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Under paying employee
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We are a small business with one employee on our payroll. For the past 4 yrs, we have paid her a bimonthly salary based on her current rate of pay for an average of 27.5 hours per week. She has been w
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Under paying employee
posted at 1/13/2010 8:06 AM EST
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Posts: 4
First: 1/13/2010 Last: 1/27/2010 |
We are a small business with one employee on our payroll. For the past 4 yrs, we have paid her a bimonthly salary based on her current rate of pay for an average of 27.5 hours per week. She has been working well past the set number of hours but she understood at the time we put her on the payroll that was all we could afford to pay her at the time. With the current economic situation, sales are down and we are struggling to get by month to month so there is no way at this time to pay her anything more.
I have already arranged to ensure that she is no longer working more than the set number of hours per week, however, my concerns are that we could possibly be fined by the DOL and forced to pay her the difference of what she has been paid and for the hours she has actually worked should she decide to make an issue out of it. That would put us out of business for sure. We have not kept any time sheet records of her actual hours worked. The only documentation are the payroll records kept by our accountant showing her pay and deductions. I am in the process of creating a time sheet for her to record her actual hours worked, requiring her signature. I understand from the DOL website that we should have been maintaining some kind of record all this time, but we have overlooked that. I guess I am looking for clarification on what could happen if we don't correct this situation and any suggestions to protect ourselves from any potential legal problems. |
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Under paying employee
posted at 1/13/2010 8:23 AM EST
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Posts: 155
First: 8/24/2009 Last: 2/9/2010 |
Well as you are well aware you are not in compliance with the FLSA as it relates to wages and maintaining a record of hours worked.
Your options are somewhat limited. You can: 1. Do nothing and hope over the next 2-3 years she doesn't file a claim. 2. Voluntarily admit to the mistake, reconstruct her time, reach a mutually agreed upon amount of backwages due and pay the wages. In my experience that pretty much covers it. |
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Under paying employee
posted at 1/26/2010 9:49 AM EST
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Posts: 4
First: 1/13/2010 Last: 1/27/2010 |
Thanks for your response. That is pretty much what I thought.
So, trying to figure this mess out - we have come up with yet another question regarding paying her a set salary. I've read this article: http://www.payroll-taxes.com/articles/salariesGeneral.html This paragraph in particular: So when is paying a non-exempt employee a salary an effective strategy? The best situation in which to use this method is when an employee has a workweek with a fixed number of hours. Preferably this would be when the employee actually works less than 40 hours per week. If the employee is scheduled for 35 hours or 37.5 hours per week, then minor fluctuations in the workday that result from the employee arriving a little early, leaving a little late, or working part of his lunch break can be ignored (although the time must still be tracked). If I understand it correctly, which I hope you can help me with...we could pay her a fixed salary, like we are now....as long as she worked less than 40 hrs and her schedule is fixed. But we still must make sure that she is being paid at least minimum wage for the hours she is scheduled work, but would not necessarily have to pay her for additional time worked as long as it did not exceed the 40 hrs and if it did exceed 40 would then have to pay the overtime at time and a half. |
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Under paying employee
posted at 1/27/2010 5:09 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Actually you need to make sure that you are paying at least minimum for ALL hours worked under 40, not just the scheduled ones.
The easiest way to do so is to calculate her salary at least at $7.25 (federal min wage...state min wage might be higher) times 40 hours per week. That way EVERY week under 40 hours will definitely pass the minimum wage test. If you go less than that, you will need to check each week to see if she her hours times minimum wage go over her salary. And yes, you would still owe overtime if she worked more than 40 hours in a workweek. |
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Under paying employee
posted at 1/27/2010 5:47 AM EST
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Posts: 4
First: 1/13/2010 Last: 1/27/2010 |
So effectively, even if she agreed to a salary per week of $203, which is 28 hours at min wage, but she worked 39 hours, we would still need to pay her all the hours worked rather than the set amount agreed upon? |
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Under paying employee
posted at 1/27/2010 6:14 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Yes, you would need to pay the extra 11 hours at minimum wage. Which gets back to tracking hours every week over the 28 regular hours. If you do that, you might as well just have her turn in a timesheet each week and pay based on an hourly rate rather than trying to set up a salaried basis.
The DOL is going to look at wages for the workweek. They would take total wages and divide by the # of hours worked to get a "regular rate of pay (RRP)". That RRP MUST be more than minimum wage for each hour worked. In your example $203/39 means you are only in reality paying her a little less than $5.21 per hour worked which is $2+ less than minimum wage. Again, your safest bet is to make her salary right at 40 hours worth of minimum wage so that any week worked up to 40 is the same. I know in this economy that might be tough, but your only other choice is to track actual hours on a workweek basis. |
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Under paying employee
posted at 1/27/2010 6:16 AM EST
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Posts: 1771
First: 10/24/2002 Last: 9/14/2011 |
Yes. All non-exempt employees must be paid at least minimum wage for each and every single hour they work, and 1.5 times their normal houry rate of pay for each and every hour they work above 40 in any week. |
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