Everything You Thought You Knew about Overtime May Be Wrong

Your working foreman regularly puts in a fifty-hour workweek without lunch breaks. But you pay him top dollar, and he’s salaried. So you think there is no need to pay overtime. One day, the U.S. Department of Labor (DOL) shows up at your door to investigate a wage-and-hour lawsuit on his behalf. It appears that your working foreman is demanding back pay for those hours he worked beyond the required forty hours. Now you’re at risk of a costly lawsuit for not being in compliance with the Fair Labor Standards Act (FLSA). And if this has occurred with a number of employees, you risk a collective action lawsuit.Collective action lawsuits can involve hundreds or thousands of employees, and they can cost a company millions of dollars in back pay and attorney’s fees. These types of lawsuits have exploded in numbers during recent years. In 2004, more than 700 separate collective action lawsuits were filed. In 2000, only seventy-nine of those lawsuits were filed.        

Originally the FLSA, which was passed in 1938, was designed to urge Depression-era bosses to hire more employees. However, as the workplace has shifted from manufacturing to services, the law’s archaic “white collar” exemptions, which were last updated in 1949, have failed to keep pace. As a result, the DOL crafted the revised regulations in 2004 in an effort to more accurately reflect today’s workforce.

Unfortunately, in terms of the construction industry, the exemption issue can be a gray area for certain employees. While some clearly fit under the nonexempt status, others are more difficult to pinpoint.

An employer primarily faces this difficulty when he or she must decide a supervisor’s exemption status. When classifying this type of employee under the executive exemption, it is imperative to look at the primary duties. A working foreman who spends most of his time performing routine tasks may not be exempt according to the FLSA. If he spends most of his day working with his tools and not overseeing fellow employees’ work conditions, he needs to be paid overtime. In contrast, if most of his time is spent on managerial tasks, he gets paid at least $455 per week on a salaried basis and he regularly directs the work of at least two full-time employees, then he could be considered an exempt employee. Some of these managerial tasks include:

• Interviewing, hiring, training and firing
• Performing appraisal reviews
• Managing pay and hours of work
• Overseeing work flow
• Determining the type of equipment or tools used
• Controlling the distribution of supplies
• Providing for the safety of the employees

To avoid litigation, there are steps you must take to ensure that you are properly classifying a supervisor as an exempt employee. First, make sure that your supervisor spends the majority of his or her time performing tasks that are managerial in nature. Next, the supervisor must be paid on a salaried basis. For those supervisors who supervise only two employees, ensure that they are supervising full-timers. Therefore, their average combined weekly work hours must total at least forty per employee, or eighty total hours per week. Finally, make sure that supervisors know they have the power to hire and terminate employment.

Top Construction Industry Compliance Concerns

Knowing the key issues that cause concern in these overtime lawsuits is the first step toward compliance. While some wage and hour questions are easy to answer, it is the more pressing gray exemption areas in the construction industry that require addressing. Here are some issues worth investigating:

• Are employees compensated for time worked before and after shifts, during breaks or interrupted meal periods?
• Is your company even covered by the FLSA?
• Are employee hours shortened during down time or rain delays?
• Are your working foremen really exempt from overtime?
• Does your company have joint employer coverage with a leasing or other temporary service agency of casual labor?
• Are you employing teens in a hazardous occupation that is in violation of child labor laws?

How to Get in Compliance

1. Properly record and pay for all work time.

Like other companies, a construction business must keep accurate time records of nonexempt employees’ workdays and workweeks. Trouble areas for construction workers include work conducted before the clock begins or after it ends, work done during meal times, meetings, training and during certain types of travel.

Many companies will automatically deduct thirty to sixty minutes from an employee’s time for meals. This works as long as the employee actually spent that amount of time at lunch. But often the employee did not get a lunch break or did not get the full break. This opens the company up to a lawsuit if the employee can prove that he has worked during breaks and has not been compensated for them. To ensure that employees are being paid correctly, construction managers and business owners need to follow these guidelines:

• Identify employees’ activities that are and are not work time
• Analyze time records for accuracy
• Establish that all managers, supervisors and other employees understand, follow and enforce policies and procedures for recording hours worked
• Evaluate any practice of “rounding” starting or stopping times or time totals

2. Pinpoint all overtime worked and properly compute the overtime pay that is due.

The FLSA requires that nonexempt employees be paid overtime for all hours worked over forty in a workweek. With limited exceptions, including “prevailing wage rates” applicable to construction employers working on projects associated with federal government financing, the FLSA requires that a nonexempt employee’s overtime compensation be computed at a rate of at least 1.5 times his or her regular pay rate.

3. Properly classify exempt employees.

Whenever an employer seeks to claim an exemption from any minimum wage, overtime, timekeeping and/or child-labor requirement, he or she must ensure that each exemption is fully justified. Therefore, the conditions of each exemption must match the actual job duties of that employee before claiming the exempt status. For example, an employee who is paid a salary rather than an hourly rate is not exempt simply because of how he or she is paid. This is also true for an employee who is paid on a commission basis or under a day-rate or piece-rate plan. Specific criteria for tasks performed and the salary the employee receives must be applied to qualify for exemptions.  Essentially, it is the employer’s responsibility to show that each of these requirements is met.

4. Identify those who are not “employees” for wage-hour purposes.

Under the FLSA, an employee is “any individual employed by an employer.” Also according to the FLSA, an employment relationship must be differentiated from a completely contractual one. What this means is that construction owners or managers must identify workers who are or might be an employee or a joint employee for wage-hour purposes, including independent contractors, casual labor, volunteers and trainees. A worker is not labeled an employee because of a job title or a payment arrangement.

The central issue in determining if a worker is an employee is what the FLSA calls the “economic realities” of the situation. For independent contractors, the various factors in the employee-employer relationship are what need consideration.

Additionally, temporary employees and leased workers may be employed jointly by both the leasing company and the business using their services. This can lead to liability for both employers if they are not under compliance with the FLSA. The parties need to decide who is responsible for wage-hour compliance and liability.

To the surprise of many construction companies, determining who is and is not exempt requires much more effort than just figuring out who is salaried. The employer must also weigh issues of job duties, pay arrangements, responsibilities and the ability to make independent decisions. By misclassifying an employee as exempt from the wage-and-hour laws, or as an independent contractor (thereby denying benefits) or failing to pay for work conducted off-the-clock, construction companies risk costly lawsuits. The chances for a construction company becoming a target of a wage and hour lawsuit is ever increasing. These lawsuits are expensive to defend. Even if the company wins, it is not unusual for it to have to face the unpleasant realization that the lawsuit is not going to be about whether it must pay, but instead how much it will pay.

Compliance is not that difficult if you understand the rules. The first step is a wage-and-hour compliance assessment, which is fairly inexpensive when compared with the possible consequences of inaction. By conducting a wage-and-hour assessment, managers are taking the first step in preventing violations. This critical act of prevention can save your company from becoming part of a collective action lawsuit.

Construction Business Owner, September 2008