Avoid Common Department of Labor Issues

April 5, 2010
Complying with Department of Labor regulations is an important part of running your business—for you and your employees.

You never want to learn a lesson the hard way when it comes to the Department of Labor. One unintentional mistake could cost you tens of thousands of dollars—if not more. With labor and employment laws a huge presence in today’s business world and with more employees and lawyers willing to sue over even slight infractions, shop owners and managers can’t afford to slip. The problem is, federal labor laws can be tricky to figure out, and yet they’re part of a shop’s daily obligation when it comes to properly compensating employees. To help bring some clarity to the matter, we’ve tapped a few experts to explain the top mistakes shop owners make when trying to stay compliant. Better still, we’ve asked them to share insights on how to avoid breaking the rules in the first place.


Punching the clock. One of the biggest errors that shop owners and operators make is failing to keep track of employee hours. “The most common thing I see is not having the technicians clock in and out to validate the amount of time they spend at the facility,” says Tony Passwater, president of AEII, a consultancy in Indianapolis, Ind. “Most shop owners think that because they’re on a flat rate or commission they don’t need to do that.” The oversight could be costly. “If you don’t actually track the time, anything the tech says will be held true since you have nothing to document it,” Passwater says. An example would be an employee alleging that you haven’t properly compensated them for a specific amount of overtime. If you don’t have proof of how many hours they actually worked, an expensive legal battle could ensue should the employee file a complaint with your state agency.

Ensuring hourly employees clock in and out is a smart way to circumvent a potential lawsuit. Perhaps more important on a daily basis, that move shows that you’re a responsible owner or manager who cares enough about your employees to make sure they’re compensated for putting in long hours. “If someone works 80 hours and they’re not clocking in and out, no one knows,” Passwater says. “Depending on the state, you have to be able to ensure that the compensation on flat rate/commission systems is as much as the actual clock hours and overtime. You need to make sure you’re not underpaying techs based on clock hours.”

Working overtime. Another error shop owners and managers often make is assuming salaried employees are not eligible for overtime pay. “A common mistake I see is that employers equate a salary with being exempt from overtime, but that’s not necessarily true,” says Cory King, a labor and employment attorney with Fine, Boggs & Perkins, LLP, in San Diego, Calif. He says there are generally two tests to determine whether an employee is exempt from overtime using the “white collar” exemptions. One is a salary basis test: The employee must make a minimum salary of $450 per week. The other is a duties test. This test varies depending on which exemption status—professional, executive or administrative—the employer is attempting to qualify the employee under, but all elements of a single exemption must be met for the exemption to apply.

For information on the Fair Labor Standards Act exemption for these positions, visit the Department of Labor Web site at dol.gov and click the “Frequently Asked Questions” tab and then choose the “Overtime” link.

To label an employee as salaried, they should be supervising someone, Passwater explains. Estimators, parts managers and production managers are often considered salaried employees even though they don’t supervise others, but job title alone should not be used to determine whether someone is exempt or not. For example, an estimator who is salaried but does not manage other people should be compensated for overtime.

“If they’re not managing anyone, and they work more than 40 hours a week, they’re eligible for overtime,” Passwater says.


Failing to stay in compliance can result in some big headaches. “Under federal law, there is a two-year statute of limitations on wage claims. If you’re out of compliance, you’re liable for all the wages for the past two years,” King says, explaining how back wages can add up. “If Johnny is not properly paid for an hour a day, and if 20 other people aren’t getting paid just like Johnny, multiply that by five days a week times 52 weeks a year—and that goes two years out. Before you know it, you’re looking at a class action lawsuit for millions of dollars, plus penalties, and you’re just a little mom-and-pop shop. It adds up so quickly.”

Rick Alaniz, an attorney for Alaniz and Schraeder, LLP, in Houston, Texas, agrees. “If they’re not in compliance, they’re prime targets for the lawyers out there who want to get rich,” he says. “Labor law and employment issues are the most prolific in the federal court system.” In fact, they make up 26 percent of all cases. “Of that 26 percent, a substantial number deal with collective or class actions under the Fair Labor Standards Act,” he says. “That is a liability any employer runs. All it takes is [one disgruntled employee] complaining to someone who knows a lawyer.”


So, how can you ensure you’re compliant with the Department of Labor? It’s not as hard as you may think. “The first step is to identify the number of hours [employees] are actually there versus the hours they’re actually able to produce,” Passwater says. If it’s slow at the shop, send your employees home. “In today’s world, if you let them stay at the facility and clock in and play cards, it’s as if they’re working. There are two things a shop owner has to consider: clock out or go home.”

Making sure everyone in the shop is on the same page is also important. “It is critical for all employees to have a complete understanding of the policies and procedures for which they need to abide by while working for a specific employer. It is important for these policies and procedures to be summarized via an employee handbook or manual that is provided to the employee at the time of hire and then annually thereafter,” says David Streeter, regional director for ERS, a safety and consulting firm headquartered in Deville, La. He stresses the importance of establishing shop procedures to ensure that shop owners and managers as well as employees are in full compliance with state and federal labor laws. Unfortunately, shop owners and operators often miss this critical step. “That’s why policy manuals are so critical,” Streeter says. “Even though shop owners may find it difficult to allocate the time and resources to produce such items, they are necessary to ensure that the shop is compliant. If shop owners cannot find the time to complete such items, there are third-party options that include HR consultants that could create the necessary items.”

Additionally, Alaniz offers these suggestions for ensuring compliance:

• Regularly revisit job descriptions.
• Don’t assume that just because someone is salaried that they’re exempt.
• Make sure to keep accurate records of daily work.
• Don’t permit employees to work off the clock.
• Don’t use compensatory time in place of overtime (by law, this is not permitted for hourly employees working in private industry).
• If there’s any doubt, treat the employee as exempt.


Staying in compliance is a smart business move. You minimize your chance for budget-breaking, energy-zapping legal action, and you protect your shop’s image. Streeter says it best: “Always be proactive. It will cost you up-front, but you have to look at reducing your company’s long-term exposure,” he says. “This is a small industry, and everyone knows each other. If you get tagged as a poor employer and one that does not care about being compliant with state and federal labor laws, it could negatively impact your ability to hire and retain a good, qualified workforce. You always want to have your best foot forward.”

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