A client of ours, we shall call Victoria, recently went through an unfortunate Department of Labor investigation. Why? In my opinion, it was because she was too nice, but the Department of Labor might disagree.
Victoria owns and manages a company that is hired to staff a grocery store. She doesn’t own the store itself, but she is hired to staff the store’s cashiers to ensure adequate coverage throughout the day. She is then also responsible for payroll and all of the requirements a company has when they hire employees, like unemployment insurance, FICA taxes, payroll withholdings, etc.
One of Victoria’s employees was getting paid $39,000 per year to cover the second shift. This employee, Rob, worked roughly 50 hours per week, but had agreed that $39,000 was fair. After nearly a year of working at that rate, Victoria noticed that some of the money was missing from the cash register during Rob’s shift. When she approached him about it, he didn’t deny taking it; however, he didn’t admit to it either. Instead, they agreed that the $95 that was missing would come out of Rob’s next paycheck.
The very next day, Rob came in with a hand written note describing the workplace as hostile and explained that he was forced to quit, effective immediately.
A little over a month later, Victoria got a letter in the mail informing her that the North Carolina Department of Labor was investigating her business for failure to pay overtime in the amount of $19,000.
The law (Fair Labor Standards Act) states that a person is only exempt from overtime pay if they meet the qualifications of an exempt employee. There are many different exemptions a person could qualify under, but unfortunately for Victoria, cashiers are not exempt from overtime. What this means is that even though Rob was getting paid at an hourly rate far above what every other employee was making, he was still entitled to make time and a half for any hourly work beyond the 40 hours.
The best thing that Victoria could do, at this point, was to cooperate and try to lessen the amount of the pay due. Since Rob was thought to be a salaried exempt employee, he was getting paid no matter how much he worked. Therefore, Victoria went through the historical data to discover when Rob had taken time off, when he was sick and hours he wasn’t actually working during the expected time.
Unfortunately, this also revealed another labor violation. It is a requirement that every employer keep time records for every employee they have. Because every employee worked the exact same shift week after week, there were no timesheets. This cost Victoria an additional $300.
Beyond that, any deductions from an employee’s paycheck must be done in writing at least 3 days prior to the paycheck being issued or it must be approved in writing by the employee. Since this provision is highly subjective, it is recommended to have policies in place well in advance of any issue and have the employee agree to those terms as a condition of his employment. In Victoria’s case, the best alternative may have actually been reporting the theft to the police. In that case, there can be no misunderstanding because it is in the police’s hands. (Note: you cannot withhold the pay until after the police investigation though without the prior policies.)
This withholding without the proper documentation also resulting in a fine against Victoria.
What ended up being the result is that Victoria was responsible for just under $6,000 worth of back pay and a $300 fine to the State of North Carolina. It was a lot better than it could have been, but fairness was not served by this outcome. Rob ended up making $45,000 that year for cashier’s work when all the other cashiers made under $24,000. Victoria was unfortunately taken advantage of, but has learned an expensive lesson from this.
The good news is that she has since reevaluated all of her employees’ arrangements and everything is in much better order. She won’t let something like this happen again, and can help others by informing them how to protect their business from these Department of Labor disputes.
Recap:
1) Only exempt employees are allowed to work on salary without overtime pay. These exemptions can be found on the department of labor website (www.dol.gov) or by contacting your attorney.
2) Do not withhold unauthorized withholdings from your employee’s paycheck. Always seek counsel from your Human Resources department or your attorney prior to doing so.
3) Keep careful time sheets or time cards for every employee, even if you think they’re salaried. Unless you’re sure, it can come back and hurt you in the form of fines if you don’t.
If you have any questions, or want to schedule a free consultation, contact us at richard@bobholzlaw.com or by calling (919)912-9640.