One of the most common violations of the law I have seen is in the area of wage and hour laws. Some people don’t know they’re breaking the law and others have told me that they know they are breaking the law but they are taking their chances on getting caught. One of the most common violations I see is paying a salary to employees to avoid paying overtime.
What are the rules for paying people salary (exempt) versus hourly (non-exempt)? Exempt employees meet one or more of the following three criteria:
- Professionals — This includes lawyers, doctors, CPAs, etc. This also includes people who set policy for your company such as a human resources manager, credit manager, and other similar positions.
- Outside sales — These sales people must spend over 75% of their time out of the office selling.
- Managers — To pay someone salary as a manager they must supervise at least two or more full time employees.
One company I acquired had every single employee on salary — including the receptionist. They were lucky they never got caught because they were looking at a mid-six-figure fine.
Here are some of the other common violations I have seen over the years:
- Having people work over 40 hours per week and then giving them “comp time” (extra vacation time or having them work fewer hours the next week) instead of overtime. That is blatantly illegal. If a non-exempt employee works over 40 hours per week they are entitled to overtime pay. No exceptions.
- Making people do work from home and not paying them. I have seen companies make their employees review product information or do other work from home and not pay them. That is begging for trouble.
- Making people run errands for the company and not only not paying them, but not paying them mileage for using their own vehicle. In our company, if we send a non-exempt person to the post office, we pay them for their time and we also reimburse them for their mileage at the IRS-approved rate.
- Asking employees to work beyond 40 hours but not record the time over 40 hours. I have seen managers ask their subordinates to not record their time over 40 hours “because we are over budget and can’t afford it.” Some employees do this to be a team player but it is illegal. Even if the employee volunteers to work more than 40 hours you still need to pay them for it. The government views this as coercion because the employee may only “volunteer” to do this because they are afraid they will get fired if they don’t.
The above is the result of my experience over the last 35 years but you shouldn’t rely on my advice alone. Talk to a good labor lawyer in your area before following any of the above advice.
Jim Sobeck is CEO of New South Construction Supply, a building products distributor based in Greenville with nine locations in the Carolinas and Georgia. He is the author of “The Real Business 101: Lessons From the Trenches.”