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Managing a Wage and Hours Violations Crisis

There are many possible crises that can affect your organization or the manner in which you conduct your business. This issue continues the series of articles based from Doug Staebler’s summer meeting educational lecture in which he presented a system for identifying and dealing with threats and crises.

For review, crisis management is the process of identifying events or series of events that could threaten the survival of your business, and taking steps to reduce the likelihood or severity of the event is an important function in every business, but one that is often put aside for more pressing matters.

However the benefits of crisis management exceed any obstacles that you might have. Planning for a crisis begins with identifying areas where your business is vulnerable, giving you the opportunity to address those weaknesses in the organization’s infrastructure. Developing the proper plan reduces the chance of an event occurring in your business, or it does occur, reduces the severity of the event.


Employers toady face a virtual minefield when it comes to employment laws and regulations. Disgruntled employees can quickly become plaintiffs in litigation against your business. Federal Wage & Hour, Internal Revenue Service, and state unemployment laws present numerous pitfalls for business owners. Employers are subject to penalties, fines, and litigation if employment practices do not conform with a wide range of laws and regulations.

Problems in this area can prove costly and frustrating, but are often preventable with sufficient planning and attention to details. Many problems originate because businesses are not aware of various employment laws. Unfortunately, ignorance is not an excuse when it comes to employment matters. Employers are expected to keep up-to-date with and correctly apply a wide range of employment laws. Making matters worse, most employment laws are written to protect and favor employees, and the burden of proof is usually on the employer.

Overtime pay requirements are frequently misunderstood and incorrectly applied by business.

Many businesses incorrectly believe they can avoid the requirement for overtime pay by paying employees based on a salary instead of hourly rates. Wage and hour laws provide specific guidelines that must be met in order for employees to be exempt from overtime pay requirements. Employees must fall into a professional or management role in order to be exempt. Examples of professionals include attorneys, architects, engineers, accountants and others with specific educational backgrounds. The management exception would be applied to employees with decision-making authority. Office employees are the most commonly misapplied employees. Although office and administrative employees are often paid on salary, they must meet either the professional or management guidelines in order to be exempt from overtime pay requirements.

Employee agreement to be paid on a salary, and to forgo overtime pay, does not eliminate the employer’s obligation to follow overtime pay requirements. Employees can bring actions to collect back overtime pay either individually or as group. In cases where employees were paid salaries, employers often have little evidence of the hours actually worked, which can make it difficult to counter employee overtime claims. In addition to back pay employees may be entitled to penalties of 50% of the amount of back pay.

Another area that is frequently handled incorrectly, particularly with contractors, is the treatment of travel time to and from jobs. It appears that practices among CFA members cover the entire range, from paying only for time at the job site, to paying for all travel to and from job sites. The fact is, that if your employees are instructed to report to work at your facility, and are transported to and from job sites, then all travel time needs to be paid, and is subject to overtime rates if total hours exceed 40. As with overtime, failure to handle travel time properly can result in large retroactive adjustments, including penalties.

Probably the most common problems occur in the misclassification of employees as independent contractors. Businesses frequently try to classify employees as independent contractors, in order to avoid payment of matching FICA, workers compensation insurance, unemployment taxes, as well as inclusion in the company’s fringe benefit plans. These additional items can add 15-30% to the cost of employees, and create a significant incentive to treat workers as independent contractors. IRS has established specific guidelines to determine in which circumstances workers can be properly treated as independent contractors. The guidelines are based on a number of factors, including common treatment of similar individuals within the industry and the 20-factor test long employed by IRS in this area. The most significant factors include the extent the workers are supervised, the element of profit or loss potential.

If IRS or other governmental authorities determine that employees were improperly treated as independent contractors, the employer can be held liable for the withholding taxes that should have been deducted, as well as penalties and interest. In recent years, the issue of inclusion in employer benefit plan has become equally significant. Workers have successfully sued employers claiming they should have been included in group medical plans, with employers being made responsible for the medical costs of the employees.

Additionally, employers face a multitude of potential litigation from disgruntled employees for issues such as discrimination, wrongful termination, harassment, and ADA claims. A well-written employee manual outlining pertinent policies and practices is one of the best ways to prevent these types of claims. Liability in cases of this type, usually fall outside coverage of business liability insurance. Two additional types of insurance are available to protect business owners. Employment practices insurance provides coverage in cases such as those described, while employment benefits coverage provides coverage in cases where employees are omitted from fringe benefit plans due to administrative oversight.

In today’s labor market, it is important that employees feel valued by their employer, and that they have good access to information, and prompt help in resolving the type of problems employees often encounter. Your employees’ awareness and familiarity with your fringe benefit plans is often far less than you may realize. These areas are typically difficult to understand, and can easily intimidate employees. Their morale can be significantly affected by the manner in which their concerns are handled. The person who handles the human resources and payroll functions in your business is a critical link between you and your employees. A competent, responsive HR manager who show genuine concern for your employees can be areal asset to your business. Whether it’s an error in their paycheck or the denial of coverage by your group medical provider, it is important that they receive prompt, courteous handling of payroll and benefit matters.

Unfortunately, when problems do arise, it is often too late to solve the problem and all that can be done is damage control.

As with many types of crises management, the chance of major and costly problems related to the employment practices in your business can be reduced significantly by the review of your business practices, and identifying areas where problems may exist. Additionally, it provides the opportunity to make improvements in the overall operation of payroll and human resource function in your business.

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Concrete FACTS, a publication of the Concrete Foundations Association, is THE voice for residential concrete industry news, market intelligence, business strategies, technical solutions, product information, and other resources for professionals in the cast-in-place concrete industry. Subscriptions to Concrete FACTS is available to anyone involved or interested in the residential concrete industry as a service to your industry. Please contact CFA Headquarters to find out more about your free subscription or Email Us