Most companies that pay employees incorrectly do so unintentionally. Unfortunately, failing to pay employees correctly sends a message that your company lacks competence and compassion.
How is it that well-meaning employers make such avoidable mistakes? According to the experts at PeopleHR, three common reasons for these mistakes are:
- Falling behind on new legislation that affects pay.
- Poor timesheet tracking.
- Human error during payroll.
Of these three reasons for mistakes, number one is by far the most common. While human error mostly contributes to those one-off mistakes, employers failing to stay apprised of the law as it relates to pay results in much bigger problems. And poor recordkeeping is usually a result of those responsible not knowing the law.
The following are some common mistakes I regularly see, along with the problems they cause:
Making Non-Exempt Employees Work Off The Clock
Non-Exempt employees need to be paid for ALL time worked. Too many times I have seen Supervisors think it is okay make employees clock out or wait to clock in for shift changeover meetings. I have also seen Supervisors force employees to clock out for tasks that they do not consider to be part of the employees’ regular job (like staying behind to clean up). Some Supervisors even regularly require employees to come in early and wait to clock in. While brief startup and shutdown activities are not considered time worked, none of the above examples fall into this category. When employees are engaged to work, meaning they have been required by the employer to come in, they need to be paid for that time. One company I supported told me they had a DOL audit that resulted in them having to pay $40,000 in back pay to employees for 10 minute meetings employees attended off the clock. That may not seem like much but that was only for 10 minute meetings for 100 employees over the course of one year. Last year Walmart paid $151 million dollars to employees who brought a class action lawsuit against them for being forced to work off the clock (Walmart worked them through forced lunch breaks and rest breaks but did not pay them).
Incorrectly Setting Up an HR/Payroll System
By incorrectly setting up rounding and auto-deduct rules, Payroll professionals can hurt morale and cost the company money. Many employers will set up their HR/Payroll system to round employees’ time to the nearest 20 or 30 minutes. The FLSA allows employers to round to the nearest 5, 10 or 15 minutes, and this is only if the rounding balances out or works out in the employees’ favor overall. Rounding too high is sure to upset employees when their time gets rounded down, and the company could end up owning back pay. And automatically taking out time for lunch when employees who may actually be working through their lunch period results in a similar scenario to the one Walmart faced.
Failing to Pay Commissioned Salespeople Overtime and Minimum Wage
Another common mistake companies make is incorrectly compensating commissioned sales people. Paying salespeople commission is complicated. Much of the complication arises from whether or not commissioned employees are exempt from overtime (Note that they are never exempt from receiving at least minimum wage!). The FLSA outlines various conditions that determine if you your business is eligible to have exempt commissioned employees, and whether or not your commissioned employees are truly exempt from overtime. Due to record-keeping and pay calculation requirements, commissioned salespeople must clock in and out to record their hours worked.
There are also a few important percentages that determine whether or not your commissioned sales people are exempt from overtime. One of the first percentages to consider is the one that informs you as to whether or not your business even qualifies to have exempt commissioned employees. According to the DOL, your employees must be working at a retail and service establishment. FLSA’s fact sheet defines retail and service establishments as “establishments 75% of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.”
The next few percentages are the ones that tell you if specific employees qualify for exemption:
- The employee’s regular rate of pay must exceed one and one-half times (150%) the applicable minimum wage (which comes out to about $10.88 if you go by the Federal minimum wage) for every hour worked in a pay period (not a workweek) in which overtime hours are worked. We’ll address how you know if OT hours were worked a bit further down in the article.
- AND More than 50% the employee’s total earnings in a representative period must consist of commissions.
Misclassifying Helpdesk Techs as Exempt
Many companies still try to pay Helpdesk Technicians salary exempt and do not require them to track their hours. Unfortunately, according to the DOL, Helpdesk Technicians do not qualify as exempt from overtime. They do not meet the requirements for Administrative Exempt or Computer Professional Exempt. Surprisingly, this is not new information. A 2004 court case, and a 2006 DOL opinion letter both explicitly state that the duties of tech support do not qualify for exemption. And changing their titles by adding “Manager” or “Senior” does not make the positions anymore eligible. It’s all about the actual job duties. If your tech support professionals are mostly installing, configuring, testing, and troubleshooting computer applications, networks, and hardware, then they are most likely not exempt from overtime and must be tracking their hours worked.
There are many more common missteps, and laws and best practice are constantly changing. While your company most certainly has its employees’ best interest at heart and would never intentionally botch their pay, good intentions will not shield your company from liability. Make sure you have a qualified, certified HR and Payroll Consultant helping your company navigate these tricky scenarios; and make sure your HR/Payroll system is up to snuff.
About the Author
Susan Snipes is the founder of Employ HR Pro, LLC, a privately owned and expert led consulting company that supports clients with short term HR project and recruiting solutions and long term HR consulting. She is also a certified HR and Payroll professional who has consulted with clients in a variety of industries, company sizes and locations. Susan is also a contributor to HR Magazine and has appeared in several of their publications.