The Eleventh Circuit Court of Appeals said that the managers, who were routinely expected to put in shifts totally 60-70 hour per week, were wrongly treated as executive employees exempt from OT.

According to the appeals court, the managers were non-exempt for three main reasons:

1. They spent 80-90% of their time performing non-exempt labor (running cash registers, stocking shelves, etc.)
2. Non-exempt tasks were considered an “essential” part of the managers’ jobs, as opposed to “incidental.”
3. Managers had relatively little freedom. Instead, district managers handled most managerial decisions, such as pricing, choosing inventory, etc.
4. The average manager’s “exempt” salary was barely more than the average assistant manager’s salary.

Cite: Morgan v. Family Dollar Stores, Inc.; 11th Circuit Ct. of Appeals, 12/18/08.

The facts

When they were on call, drivers had to:

• respond to calls within 8 minutes, including driving to the squad house and picking up an ambulance
• be reachable at all times, and
• refrain from using alcohol and other substances that might impair their judgment.

The number of calls the drivers had to respond to varied greatly. In the winter, it was common to respond every day; other times of the year, a week could pass without being called. Drivers couldn’t trade on-call shifts (there weren’t enough drivers to cover them all) and they couldn’t refuse to respond to a call.

Ruling

DOL ruled that on call time was compensable during the winter because drivers couldn’t freely engage in most personal activities. Due to the frequency of the calls and the speedy response required, any personal activities were severely restricted.

However, on-call periods at other times of the year were not deemed compensable. Because the calls were so infrequent, the drivers’ personal activities weren’t as restricted.

The company had wrongly classified the employees as exempt. Four of the employees worked in the company’s main headquarters, the others were placed in temporary assignments around the country.

The workers found to be misclassified worked in a variety of positions: technical writers, payroll analysts, accountants, sales reps and a variety of IT-related jobs.

Their crimes, according to a U.S. District Court include forced labor, harboring aliens and peonage. But the bulk of the fine comes from their failure to pay the appropriate minimum wages, overtime pay and other violations of the FLSA.

Domestic employees are treated somewhat differently than others when it comes to overtime rules, but these rules didn’t apply in the Sabhnanis’ case. The court ruled the two women “workers” didn’t qualify for the exemptions because of their treatment in the house: They were beaten, had no private quarters and generally slept on the floor.

Granted, no one would defend that kind of treatment of workers. But it’s worth pointing out that as bad as the treatment the Sabhnanis dished out to their workers was — what really cost them was the lack of attention to basic employment law.

GAO just released a report, and the news isn’t pretty. According to the report, between 1997 and 2007:

• Total number of enforcement actions is down.
• Most complaints from workers are handled as “conciliations” done over the phone.
• Wage-and-Hour-initiated actions are down 45% — and usually target the same handful of industries (hotels and food services, agriculture, manufacturing, health care and social services).
• Total back wages assessed is up 41%– but penalties are up only 6%.

GAO is recommending DOL make several changes to improve enforcement of the existing laws. Among them:

• Entering all complaints and actions into a Wage and Hour database.
• Getting input from employer and industry associations as well as employee advocacy organizations.
• Using existing tools such as tiplines and partnerships to track that proper penalties are assessed and collected. 

What’s your take on the report? Is it good that DOL is being encouraged to clean up? Or will this eventually mean more meddling into your company’s processes? Sound off in the comments. 

The fluctuating workweek method can’t be used to pay any employees who were misclassified as exempt from OT. That’s due to a ruling from a U.S. District Crt. in Texas.

The court ruled that the fluctuating workweek method was adopted for specific situations and doesn’t apply to workers who were wrongly treated as exempt from OT.

Under the FLSA, damages for nonexempt workers who were classified as exempt are assessed at twice the unpaid overtime compensation.

Cite: In re: Texas EZ Pawn FLSA Litigation,

DOL’s Wage and Hour Division has launched a redesigned Web site, which should be more user-friendly.

Now, links to frequently used resources will be highlighted in the center of the page, while updates on news stories will be moved to the sides.

Each set of links is grouped by topic, so you can easily browse sections such as, Family & Medical Leave, Wages (issues like overtime), Youth Employment, Resources, Immigration and much more.

You won’t just be getting more info — you’ll have to send out more, too. With each 1099, you’ll be required to give ICs contact info for the Dept. of Labor. So, it’s that much easier for them to report your company for any mistakes — real or imagined — that a contractor thinks you might’ve made. 

(Let’s face it, even if you do everything by the book, an IRS audit is probably the last thing you need.)

Has your company ever mistakenly classified an employee as an IC (maybe you suspect that it did but it was never caught by the feds)? Penalties for that and related mistakes would also increase under this legislation. Under the bill, (H.R. 6111) your company could pay up to $10,000 per violation. 

There are several related bills pending in both the House and Senate, so it’s too early to say exactly which version (or combinations thereof) might end up as law. 

But with Congress and IRS both looking at increased IC enforcement as a good way to close the so-called Tax Gap, you can be sure some version of these bills will pass. And most likely, it’ll be sooner than you expect.

The wrong call leaves you with two unappetizing choices: either throwing away a potentially important document, or hoarding tons of old paper in yet another dusty filing cabinet.

Fortunately, a recent IRS “tax tip” gives some pointers on the basics of what the feds want you to keep:

• Tax records and related documents such as receipts, should be kept for three years after the filing year.
• Certain other records related to business or rental property and stock transactions should be kept longer — sometimes for as long as you hold the account or property.
• Employment tax records should be held for four years after the tax becomes due, or is paid — whichever date is later.

Your vendor records aren’t required to be held by the feds — but you may well have state requirements, especially for records that pertain to sales and use tax payments or state employment taxes. Check with your state Dept. of Revenue and Dept. of Labor to make sure you’re following best practices.

For more info on what is and isn’t required, check out IRS’ Publication 583 (Starting a Business and Keeping Records) and Publication 463 (Travel, Entertainment, Gift and Car Expenses).

For example, in four months, a New York State task force initiated 17 investigations based on employee interviews. So far, $3 million in back taxes and penalties due to worker misclassification has been found.

And that’s just at the state level. Now that the errors have been exposed you can imagine what the federal tax hit will be.

And with that kind of “return on investment” there’s plenty of reason for auditors in all states to take a second look at this area of your tax compliance.