As the rules for how to classify employees and what employment records to keep get more complicated, many companies are finding themselves under scrutiny by the Department of Labor or, even worse, subject to litigation that they were unprepared or uncovered for.
On Friday, June 26, SRA clients and friends heard about how they can better manage the risk and protect themselves in the most recent of our quarterly executive briefings. Attendees enjoyed breakfast and heard from our featured speaker, Greg Goheen, of MVP Law Firm, an authority who has spoken nationally on this topic.
Attendees learned that the Department of Labor estimates that 72% of employers violate the Fair Labor Standards Act. Two of the most frequent traps in the wage and hour arena are misclassification of exempt employees and misclassifying independent contractors. This often results in DOL action through fines and penalties and also, increasingly, costly litigation actions.
In his presentation, Greg covered a number of important considerations for employers including:
- The need to prepare for still more DOL regulations expected to come by confirming up-to-date job descriptions for all employees
- The need to identify positions that will be affected by an increased salary basis floor
- The need to educate your workforce on expectations.
As the number of DOL audits increase, Greg described ways in which employers can make sure they are best prepared in case they are audited. He shared a list of records that need to be kept for each employee including things like work week hours, rate of pay, overtime pay and deductions from wages.
“Record keeping is extremely important.” Greg said. “Typically, if you manage records well and you are audited, your audit will go well and probably go quickly. You must keep records in most cases for three years and your retention policies need to reflect that.”
Greg also described how employers can often be in conflict with DOL regulations by misclassifying workers – especially in areas like the classification of independent contractors when those personnel start working too many hours and taking on regular employee tasks: “It’s best to contract with someone who has an LLC — rather than someone who is an independent contractor but looks like an employee based on what they are doing.”
Update: On June 30, 2015, the U.S. Department of Labor (DOL) issued a proposed rule to modify the “white collar exemptions” provided by the Fair Labor Standards Act (FLSA). The white collar exemptions are minimum wage and overtime exception rules for executive, administrative, professional, outside sales and computer employees.
SRA Benefits President David Wetzler covered how employers can best protect themselves in the event of a wage and hour claim including evaluating their employment practices liability (EPL) coverage to determine whether they have coverage for W&H claims. He explained that, in recent years, many EPL insurers have started to insert broadly worded wage and hour exclusions into their policies, including excluding defense costs. Other carriers have inserted strict sublimits to limit their exposure to wage and hour claims. Employers should review their coverages with their broker and understand the scope of coverage they may have under their insurance policies.
Unfortunately, in our litigious society, the cost of defense of wage and hour claims is expensive. “It’s important to understand whether you have coverage for wage and hour claims and whether the costs of defense are included in your policy; otherwise, you could be in for a substantial economic surprise if the DOL audits you or disgruntled employees bring a collective action against you,” David said.