducting money from an exempt employee’s salary for damages, losses or other similar reasons is a violation of the regulations and could result in loss of the exemption.

Nonexempt employees, on the other hand, must always receive at least the minimum wage ($5.15) for every hour they work up to 40, plus time and one-half their hourly rate for all hours more than 40 each week. To reduce an employee’s pay below the minimum wage for losses, damages, equipment or for a similar reason is in violation of the federal Fair Labor Standards Act.

Note:  some states have higher minimum wages and/or prohibit these types of deductions altogether.

4. Paying for overtime on all compensation, including commissions and nondiscretionary bonuses — According to the federal regulations, nonexempt employees must receive overtime on all of their wages, not just their hourly rate. This means that if you pay a nonexempt employee an hourly rate plus commissions, you must calculate the overtime on the hourly rate and on the commissions. The department takes the position that commissions are wages and, as such, effectively increase the average hourly and overtime rates. The same holds true for nondiscretionary bonuses paid to nonexempt employees, regardless of how often the bonus is paid.

5. Ensuring that each week stands alone for the purpose of paying overtime  – In the world of wages and hours, each week stands alone.  This means to properly calculate overtime you must consider all of the hours worked within the seven-day period of time that your company has defined as its “official workweek.” Any time worked more than 40 hours within this time period must be paid as overtime to nonexempt employees.  (Again, a few states, including California, define overtime differently.)  

Employers cannot merge workweeks to avoid paying overtime, regardless of how the pay period is defined. Also, employers may not substitute time off at a later date in lieu of paying overtime. Commonly referred to as “comp time,” this practice is forbidden in the private sector. (However, a bill currently in Congress could change this practice in the future.)

CONCLUSION. Green industry professionals would do well to abide by these important requirements and continually check their compliance. One department investigation can have a huge impact on a company’s bottom line. 

So, how can you reduce your liability and ensure compliance with complicated wage and hour regulations? Here are some suggestions to incorporate into your company culture.

1) Attend continuing education seminars and workshops that offer information on wage and hour issues.

2) Work closely with your human resource director to ensure your company’s pay plans are properly structured.

3) Subscribe to various management newsletters and publications that focus on compensation issues.

4) Work with qualified professional consultants or other human resource experts who can provide guidance on compliance issues.

5) Consider arranging for an annual comprehensive compliance audit of your company’s pay practices, plans and human resource policies.

Jean L. Seawright is president of Seawright & Associates, Inc., a management consulting firm located in Winter Park, Florida.  For the past 15 years, she has provided human resource management and compliance advice to employers across the country. She can be contacted at 407/645-2433 or jpileggi@seawright.com.