$300,000 TO START

Steven Cesare, Ph.D.

An apprehensive business owner from Massachusetts called me the other day to inform me that his company was just visited by the Department of Labor. Apparently, his General Manager called the Department of Labor as a whistleblower to report that the company had been engaging in improper wage and hour practices. During my telephone conversation with the business owner, he informed me the Department of Labor auditor highlighted the inaccuracy of calculating overtime pay (i.e., not using the weighted average formula) when non-exempt employees serve two different functions with distinct hourly pay rates in the same workweek, and that some of his construction employees revealed they had “banked” hours from the summer landscape season to be used during the slower winter months (i.e., snow season).

“Banking” hours is a practice in which employees who typically work in seasonal, construction, or unionized industries with fluctuating workloads accumulate overtime hours to use as paid time off during slower periods throughout the year. In this case, non-exempt employees who worked overtime throughout the landscape season did not receive overtime pay for those hours, they instead chose to “bank” those unpaid overtime hours, to allow them to be paid at their regular rate of pay during the winter months instead of going on seasonal unemployment.

Banking hours is generally illegal for private-sector, non-exempt (i.e., hourly) employees under federal law in the United States. Under the Fair Labor Standards Act (FLSA), work hours cannot be averaged across workweeks to avoid paying overtime.

That point being said, despite consistent legal admonishment, some employers will allow or even force their employees to bank overtime hours to avoid paying out 1.5 times their normal hourly wage rate. However, under the provisions of the Fair Labor Standards Act, banking excess hours worked for non-exempt employees as comp time or paying them at the regular rate on future paychecks is not allowed. Non-exempt employees must always be paid one-and-a-half times their regular rate of pay for any hours worked over 40 in a workweek; those hours worked over 40 cannot be “banked” to be paid to the employee at his/her regular rate of pay at a later date.

Please be reminded of these basic legal considerations:

FLSA Requirements: Non-exempt employees must be paid 1.5 times their regular rate for all hours worked over 40 in a single workweek.
“Comp Time” Restrictions: Private sector employers cannot use “comp time” (banked hours) in place of overtime pay for non-exempt staff.

Continuing with our telephone call, the business owner told me that after he had debriefed this initial audit with his attorney, who informed him that based on the current audit, the Department of Labor can now investigate other potential wage and hour issues at his company for the past three years, “it looks like the fines and penalties associated with this investigation will start at $300,000.” That’s a hefty place to “start” for a company doing $8,000,000 in annual revenue.

First things first, I strongly recommended that the business owner immediately institute wage and hour training for all of his Field Managers and begin conducting monthly payroll audits to track relevant wage and hour issues like: illegal banking of work hours, working off the clock, unpaid overtime, “duty-free” meal period violations, unauthorized paycheck deductions, timekeeping errors due to inaccurate start and end times of daily work shifts as well inconsistent rounding procedures, unpaid reimbursements, and failing to maintain legally required FLSA record keeping.

Second, I shared the weighted average formula for calculating overtime pay with the business owner. He now knows how to calculate overtime wages correctly when a non-exempt employee performs landscape duties ($21/hour) and snow shoveler duties ($35/hour) in the same workweek when overtime is incurred.

Next, I instructed the business owner to forward all relevant correspondence from the Department of Labor to me for review, preparation, and follow-up. I will share the extensive list of documents the Department of Labor “requested” from the business owner in next week’s Tuesdays with Steve posting.

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