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Wage and hour laws: a perilous world for employers

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by Samuel Hernandez

Employers should always take care to properly compensate employees. For the unwary employer, failing to properly pay employees can have detrimental financial consequences. Here are some pitfalls to watch for when dealing with employee compensation.

Often, there is confusion among employers as to which employees can be paid a salary as opposed to hourly and overtime wages. Paying employees a salary regardless of time work can seem like a win-win situation: the employer would get an employee to work as many hours needed and the employee would have a job and a set monthly salary. Under federal and state laws, however, only exempt employees may be paid on a salary basis.

1. Exempt employees. Simply put, an exempt employee is paid salary and is not paid overtime; and, nonexempt employees are paid on an hourly basis and are entitled to overtime pay. Exempt employees are generally put into categories, including outside salespersons, managers or executives, administrative employees and professionals (e.g., attorneys and doctors); to be excluded, however, they must also meet both the duties and salary tests set forth in applicable laws (The test is different for all types of exempt employees.) Here, I only discuss executive and administrative exempt employee.

a. Under the duties test for an executive employee, the employee’s primary duties must consist of management of the enterprise; direct two or more employees; have the authority to hire or fire other employees (or his or her opinion be given particular weight) and regularly exercises discretionary authority.

b. Under the duties test for an administrative employee, the employee’s primary duties must primarily consist of office or non-manual work related to management policies or general business operations; customarily and regularly, exercise discretion and independent judgment; and customarily and directly assists the employer in a bona fide executive or administrative capacity. Note: clerical positions, like that of a secretary, are not exempt position because they do not exercise discretion or tend to deal with management policies or the general business operations.

c. Under Federal law, the exempt employee must be paid a minimum of $455 per week, which is not dependent on the quality or quantity of the work performed.
As an employer, you must take care to properly classify the employees. Improper classification of exempt and nonexempt employees can lead to liability of unpaid wages and overtime.

2. Liability for unpaid wages and overtime. If an employer is sued for unpaid wages and overtime and the employee wins, the employer may be liable for twice the amount owed to the employee (i.e., the amount owed and an amount equal to that owed as liquidated damages); a penalty amount equal to minimum wage up to eight hours x 30 days; and the employee’s attorney fees and court costs. For the unwary employer, that can be financially overwhelming.

3. Records required to be kept. Both federal and state law require that the employer maintain certain records for a period of no less than three years (e.g., employee’s name, date of birth, hours worked, time sheets, etc.) It’s the employer’s responsibility to ensure that the records are maintained accurately. In particular, the employer must ensure that time entries for each day, including, start time, lunch period, and end of day are correct and properly entered. By maintaining accurate records the employer can show that an employee was properly paid.

4. Meal and Break Periods. An Employee that works the majority part of four hours must get a paid 10 minute break. An employee that works six or more hours must receive a 30 minute period for meals. Ordinarily, the employee must be relieved from all work duties during the meal and rest periods. Rest periods may not be added to meal periods or to the beginning or end of the work day to shorten the employee’s work shift

5. Payment on Termination.
a. If an employee quits giving at least 48 hour notice, the employee’s final paycheck is due no later than the last day worked.

b. If an employee quits without at least 48 hour notice, all wages earned must be paid to the employee within five days after the employee quits or the next regular pay period day, whichever occurs first.

c. When the employer terminates an employee, all wages must be paid by the end of the next business day.
The law places the burden on the employer to pay the earned wages, not the employee to ask for them. Failure to pay the last paycheck leaves the employer open to the same penalties already discussed above (e.g., double the amount of wages, attorney fees, civil penalties).
One way to reduce liability exposure is by utilizing proper checks and balances. As the employer, you should implement records and payment mechanism to insure proper compensation to employees and compliance with federal and state laws:
a. Consider using payroll services;

b. Use time entry system for tracking beginning of work day, lunch periods and end of day;

c. Use employee duty descriptions to facilitate proper classification as exempt and nonexempt;

d. Implement employee training to ensure that time entries are properly entered;

e. Review time entries every week or every day to ensure that employees are tracking time worked; and

f. Have a dedicated Human Resources department or person charged with maintaining records and reviewing time entries and paid wages for compliance.
This article is intended to present selected wage and hour information; however, it is in no way intended to present all the law related to this topic and should not be taken or used as legal advice. Any legal questions should be directed to an Attorney.


About The Author Samuel Hernandez

Mr. Hernandez is a Portland based business attorney. Before starting his practice, Mr. Hernandez served as judicial clerk to Chief Justice Paul J. De Muniz on the Oregon Supreme Court.&nbsp; In that role, he reviewed, researched complex legal issues and drafted judicial opinions.&nbsp; Mr. Hernandez has also served as an associate attorney with the Oregon Military Department. He attended Portland State University and received this law degree from Lewis &amp; Clark Law School.