OT Pay Requirements Exemption Need Careful Scrutiny, Coordination

OT Pay Requirements Exemption Need Careful Scrutiny, Coordination

One interesting violation caught my eye in a recent news release from the U.S. Dept. of Labor Wage and Hour Division: an appliance retailer named Conn’s out of Houston was penalized more than  $500,000. This was because after having carefully structured its pay as qualifying for a partial overtime  industry and individual exemption, DOL said it docked employee pay for uniforms and sloppy paperwork to such an extent that it lost the exemption.  (U.S. Department of Labor Investigation Results in Houston Retailer … )

What happened?  It looks to me like it may have been a case of failed arithmetic. After setting up its pay system apparently no one with influence kept an eye on the numbers.

The overtime exemption that was available but not used correctly was under 7(i) of the FLSA Fact Sheet #20: Employees Paid Commissions By Retail.   It may have been a case of the left hand not knowing what the right hand was doing. In a nutshell, it may have been because deductions were being made from pay for uniforms along with paperwork processing mistakes. This partial exemption from OT has minimum requirements like the employees’ OT pay having to be at least time and a half of the minimum wage and that their total earnings be from commissions in a representative period. The deductions then brought more than 1,900 employees below the threshold of the minimum requirements. Then, since it didn’t meet the requirements, OT pay should have been computed at one and one-half times the regular rate.

This may be a “courteous” example of the danger of over compartmentalized thinking or management. If the issue of the exemption requirements was once thoroughly explored and later, separately, the issue of deductions was explored, the answer to both questions is “Yes, you can do that.” But no one asked, “Can we do both these things at the same time?” The answer to that would have been more complicated.

That brings me to my fundamental rules of thumb when it comes to the Fair Labor Standards Act.  These “rules” are born from my experience of seeing the same mistakes made by so many so often.   There is, it seems, a tendency by many in ownership and management to want HR issues to be wrapped neatly in a box, placed in a corner and never have to be thought about again so they can concentrate on business.  Rule One, then, is: don’t do that.

The rules are simple, excruciatingly simple.  Applying them correctly and consistently is difficult.

Exceptions to any rule are by their nature always, more complicated than the rule.  Exceptions to rules will therefore require more time, attention, and yes, more risk — always.

— Ken Frazer  /  Ken@  

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