IT WAS “EXPECTED”

Steven Cesare, Ph.D.

A business owner from Florida called me the other day to talk about a recent visit he received from the U.S. Department of Labor. Never a good visit; have a competent lawyer on hand; get the checkbook ready. Here’s the story.

The business owner stated the Department of Labor informed him that a “random” phone call came into their local office about potential illegal activity by his company. Check your dictionary, but I think within the domain of Human Resources, the word “random,” is currently defined as responding to an allegation made by a current whistleblower, disgruntled former employee, or competitor. The business owner was unaware of the specific allegations of the random phone call until the auditors showed up on his door step. Parenthetically, having been in the field of Human Resources for over 40 years, take my altruistic advice and have an employment lawyer on your cell phone at all times, just in case something “random” happens.

Bypassing much of the procedural detail of this event, the Department of Labor auditors informed the business owner that his company was being investigated for numerous wage and hour violations. As the readers of this weekly blog are well aware, all business owners should include the Wage and Hour Add-on coverage to their Employment Practices Liability Insurance policy. While this coverage does not underwrite any financial penalties owed by the company, it can provide financial support to address legal defense fees.

As the interrogation, I mean conversation, continued, the Department of Labor auditors informed the business owner that his company had allegedly not paid its employees proper overtime wages for an extended period of time. Befuddled and indignant, the business owner vehemently denied the allegations. Unmoved by his remonstration, the Department of Labor told the business owner that its investigation would review all relevant time records, paychecks, and overtime rates. Beyond that fiscal audit, the Department of Labor unilaterally stipulated that it was going to interview all 54 company employees, individually.

The business owner to his blissful credit, remained steadfast in his earnest belief that his company had not violated any pertinent wage and hour laws, and that its payroll practices were consistent with all regulations.

Are you ready?

During the 54 interviews, each employee was asked if s/he received a Christmas bonus last year, and if so, did each employee “expect” to receive the bonus given by the Company based on year-end results. Every employee answered affirmatively. Some employees even volunteered saying, that in accordance with company tradition, the bonuses are distributed every year based on organizational success; so of course, the employees “expected” to receive their year-end bonuses.

“Expected.”

According to the Department of Labor, the fact that the bonuses were paid based on meeting business goals, the bonuses were deemed to be non-discretionary rather than discretionary. Followers of this weekly blog know that non-discretionary bonuses must be included in all non-exempt employees’ regular rate of pay, which directly inflates those employees’ overtime pay rate; discretionary bonuses do not. Since the employees “expected” to receive their (non-discretionary) bonus each year due to company success, the owner unwittingly failed to pay them their correct overtime rate each week throughout the entire fiscal year.

Get the checkbook. Get the pen.

Found guilty, the owner had to compensate each non-exempt employee his/her unpaid overtime wages for the full year, and all related penalties, totaling more than $50,000; a sum not paid as part of the EPLI policy; not to mention the bad press the company received when the story appeared in the local news media.

The key take-aways from this event include: be aware of wage and hour intricacies, implement sound timekeeping practices, and conduct periodic audits throughout the fiscal year to maintain legal compliance.

Trust me: Business owners who fail to do so, will be “expected” to write a sizable check in the future.

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