Decide for yourself: Did these companies step out of bounds on often-gray situations?
Check out the following four real-life scenarios, then decide whether each company was in compliance. We’ll tell you how a court or the feds ruled.
A company allows its employees 30 minutes for lunch each day. Instead of having people punch in and out for their lunch break, the employer decides to automatically deduct that break from their days’ time, no time clock required. If someone doesn’t take lunch on a given day, it is up to him or her to alert Payroll. The policy is clearly spelled out both in the company handbook and in other employee communications.
The company requested a Wage-Hour Opinion Letter from the Department of Labor. Was the company in compliance?
Answer: Yes. The automatic deduction plan did not violate the Fair Labor Standards Act (FLSA). The law requires employers to keep and maintain an accurate record of all hours their employees work. There’s no specification on how that’s to be done.
[Cite: Wage-Hour Opinion Letter FLSA2007-INA, 5/14/07.]
An employee returns from Family and Medical Leave Act leave and is placed on light duty. Under the new assignment, the employee is making $3.45 less per hour. The employee balks, claiming that under the FMLA, she must be returned to the same or comparable position with the same pay. The company disagreed, asserting that light duty isn’t governed by the FMLA but by workers’ comp instead.
The employee sued the company for the difference between her old and new salaries. Was the company on the hook?
Answer: No. The company did not owe the employee any additional pay. Light duty rate of pay is a workers’ comp issue, not an FMLA one. If and when the employee was able to assume her old duties, however, the employer would have to reinstate her to that job or one like it, with the paycheck to match.
[Cite: Hendricks v. Compass Group USA, Inc. CA7, No. 06-3637, 8/6/07.]
A company had a sick-pay buy-back program in place to keep employees from using sick days like extra vacation time. Employees must accrue a certain amount of leave before they can cash-in untaken sick days. And when they do, they only receive 75% of what they would have made for that day. That money was not included in employees’ regular rate of pay for overtime purposes.
A group of employees sued the company to have the sick-leave buy-back payments incorporated into their regular rate of pay for OT calculations. Did the company have to oblige?
Answer: Yes. In this instance the company was wrong — a court ruled it should have included those payments back into employees’ regular rates of pay. They were discretionary, year-end lump-sum payments that belonged in overtime calculations.
[Cite: Chris Acton et al v. City of Columbia, MO, CA 8, No. 04-3985, 2/8/06.]
This company required certain employees to supply and maintain their own tools, and they reimbursed them for that. To set the reimbursement amount, the company consulted a national average of industry tool expense averages and gave employees a questionnaire about their actual expenses. The reimbursement functioned like a per-diem: The company did not require employees to submit receipts; but if folks went over, it was on them to cover the costs. The tool allowance was not going to be treated as taxable to employees.
The company double-checked its position with IRS by requesting a revenue ruling. Would the company have to involve Payroll in the reimbursements?
Answer: Yes. The amounts in the tool allowance plans would have to be included in gross income. Payroll would have to withhold federal income taxes and report them as wages on employees’ W-2s. That’s because the plan failed to meet both the substantiation and return of excess requirements. [Cite: IRS Revenue Ruling 2005-52.]
Bottom line: In tight times like these, people’s paychecks take on more significance. There’s even less room for error.