A company’s greatest asset is often the employees of the company as reflected in the term “Human Capital.” However, the payroll responsibilities that go along with your greatest asset may also be your greatest liability.
Payroll processing is complex. Sure, the act of keying in employee hours and payrates into an accounting software package seems easy enough. Anyone could do it, but should you let just anyone do it? Payroll management is complicated and involves hundreds of Federal and State Department of Labor (DOL) regulations as well as a myriad of tax rules. Having a good understanding of how to pay employees correctly is essential to avoiding tax penalties, and increasing employee satisfaction and trust, as well as avoiding lawsuits.
With the shift of power in Washington, there has been an even greater movement to protect workers’ rights through new regulations and stepped-up enforcement of current rules. There has been a call to the DOL to increase its enforcement efforts and to battle “Wage Theft” of the country’s
employees by effectively enforcing the Fair Labor Standards Act (FLSA). Accordingly, the DOL has increased staffing levels at the Wage and Hour Division, putting more investigators into the field. The swift passage of the Ledbetter Fair Pay Act in 2009 illustrates the current administration’s
commitment to this end.
Prior to Ledbetter, the Court held that the 180-day (or 300 days depending on
the state of residence) time limit for filing a charge under Title VII of the Civil
Rights Act starts after an alleged unlawful employment action, such as deciding to pay men more than the women in the same position, and does not re-start upon receipt of each successive paycheck. The Ledbetter Act has changed the statute of limitations and instituted the “paycheck rule”, allowing an employee the right to bring a discrimination claim within 180 (or 300) days from the receipt of each paycheck (and even a pension check). By making the time clock re-start each time an employee receives a paycheck, and potentially even when a retiree receives an annuity check, the Ledbetter Act will allow individuals to file claims potentially many
years after an alleged act of discrimination occurred. Employers will be liable for earlier management decisions for which there may be no records
Enacted in 1938 and revised in 2004, the FLSA provides for minimum standards for both wages and overtime entitlement, as welll as outlines the
administrative procedures by which workers must be compensated for work time. Provisions related to child labor, equal pay, and portal-to-portal activities (such as travel and other activities before and after the work day) are included in this act. It excludes professional, administrative, and executive employees who are paid a fixed salary rather than an hourly wage. The proper determination of the employees in this “excluded” group has been very troublesome and expensive for many employers.
Misclassification of employees as exempt from overtime provisions has been a longstanding problem for employers and the DOL. Revisions to the FLSA in 2004 were intended to give employers more guidance on correctly classifying their employees, but the results were mixed. Employers still often inadvertently misclassify their employees as exempt (typically salaried employees) instead of hourly, thus failing to pay overtime, and the DOL is vigilant in pursuing violators.
You only have to look as far as the DOL’s own website to see the staggering statistics and amount of activity in this area to see how important it is for employers to stay in compliance. In fiscal year 2008, more than 197,000 employees received a total of $140.2 million in minimum wage and overtime back wages as a result of FLSA violations. Of the $140.2 million collected, nearly $12.8 million was collected for approximately 9,600 employees as a result of violations of the Overtime Security regulations. The violation cited in the greatest number of cases was one in which
the employees did not meet the duties test required for exempt
executive status.
If you watch television, you may also notice that attorneys in Florida
have been particularly aggressive in seeking claimants to represent
in employment-related matters. Florida reportedly is at (or near) the
top of the list for the state with the most FLSA litigation. Our courts
are overrun with these claims. Wage and hour claims may be the
new cash-cow, replacing Workers’ Compensation claims in the wake
of tort reform. These claims are attractive to a plaintiff’s attorney
because the price of litigation is high, and many times the price of
a quick settlement is less expensive to an employer than fighting
the claim.
Another motivating factor for a quick settlement by the
employer is that the involvement of the DOL can often be avoided.
In response to the high volume of FLSA litigation flowing through
the Southern District of Florida (the federal trial court with jurisdiction
over Miami-Dade) the county of Miami-Dade became the first county
in the nation to adopt a countywide wage theft law. The Ordinance
maintains that wage theft occurs when an employer fails to pay any
portion of the wages due to an employee, according to the wage rate
applicable to the employee, within a reasonable time (14 days) from
the date on which that employee performed the work for which the
wages are compensation.
Employers who pay on schedules other than weekly can have this time modified to no longer than 30 days by written agreement between the employer and employee. Employers in Miami-Dade County will need to be more vigilant than ever to
ensure that employees are properly classified and promptly paid
for all work performed. A thorough review of employees currently
classified as exempt or as independent contractors is needed to
ensure complete compliance with the FLSA.
The bottom line is that employment-related legislation is on the rise
and is associated with more litigation as employers struggle to stay
compliant with the changes. Whether it is the proposed legislation
such as mandatory paid sick-time, or more proposed changes to
the Family and Medical Leave Act (FMLA) coverage, the Americans
with Disabilities Act (ADA), changes to the definition of who is
covered under the Title VII anti-discrimination laws, or something
so seemingly simple as having the right state and federal posters
displayed where employees can readily see them, the need for
employers to stay current on the rules and how they are applied
to their workforce is becoming more and more critical and timeconsuming.
How does an employer prevent or mitigate these HR threats/
challenges? Consider using a Professional Employer Organization
(PEO). PEOs provide comprehensive HR outsourcing including
payroll, human resources, benefits administration and risk
management. The PEO you choose should be active in their industry
association, the National Association of Professional Employer
Organizations (www.napeo.org), and accredited by the Employer
Services Assurance Corporation (ESAC) (www.esacorp.org).
ESAC provides independent financial and compliance assurances
for covered clients and employees through surety bonds in the
unlikely event of a failure of an accredited PEO, a similar concept
as the FDIC for banks.
The PEO you choose should have staff that
is accredited by the American Payroll Association (APA) as well as
Professionals in Human Resources (PHR) accredited by the Society
for Human Resource Management (SHRM). Alternatively, both the
APA and SHRM offer payroll and human resource training classes
that your staff can take advantage of. Another option is to establish
a relationship with an HR consulting firm. Consulting engagements
are flexible and can be tailored to your specific needs. These are just
a few suggestions to keep your HR department, no matter how large
or small, on the path to compliance.