Paying employees incorrectly can be costly

Wage-and-hour-related labor issues are becoming more and more of a problem for dentists, causing emotional and financial consequences. The federal Fair Labor Standards Act (FLSA) imposes most wage and hour regulations, but individual states may impose stricter rules that supersede federal requirements. If an employer does not understand what regulations to follow and fails to pay employees properly, the results can be devastating.

In fiscal year 2005, the Wage and Hour Division of the U.S. Department of Labor (DOL) collected $166 million in back wages for more than 241,000 employees. Of that total, nearly $119.4 million was for overtime violations, and $14.8 million was for minimum-wage violations.

Wage and hour claims are not just limited to the paying back of wages. The financial impact not only includes payment of what is owed to employees, but also the penalties imposed for each violation. In fiscal year 2005, the DOL assessed employers $4.3 million in civil penalties, an increase of 22 percent over fiscal year 2004.

When dentists hear these statistics, the most common question is, “What are the rules, and how can I avoid this happening to me?” In this article we will address some of the most common wage and hour issues that trip up many well-intended employers. What you learn may help you prevent potential problems and avoid future liability.

Employee classification and overtime: Establishing proper pay practices begins with correctly classifying employees. Employees can be “exempt” or “nonexempt” under the FLSA. An “exempt” employee is not subject to minimum wage and overtime requirements, but a “nonexempt” employee is.

Many dentists fall prey to the myth that “if I pay someone a salary, then I don’t have to pay them overtime.” This couldn’t be more false. The method of compensation has no bearing on minimum wage and overtime requirements.

The criteria for classifying an employee “exempt” as established by the FLSA includes such items as salary amount, managerial control, and ability to exercise independent judgment. Based on these definitions, 95 percent or more of dental employees are “nonexempt” and must be paid overtime.

Independent contractor: Another employee classification issue that can lead dentists into trouble is mistakenly labeling an employee as an independent contractor. For a worker to qualify as an independent contractor, the dentist must ensure that the person’s role with the practice meets criteria established by the Internal Revenue Service.

The IRS criteria encompass an 11-factor test. Without getting into the details of each factor, as a general rule, a worker is an independent contractor if the person for whom the services are performed has the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Thus, very few dental employees, including hygienists and associate doctors, qualify for independent contractor status and should be treated as employees.

Continuing education: A common wage and hour problem area is compensation requirements for continuing-education events. Far too many dentists believe that paying for CE is an option and has no impact on overtime. Reality is very different. Mishandling CE compensation can be a costly mistake, especially in light of updated FLSA rules.

The FLSA mandates that time spent at a training/seminar/meeting for continuing education be compensated when any of the following are true: attendance is mandatory; attendance is during the employee’s work hours; productive work is performed; and the CE event is directly related to the employee’s current job.

In addition, travel to and from the CE event must be compensated under certain conditions. The general requirements are as follows:

• For a one-day seminar, workshop, or training session, if an employee has a fixed official worksite and must drive to a CE event that is more than 30 miles away, then he or she is paid for all drive time.

• For an overnight seminar, workshop, or training session, compensation for travel time will depend on whether the employee must drive or is a passenger on a bus, train, airplane, or automobile. All drive time is compensable. Travel time as a passenger is compensable only when it cuts across the employee’s regular work hours, which applies seven days a week.

All travel time and all time spent attending a course count toward the employee’s overall work hours for a particular week, because this time is considered “work.” As a result, the employee may end the workweek with overtime hours, which must be paid. In addition, there are state-specific requirements that impose stricter guidelines. For example, California requires payment of all travel time.

Employers can pay a “different capacity work rate,” and there are “conditions of employment” exceptions. Contact our office for a CE compensation guide, along with continuing education Forms No. 406 and No. 407.

Payroll deductions: While most paycheck deductions required by federal or state law are handled correctly, a lot of employers take unlawful deductions out of employee paychecks.

Each state imposes restrictions as to what is and is not permissible to deduct from an employee’s regular and final paycheck. For example, it is not legal to deduct from an employee’s final check the cost of unreturned company property, such as tools or uniforms. In addition, even permissible deductions are not allowed if the resulting compensation is below minimum wage.

Comp time: “Compensatory time” is time an employee is allowed to take off with pay in lieu of monetary compensation for overtime worked. In the private sector, this is not permissible, even if it is the employee who desires such an arrangement. Some states, such as California, have daily overtime requirements where “makeup time” is allowed. That time must be taken on another day during the same week and may not exceed 11 hours per day.

Meal periods and rest breaks: There are no federal regulations mandating that employers provide meal periods or rest breaks; therefore, the requirements are established at the discretion of individual states. In states where meal period and/or rest break requirements exist, all employers must adhere to the law. Meal periods can be unpaid time if the length of the break is 30 minutes or more and the employee is fully relieved of his or her duties. Rest breaks, which are typically 10 to 15 minutes in length, must be paid.

Employees cannot waive their rights under the law. Dentists who do not comply with the law because “the staff has voluntarily agreed to skip lunch” or “the staff wants to get off early in lieu of lunch” may find themselves in trouble if someone files a claim with the Department of Labor.

Final paycheck: A final area that commonly trips up dentists deals with paying final wages upon ending employment. While there is no federal requirement regarding the final paycheck, states typically impose requirements. These requirements often differentiate between employees quitting vs. employees being terminated. The most common requirement in the case of an employee quitting is that his or her final paycheck is provided on the next regular payday or within 72 hours. When an employee is terminated, the most common requirement is to pay the final check immediately or within 72 hours.

Bent Ericksen is the founder and Tim Twigg is the president of Bent Ericksen and Associates. For more than 25 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with the ever-changing and complex labor laws. Both authors are members of the Academy of Dental Management Consultants. To receive a complimentary copy of the company’s quarterly newsletter or to learn more about their services, contact them at (800) 679-2760 or at www.bentericksen.com.