Common Wage Scams
According to Department of Labor’s audits, a large majority of companies are violating the Fair Labor Standards Act (FLSA). A majority of these companies misclassify their employees as exempt from overtime pay. The DOL reports very high rates of general non-compliance with the FLSA.
If you are working over 40 hours a week; coming to work earlier than beginning of your “official” workday; staying after you punch out or after the end of your workday; you are an hourly or non-exempt employee but paid straight time after 40 hours per week; have a pay systems in which overtime pay starts after 50 hours per week; your employer averages your hours over your entire pay period of two weeks or more; you perform work-related activities during your lunch or other breaks; you are underpaid your overtime because your employer calculates your overtime incorrectly (for example, your overtime does not include the shift differentials, non-discretionary bonuses, etc.); or employer is wrongly classifying you as an independent contractor, then your employer may be cheating you out of your hard-earned money.
Even though businesses like to characterize the violations of the FLSA as inadvertent mistakes, however, these “mistakes” almost always benefit the employers rather than the employees. So it is hard to believe that most of these violations by employers are just “mistakes,” and not tricks and scams used by the companies to cheat the employees out of their hard-earned money.
Some of the common wage scams are:
- Off-the-Clock Work
- Miscalculating the Overtime (Regular Rate of Pay)
- Short Changing Hours (Working During Breaks)
- Misclassifying Employees as Exempt
- On-Call Time
- Not Paying for Travel Time
- Not Paying for Training Time
- Not Paying Wages on Time
- Improper Deductions from Wages
- Independent contractor
- Telecommuting Employees
- Special Rules for Other Specific Jobs or Specific Industries
1. OFF-THE-CLOCK PRE-SHIFT OR POST-SHIFT WORK:
Under the law, the term “work” is defined broadly as “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.” Thus, an employee must be paid for all hours spent performing work-related duties. Off-the-Clock work is work that employees perform for which the employer fails to properly pay.
Some common examples of off-the-clock work are:
- Allowing or requiring employees to come before the “official start time” and allowing or requiring employees to perform job related activities, such as pre-shift meetings, changing clothes or picking up required safety gear, or gathering tools, or preparing machines or work stations. In some instances, employer may allow or require employees to come in and read the company policies, or other work-related emails, etc. and then “log in” or clock in. Job rules, productive goals, or pressure from supervisors/managers which “encourage” employees to come in early or work on their own time.
- Allowing or requiring work-related activities to be done after the end of a shift, such as clean up, doffing job-required clothing, putting tools or equipment back, and completing paperwork or other tasks.
- Encouraging employees to be team players and be considered good employees if they are willing to come in early, work through breaks, stay late, take work home, and work on their own time.
- Allowing or requiring employees to take work home, making job-related phone calls at home, and job-related “volunteer” work is usually all compensable work.
- Allowing or requiring budget or fiscal employees to remain until an official audit is finished.
- Requiring or allowing employees to “stand-by” during short plant shutdowns.
- Waiting for work after reporting time or while on duty.
- Walking back and forth from the locker rooms to the production floor after donning and before doffing required protective gear at a meat-processing plant.
- Waiting to take off the required protective gear at the end of a work shift at a meat-processing plant.
- Washing up or showering, if it is required due to the nature of the work.
Under the FLSA, the employer must compensate employees for all the pre-shift or other time spent by the employees doing job-related activities, whether or not the employer wants the employees to be clocked in.
2. MISCALCULATING OVERTIME (REGULAR RATE OF PAY):
Employers use several Different methods of paying wages and overtime. But, overtime always must be one-and-a-half times the “regular rate” of pay. It is quite common for employers to miscalculate the overtime wages because employers often fail to include the all additional payments made to the employees in the calculation of “regular rate” of pay. Many employers pay the overtime at one-and-a-half times the base wage of the employee and not the regular rate of pay as required under the law.
An employee’s regular rate must include all payments (except for certain types of payments excluded by the Act), made by the employer to, or on behalf of the employee. For example, on-call pay, bonuses promised for accuracy of work, good attendance, continuation of the employment relationship, incentive, production or quality of work, contest prizes, employee lunch or meal expenses paid by the employer, unless the expense is incurred on the employer’s behalf or for the employer’s benefit; shift differentials; traveling expenses (if they are paid by the employer), and employer contributions to employee flexible benefit plans, which are also known as “cafeteria” plans, must be included in the calculation of the “regular rate” of pay and the overtime must then be paid on that “regular rate” and not just the base hourly wage of the employee.
Another reason employers miscalculate the overtime wages is because the employers wrongly calculate the overtime hours worked. For example, sometimes the employers average the hours worked over the pay period (usually a two-week period). The FLSA requires that non-exempt employees be paid overtime for all hours worked over 40 hours in each workweek. The FLSA’s workweek for non-exempt employees is generally a fixed period of 168 hours-seven consecutive 24-hour periods. Moreover, the FLSA uses a single workweek as its standard, and does not permit averaging of hours over two or more weeks. This is true regardless of an employee’s schedule and whether he or she is paid on a daily, weekly, biweekly, monthly or other basis.
3. SHORT CHANGING HOURS (Working During Breaks):
Although, the FLSA does not require employers to provide rest or meal breaks to employees, most employers provide short breaks as they increase worker productivity and efficiency. The time spent in such rest breaks of less than 20 minutes must be counted in hours worked, and thus must be compensated. Additionally, many employers provide lunch or meal breaks of 30 minutes or more. During these meal breaks the employees must be relieved of work duties and the employees must be able to use the break for their benefit. Thus, if the employer regularly requires an employee to perform job-related tasks (even inactive tasks such as watching a machine or a computer monitor, etc.), then the lunch break must be considered hours worked and thus the employer must pay the employee for the lunch or meal break time. If the meal breaks are frequently interrupted for work and have other significant restrictions, the meal breaks may be compensable and thus the employees must be paid for them.
Even though, the FLSA does not require rest or meal breaks, some state laws require rest or meal breaks of certain lengths. Check here to see if your state requires a rest or meal break.
Engaged to Wait:
If an employee is required to wait for some time, say 10 to 15 minutes, before work becomes available, this waiting time is compensable. In such an instance, the employee is “engaged to wait” rather than “waiting to be engaged”. Employees must be compensated for all time spent waiting while on duty unless the employee is completely relieved of duty and allowed to leave the job or the employee is relieved of duty until a specific time and that interim period is long enough for the employee to use for their own purpose.
4. MISCLASSIFYING EMPLOYEES AS EXEMPT:
Certain employees are Exempt from the overtime provisions of the FLSA. Thus, since exempt employees don’t have to be paid overtime, employers often try to fit employees into exempt categories. An employer may give an employee certain title and consider them exempt from the overtime requirement. However, it’s not the not title but the job requirements that determine whether an employee is exempt from overtime pay. To determine whether you are properly classified as exempt, examine your specific job duties and responsibilities.
Whether an employee is Exempt or Non-exempt depends on: how much the employee is paid; how the employee is paid; and what the employee actually does. To be exempt an employee must be: (1) be paid at least $455 per week ($23,600 per year), (2) be paid on a salary basis, and (3) perform exempt job duties. To be exempt under the FLSA, the employee must meet both the salary basis and the job duties tests.
5. COMPENSATORY TIME (“COMP TIME”) IN LIEU OF WAGES:
For all private (non-government) employees, the FLSA requires that wages be paid in money. Some employers instead pay employees in compensatory time (“comp time”) off instead of money. Comp time off in lieu of cash for overtime wages due is not allowed under FLSA for private employers. This rule applies only to wages for overtime work.
6. NOT PAYING FOR ON-CALL TIME:
On-call time is time spent where the employee must remain available to be called back in to work on short notice if the need arises. The Fair Labor Standards Act (FLSA) requires employers to compensate their workers for on-call time when such time is spent “predominantly for the employer’s benefit.”
If an employee is required to remain on call on the premises or close by and cannot use the time effectively for his or her own purposes is working while “on call.” Courts usually look at several factors to find out if the on-call time is spent predominantly for the employer’s benefit (and thus must be compensated).
Some of those factors are:
- physical restrictions, such as the employer requiring employees to remain in a fixed location while on call.
- the maximum period of time allowed by the employer between the time the employee was called and the time he or she reports back to work (“response time”).
- the percentage of calls expected to be returned by the on-call employee.
- the frequency of actual calls during on-call periods.
- the actual uses of the on-call time by the employee, i.e., if the employee is able to use the on-call time for substantial personal projects and affairs, then court may find this time to be noncompensable under the FLSA.
The more restrictive the on-call policy is, the more likely that a court will conclude that the on-call time is compensable working time. And once the employee arrives at work after being called into service, all working time must be compensated.
On-call payments and the Regular Rate of Pay
Remember that on-call payments will increase an employee’s regular rate of pay. If the employer pays the employee for on-call time (for example, a $50 on-call payment per shift), that compensation must be included in the employee’s regular rate of pay calculation.
7. NOT PAYING FOR TRAVEL TIME:
Daily commuting time to and from home to work is not compensable under the FLSA. However, any other travel time during the workday is compensable. That is, if an employee is required to travel on a regularly scheduled workday, the employer must pay him or her.
8. NOT PAYING FOR TRAINING TIME:
Most training time must be paid for by the employers. There exceptions to this rule if the training meeting the following conditions:
- If the attendance is outside of the employee’s regular working hours; and
- the attendance is actually voluntary; and
- the employee must do no productive work while in training; and
- the lecture, meeting, or program should not be directly related to the employee’s job.
If any one of these four requirements is not met, the time must be compensated.
9. NOT PAYING WAGES ON TIME:
The FLSA requires that wages be paid “when due,” which usually means at the next regularly scheduled pay day. Sometimes employers pay wages “late,” i.e., the wages are not paid on a regularly scheduled pay day. Not paying wages on time is almost like not paying the wages at all. And an employer that fails to pay wages when due may be liable for liquidated damages.
10. IMPROPER DEDUCTIONS FROM WAGES:
FLSA prohibits employers from making improper deductions that would drop the employee’s wages below minimum wage. For example, deductions for uniforms, or other items which are considered to be primarily for the benefit or convenience of the employer; deductions for cash register shortages; and “administrative” fees, etc.
In many states, employers are also required to provide workers with documentation of their earnings and deductions, regardless of whether they are paid in cash or by check. However, a large percentage of employers do not provide workers with this mandatory documentation.
11. CLASSIFYING EMPLOYEES AS INDEPENDENT CONTRACTORS:
Another area of abuse is in the wrongful use of independent contractor status. Since the FLSA only covers “employees,” some employers wrongly designate workers as contractors in an effort to avoid FLSA’s overtime requirements.
FLSA has one of the broadest definitions of “employee.” Most courts use several tests to determine if a worker is properly categorized as an independent contractor. The two more familiar tests are the “right of control” test and the “economic reality” test. These tests apply numerous factors to determine whether the worker is an independent contractor or employee.
Right to Control Test:
The right to control test distinguishes an employee from an independent contractor based on the extent of control an employer can exercise over a worker. The more control and supervision by the employer, the more likely the worker will be deemed an employee. The factors in this test include:
- The extent of control the employer exercises over the details of the work;
- Whether or not the worker is engaged in a distinct business or occupation;
- The kind of occupation, and whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
- The skill required in the particular occupation;
- Whether the employer or worker supplies the instrumentalities, tools and workplace;
- The length of time for which the worker is employed;
- The method of payment, whether by the time worked or by the job;
- Whether or not the work is a part of the regular business of the employer;
- Whether or not the parties believe they are creating an employer-employee relationship; and
- Whether or not the worker does business with others.
Economic Reality Test:
An administrative ruling by the Department of Labor (DOL) summarized the economic reality test by stating that “an employee, as distinguished from a person who is engaged in a business of his own, is one who, as a matter of economic reality follows the usual path of an employee and is dependent on the business which he serves.” The courts have found the following six factors significant in determining whether the worker is an employee or independent contractor:
- A limited amount of the worker’s investment in facilities and equipment;
- The nature (close supervision) and degree of control (high) retained or exercised by the company;
- The worker’s limited opportunities for profit and loss;
- The small degree of the worker’s independent initiative, judgment, and foresight in open market competition with others required for the success of the operation;
- A high degree of permanency of the work relationship; and
- The broad extent to which the services are an integral part of the company’s business.
Other courts interpreting the FLSA under the economic realities test also focus on how dependent the worker is on the company for continued work. Unlike an employee, an independent contractor does not depend solely on the company for economic stability and can, and often has to, pursue other jobs.
12. NOT PAYING OVERTIME TO TELECOMMUTING EMPLOYEES:
The regulations issued under the FLSA have long required employers to compensate employees for work performed off the worksite, even if performed at the employee’s home. In today’s electronic age, many employees often “telecommute.”
If an employer permits telecommuting, then it’s the employer’s responsibility to monitor the employees’ hours worked. If the employee is working more than 40 hours in a workweek, including hours worked at home, the employer must pay the employee the overtime due for all hours worked over 40 in a week.
13. VIOLATIONS IN SPECIFIC JOBS OR SPECIFIC INDUSTRIES:
There are some scams and violations particular to certain industries or jobs. For information on common violations in particular industries or for particular job descriptions, call us at 801-577-1988 today.