How to Avoid Payroll Lawsuits: Overtime & On-Call Scheduling
Two large employers recently lost two lawsuits relating to how they pay their employees. Victoria’s Secret was ordered to pay their salespeople $12 million for its controversial “on-call” practices. Zenefits also were required to pay $3.4 million to their salespeople for denying them overtime. Here’s how employers can avoid these costly mistakes.
Zenefits violated the Fair Labor Standards Act according to the Department of Labor by misclassifying 743 account executives and sales development reps as independent contractors, making them exempt from minimum wage and overtime. Instead, Zenefits incorrectly paid their employees a salary for all hours worked, regardless of overtime or training time.
You are at risk of suffering the same fate as Zenefits if you misclassify hourly, non-exempt employees as independent contractors. Here is a link to a handy guide for how people are considered employees vs. independent contractors. Bottom line: if it looks like a duck, acts like a duck and sounds like a duck—it’s a duck. If a person shows up to your office every day, doesn’t work for anyone else and works under your control and direction – they’re an employee and subject to FLSA minimum wage and overtime rules if paid hourly instead of a salary.
Used by retailers for many years to ensure full staffing, this increasingly outdated practice requires employees to call in 1-3 hours prior to their shift to see if they need to come in. Legal issues arise because retailer require their employees to be available but reserves the right to tell the employee that they are not needed for the shift and then not be paid. Thus, the employee is unavailable to work if they have another job and lose out on that pay.
California law now requires employers to pay half of the call-in shift if the employee isn’t needed and is referred to as reporting time pay. Since this law was enacted, many major retailers have terminated the practice.
More Changes Coming
We expect to see more overtime, minimum wage and other labor law changes at both the state and federal level. We monitor them so our clients don’t have to, and we ensure that are clients are prepared and compliant. Can you say the same of your payroll and HR services provider? If not…