Compensation Mistakes That Can Get You Acquainted With the Department of Labor (DOL)

Paying employees is not as simple as it appears. Complex federal and state laws and regulations govern compensation practices. Making a mistake can cost you a lot - in money, time, and bad publicity. And, it doesn't matter if you thought you were doing it correctly. The DOL expects you to know the rules.

Classifying Employees

Mistake #1 - "We'll just pay her a salary, that way there's no overtime."

The Fair Labor Standards Act (FLSA) requires all employees be classed as exempt (those who don't receive overtime) or non-exempt (those who do receive overtime pay). We've found that many organizations have some employees misclassified as exempt who are really nonexempt and must be paid overtime if they work over 40 hours in a week.

Simply paying someone on a salary basis versus an hourly wage doesn't make them exempt from overtime. There are very specific tests that must be met before an employee may be classified as exempt. These FLSA exemption tests include specific job duties and requirements.

If you need help classifying employees correctly, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

Determining Hours Worked

Mistake #2 - "That's not really work time, so I don't have to pay him."

Starting early, working late, working through lunch, or doing work at home are all "hours worked" and must be paid to non-exempt (hourly) employees. These employees can't "volunteer" to work a little extra or to work "off the clock."

You cannot have an agreement with the employee that states only eight hours a day or only forty hours a week will be counted as working time. An employee cannot legally waive his rights to overtime and agree to work extra hours without overtime pay.

If the employee works more and you know about it (or should have known about it), you have to pay him overtime. This includes employees who work overtime without first obtaining required supervisory permission. (That situation should be dealt with as a policy violation, but you've still got to pay them overtime!)

If you need help correctly determining when overtime pay is required, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

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Paying for Meetings and Training

Mistake #3 - "We don't have to pay employees for meetings or training outside their normal work hours."

Generally, meetings and training must be counted as hours worked for your hourly (non-exempt) employees. However, you do not have to pay the employee if attendance is outside regular working hours and:

Attendance is really voluntary,
The course or meeting is not directly related to the employee's job, and
The employee does not perform any productive work while attending.

The time is not voluntary if an employee thinks that failure to attend could impact his job or working conditions.

If you need help correctly determining when you are required to pay for training time, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

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Paying for Travel Time

Mistake #4 - "We don't have to pay employees for travel time - only for time when they are actually on the job."

Once again that bug-a-boo, the Fair Labor Standards Act (FLSA) proves nothing is simple! Paying an employee for travel time involves the concept of "hours worked." And remember, "hours worked" applies only to your hourly (non-exempt) employees. You could send your exempt employees (those you don't have to pay overtime) to Mars, and there would be no additional pay implications beyond making sure they receive their regular salaries.

So here are a few guidelines to follow:

Ordinary Home-to-Work Travel - Normal travel time from home to work is not work time, whether an employee works at a fixed site or at different job sites.
Special Home-to-Work Assignments - When an employee who regularly works at a fixed location is required to work at a different location or to attend a training session that requires additional travel time, the travel time is considered work time. However, you may deduct the normal home-to-work travel time from this. (After all, they would have had to go to work anyway.)
Daily Work Travel - Time spent traveling from one job site to another job site during the employee's work day is considered "hours worked" and must be paid.
Overnight Travel - Travel away from home is work time when it is during the employee's normally scheduled work day. Travel on non-working days is also considered "hours worked" if it occurs during normal working hours. For example, if an employee normally works from 8:00 a.m. to 5:00 p.m. on Monday through Friday, any travel time during those same hours on a Saturday and/or Sunday is also considered work time.
Same Day Travel - Employees that travel on the same day that they work at a special work site or attend a training session must be paid for all time spent traveling. But, if that individual traveled on one day and worked or attended a seminar on the following day, they would be paid only for the travel time that cut across their normal working hours.
Working While Traveling - Travel during non-work hours is not considered "hours worked" unless the employee is actually performing work while traveling. Time spent in travel away from home outside of normal working hours as a passenger on an airplane, train, bus, or car is not work time. However, an employee who drives a car, does work while on a plane or sitting in the airport, or is required to assist the driver is considered to be working and must be paid.

If you need help correctly determining when to pay for travel time, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

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Comp Time and the Hourly Employee

Mistake #5 - "Take a couple extra days off next month (with pay) for all the long hours you worked this week - rather than being paid overtime now."

This is a common mistake private sector employers make to be accommodating to non-exempt employees. For example, an employee who is paid hourly (non-exempt) asks to forego overtime pay now because she'd rather have the additional time off around the holidays. Her employer has no problem with this arrangement, because at that time of year business is really slow.

Commonly referred to as "comp time", this is only allowed under the Fair Labor Standards Act (FLSA) if the extra time off is taken in the same week in which it is earned.

Time off (comp time) cannot be given in lieu of overtime outside the week it's earned.

(Note, the public sector works under some different rules.)

If you need help correctly determining when comp time rules apply to you, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

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Timely Payment for Employees

Mistake #6 - Not paying current and terminated employees in a timely manner.

State law strictly governs when current and terminated employees must be paid, and most states have fairly hefty penalties if you don't follow these laws. Here are some guidelines for Delaware and surrounding states to keep you out of trouble.

State	Pay Frequency	Lag Time Before Pay	Involuntary Termination	Voluntary Resignation
Delaware	At least monthly.	7 days after end of pay period.	By next regular payday by usual means or by mail if requested.	By next regular payday by usual means or by mail if requested.
Maryland	Biweekly or semimonthly (less often permitted for FLSA-exempt employees).	No provision.	By next regular payday.	By next regular payday.
New Jersey	Semimonthly. Monthly for exempt employees.	10 business days after end of pay period.	By next regular payday (may be by mail to last known address). If termination due to labor dispute involving employees who prepare payroll, employer has 10 extra days to pay.	By next regular payday (may be by mail to last known address).
Pennsylvania	Regular paydays designated in advance.	15 days after end of pay period.	By next regular payday, or by certified mail if requested. Different rules for seasonal farm workers.	By next regular payday, or by certified mail if requested. If employee quits without 48 hours' notice, pay within 48 hours after quitting or next regular payday, whichever is first.
Virginia	Monthly for salaried employees, and hourly employees earning more than 150% of the state's average weekly wage. Biweekly or semimonthly for other hourly employees.	No provision.	By next regular payday.	By next regular payday.

If you need help correctly interpreting these payday rules, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

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Paying 401(k) Contributions Timely

Mistake #7 - "We don't have to deposit our employees' 401(k) contributions until 15 days after payday."

The Dept. of Labor (DOL) has been auditing 401(k) plans and has been paying close attention to the timing of company deposits of 401(k) contributions.

Currently the DOL regulation states that amounts withheld from participants' paychecks must be separated from company assets (i.e., deposited into the plan's trust) as soon as they can reasonably be segregated from company assets but in no case later than the 15th business day of the following month. HOWEVER with most companies using some type of computerized payroll system today, these amounts are known to the employer as soon as payroll is paid.

In the DOL's view, as reflected in many recent audits, amounts should be deposited into the plan no more than 7 days after the payroll date.

The DOL recently issued a new regulation which establishes a safe harbor for small plans (less than 100 participants). Under the safe harbor, plans are deemed to satisfy the deposit timing rule if amounts are deposited within 7 business days of the payroll date.

We strongly encourage you to meet this requirement. It has become very difficult (if not impossible) to convince the DOL that longer periods are reasonable.

If you have any questions, please call our Director of HR Consulting Services, Linda Pappajohn, at 302-737-6200.

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