I write this as a second installment in a three-part series on employer audits. This month we wrangle wage and hour audits. Lest you think this only a compensation topic, read on because it has ties into the Affordable Care Act and so-called roll-up costs for benefits.
A few weeks ago, The Great Oz at the U.S. Department of Labor let us peek behind the curtain to what they have cooking for later this year. The DOL will crank up wage and hour audits of employers your employer groups. You want to know about this because it is a pearl to talk about with your employers and because it can affect their benefits.
I recently went on a service call with a producer to one of his clients. This client wanted to know about the ACA. The client offers lawn care services. He had 172 employees who work suburban lawns with fertilizer and weed killer products. He told me all 172 employees receive a salary and work 50 hours per week. A flag went up. How long have you employed that size of workforce with that sort of salary and work-week requirement, I asked? Many years, he said.
I had the crummy job of telling him in front of the producer that none of his 172 lawn workers qualified for a salary exemption under the Fair Labor Standards Act. If caught, he would have to pay overtime to each of those employees to the tune of 10 hours per week for every week, and every year, they worked more than 40 hours and he needed good payroll records. That potential liability dwarfed his ACA pay-or-play liability. The meeting was somber after that.
The fact is the DOL had more lawsuits on the misclassification of salaried versus hourly employees in 2011 than all other lawsuits combined that year. Many employers carry huge liabilities. It will be payday for the government if the DOL performs a wage and hour audit and finds employees misclassified for overtime.
Also, the ACA states that affordable health care is when an employees employee-only share of the monthly health plan premium is 9.5% or less of total household income. Suddenly, our lawn care friend has a very different calculation of employee household income when overtime pay falls into the equation.
Overtime pay and roll-up
Benefit roll-up occurs when employee benefit costs rise because benefits are tied to rising pay levels. For example, you sell a group term-life plan with a death benefit calculated as a multiple of wages or salary. The benefit level and its cost rises as pay increases. Benefit levels rise when employee incomes go up. Roll-up also occurs with employer matches on 401(k) and 403(b) plans. The same holds true with short- and long-term disability benefits.
Some of your groups have a misclassification of salary versus hourly pay-problem with their employees. Let us say, some of your groups resemble our lawn care friend. When the lawn care guy or one of your groups gets stung with fines and a mandate to pay past overtime for misclassifying employees, the benefits that contain roll-up liability will also require a sudden massive infusion of cash, too.
Do not pass up sharing this bit of intelligence about DOL wage and hour audits with your groups. You are, after all, a holistic healer and a trusted adviser for tomorrow, not a spreadsheeter of yesterday.
DOL wage and hour audit checklist
Following are highlights from past U.S. Department of Labor wage and hour audits that employers should heed:
- Check 1099s from current years and back several years past
- Review actual job duties of persons paid as independent contractors and verify that contractors were not, by law, employees
- Closely examine all written job descriptions to ensure each:
- Accurately reflects work performed,
- Is up-to-date,
- Can be justified for applicable FLSA exemptions
- Review time-keeping systems to ensure non-exempt employees were paid for all work performed, including work pre- or post-shift
- Do not automatically deduct time for employee meals or breaks without verifying if the breaks were taken
- Round up small fractions of hours to 15-minute increments.
- Ensure payroll records and written policies and procedures are current, accurate, and compliant with the FLSA
- Verify time-keeping system allows for easy entry of all hours worked
- Ensure compliant policies are practiced
- Develop a program for reporting and resolving employee wage issues.
- Establish a committee to:
- Evaluate wage programs as written and implemented,
- Audit the workplace for potential discrepancies,
- Review and discuss workplace practices and employee complaints
Davidson, CEBS, is an EBA columnist and founder of Davidson Marketing Group, FutureOffice Network and Dial FONHR. He is also on the faculty at the Sheldon B. Lubar School of Business at the University of Wisconsin, Milwaukee. Reach him at email@example.com.
Register or login for access to this item and much more
All Employee Benefit Adviser content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access