Doctor Z. Poor Doctor Z. Three months later he still has mass anxiety about another Wage and Hour investigation. Last time the end result was over $30,000 in back wages, back taxes and fines.
How? It only takes one unhappy current or ex employee to start an investigation, and the results are usually unfavorable. Dr. Z really believed he was doing the right thing. After all, if you do the right thing, your business should run well, right? Not if you consider what State and Federal laws require of even the smallest businesses. In Doctor Z’s case, a medical practice with around 20 employees.
Where did Doctor Z go wrong? In the words of Thomas Edison, “Vision without execution is hallucination.” Where is the hallucination in the small business world? Lack of understanding when it comes to employment laws. Federal laws, such as the Fair Labor Standards Act, and state specific wage and hours laws (meals, breaks, deductions, final paycheck) will trip those who lack understanding right into a complaint and possible fines.
Doctor Z had no one in a trained Administrative role to tell him that some employees were actually Non-Exempt and due overtime. Doctor Z had no working knowledge of what constitutes hours worked and when deductions from pay are permitted. He also didn’t know that you can’t hold a final paycheck for failure to return property. Result? The last employee he had good cause to terminate wanted to get even. But she was within her right to do so.
Doctor Z had been paying her an average “market rate” salary, but working her 50-60 hours per week, without overtime. Her position did not qualify her to be Exempt from overtime under the Fair Labor Standards Act. She was not a supervisor, not an Executive, nor did she have any type of high level authority with the company. When her performance deteriorated Doctor Z felt there was good reason to terminate her and move on. The employee was upset. But, there was something else Doctor Z did not know….
Even though Doctor Z was not requiring any employee to keep timesheets (he was just running all as salary, regular each pay period), this employee was tracking her time. With what? The DOL’s handy Timekeeping App on her Smartphone. She had the proof that she was due back wages. Doctor Z didn’t have any records of his own to defend himself. Doctor Z also had no defense for taking an unauthorized deduction from her pay when she was blamed for damaging a printer. He also had no defense for holding her last paycheck until she returned company keys.
Too many red flags for the Wage and Hour Department to overlook. They interviewed the former co-workers and found that there were others, beyond the person who complained, that were Non-Exempt and due back wages for overtime. Remember that $30,000? That represents 2-3 years in back pay, plus applicable payroll taxes, plus fines.
What steps can a business owner reasonably take to make sure this does not happen again? Surely they don’t need a full time, expensive, Human Resource Manager? There is no easy crash course for a business owner to learn all of this. What’s the best option for future peace of mind? Consider outsourcing to a PEO.
What is that? A one-stop full service employee administration service. Every time you run a payroll you are charged an fee that covers Human Resource Management basics. The good PEO’s provide clients with an HR service representative or team that is on call for questions, communicates employment law compliance information and offers employee management best practice suggestions. The great PEO’s add to that. They provide Employment Law Posters, assist their clients with Employee Handbook customization and have a multitude of employee management documents and templates that can be customized specific to client need.
Today Doctor Z has peace of mind. He decided to hire a Non-Exempt Administrative Assistant who is very open to building a great service relationship with the HR team of the PEO he chose to work with. They are providing his business with a full spectrum of service including payroll processing, tax administration, workers compensation insurance and Human Resource consulting designed to minimize employment management risk and cut employee termination costs.