Essentials of Wage and Hour Law for Dealerships

– KPA CONFIDENTIAL –

Essentials of Wage and Hour Law for Dealerships

Presenter

Jim HendricksPartner with Ford & [email protected]

KPA – Company Profile

• Nationwide compliance expert on Safety, Environmental, HR

• Colorado Headquarters

• 23 Years Experience

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– Dealerships, Service, Repair

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– And many more…

Essentials of Wage and Hour Law for Dealerships

4– KPA CONFIDENTIAL –

•Investigation vs. Lawsuit

•Employee Classification

•Wage Calculations

•Accurate Recordkeeping

Said One Plaintiff’s Wage & Hour Lawyer:

“I’m confident that I will be fully employed for the rest of my life, unless they just get rid of the wage/hour laws altogether.”

Why the litigation explosion?

• Employers misunderstanding the law

• Plaintiff’s lawyers - Plaintiff’s lawyers -Plaintiff’s lawyers - Plaintiff’s lawyers-

• Liquidated damages and attorney’s fees

• Almost every employee is a potential plaintiff

Recent Settlements or Awards

• Wal-Mart Stores $172 Million

• Smith Barney $98 Million

• USB Financial $87 Million

• Starbucks $18 Million

• Your Dealership $???

Investigation vs. Lawsuit

Federal Investigation

• Complaint

• Audit D.O.L. vs. Self

• Wages Due

• Statute of Limitations (2 years)

• No attorney fee

Employee Lawsuit

• Find an attorney

• Lawsuit

• Wages Due

• Statute of Limitations (3 years)

• Liquidated Damages

• Attorney fees


Main Types of Wage and Hour Class and Collective Actions

• Misclassification of nonexempt employees

• Improper salary deductions

• Requiring or permitting “off the clock” work

• Miscalculating regular rate for overtime purposes

• Failure to comply with more stringent state laws

• Poorly drafted pay plans

Impact of State Wage and Hour Laws

• State law claims may be brought as class actions as opposed to FLSA collective actions

• Class vs. collective actions:

– A class member must affirmatively “opt in” to an FLSA collective action in order to participate and be bound by the judgment

– Under traditional class actions, each class member is bound by the judgment and notified of award or settlement unless he or she affirmatively “opts out”

– Thus, class actions under state law may have very large classes

Federal Exemptions

MINIMUM WAGE/ OVERTIME/ RECORDS

• Executive

• Administrative

• Professional

• Outside Sales

• Highly Compensated

OVERTIME ONLY

• Salesman

• Partsman

• Mechanic

• Commission-paid

• Motor Carrier

Complete Exemptions

1. Executive

2. Administrative

3. Professional

4. Outside sales

5. Highly Compensated Employees

Minimum Wage, Overtime and Records

• Is in charge of a department or sub-department, and

• Supervises the work of two or more full time employees, and

• Receives a salary or guarantee of at least $455/wk

Executive Exemption

EXEMPT

only means that these employees generally meet all the criteria and are generally

exempt from overtime

NOT EXEMPT

only means that these employees generally do not meet the criteria for this exemption

and generally are not exempt

WARNING! Job titles are not controlling

CAUTION!

Executive Exemption

EXEMPT

Dealer

Dep’t Manager

NOT EXEMPT

Ass’t Manager

CSI Manager

Lot Manager

Inventory Manager

Finance Manager

• Primary duty is performing non-manual work related to management policies or general business operations, and

• Exercises discretion and independent judgment with little or no supervision, (holds a position of responsibility) and

• Receives a salary or guarantee of at least $455/wk

Administrative Exemption

Administrative Exemption

EXEMPT

Used Car Buyer

Human Resources Manager

Office Manager

NOT EXEMPT

Office employees

Warranty Admin.

Accounts Payable

Rental clerk

Booker

Dispatcher

Outside Sales

EXEMPT

Wholesale parts sales

NOT EXEMPT

• Performs office or non-manual work, and

• Is guaranteed total annual compensation of at least $100,000 per year, and

• Performs any one of the exempt duties of an executive, administrative or professional employees

Highly-Compensated Employees

Partial Exemptions(OVERTIME only)

• Salesman

• Partsman

• Mechanic

• Commission-paid

• Motor Carrier ???

Salesman

EXEMPT

Sales person

Sales associate

Internet sales person

Service Writer

NOT EXEMPT

After market sales

Greeter

Finance Manager

Motorcycle salesman

BDC worker

Primary duty: selling cars or trucks to the consumer

Service Writers

The Department of Labor will no longer deny the OT exemption for (service writers) FOH 24L04(k)

Partsman

EXEMPT

Parts counter

Shipping/receiving

Mechanics’ counter

Telephone sales

NOT EXEMPT

Parts driver

Parts inventory (computer)

Primary duty: stocking, issuing, requisitioning or selling parts

EXEMPT

Technician

Technician trainee

Apprentice

Body man

After-market installer

NOT EXEMPT

Quick lube mechanic

Detailer

New car get ready

PDI technician

Mechanic

Primary duty: performing mechanical or body repair work on a vehicle

Commission-Paid Exemption

• Employed at a “retail” dealership, and

• Receives the majority of his/her compensation from “commissions”, and

• Receives at least time and one-half minimum wage ($10.88) for all hours worked in an overtime week

Commission-Paid

EXEMPT

Finance Manager

Painter

Dispatcher

Service Foreman

“Flat rate” detailer

Other managers

NOT EXEMPT

Warranty clerk

Office employees

“Piece rate” detailer

Finance Managers

• 9th CIRCUIT OPINION – 2005

F & I Managers ARE Exempt!

Changes to Motor Carrier Act Exemption

• Before 2005, the FLSA’s motor carrier exemption applied to all employees who drove a motor vehicle in interstate commerce regardless of the size of the motor vehicle or the number of passengers transported in the vehicle.

• As of August 10, 2005, the motor carrier exemption only applies to drivers of vehicles that weigh in excess of 10,001 pounds.

Bottom LineEmployees who deliver non-hazardous materials in vehicles weighing less than 10,001 pounds (which includes cars and most light trucks) are no longer exempt because they do not drive commercial motor vehicles.

“Are they exempt from overtime?”

• What does the employee

spend the majority of his time

doing?

• How is employee’s pay plan

structured?

• Does employee fit exactly into

one of the nine exemptions?

Irrelevant Factors

• Employee is paid a salary

• We consider employee a “manager”

• Employee makes $45,000

• Employee could supervise someone

• When employee was hired, we agreed no overtime would be due

Common Classification Mistakes

• Not considering differences in state and federal salary and duties tests

• Treating trainees as exempt before they fully qualify as exempt

• Failing to guarantee the proper minimum salary

• Prorating the salary of a part-time exempt employee to less than $455/week

• Making improper deductions from salaries of exempt employees

Wage Calculation Issue:

Failing to pay all the overtime that

is due to an employee

If an employee is not exempt from overtime…

The employer must pay overtime premium on all compensation the employee receives

$ Hourly wages

$ Salary

$ Commissions

$ Bonuses

$ Spiffs

$ Payments from the manufacturer

Example

Warranty Administrator is paid salary of $600/wk. plus monthly bonus of about $700/mo

She works 50 hours a week

But she’s NOT EXEMPT!!!

DOL’s calculation

2 years overtime on salary:$6,240

2 years overtime on commission: $1,680

TOTAL DUE: $7,920

Private Lawsuit Calculation

3 years overtime on salary: $9,360

3 years overtime on commission: $2,520

Liquidated damages: $11,880

Attorneys fees:$25,000

TOTAL DUE: $48,760

Calculating Overtime

1) Divide amount of salary, bonus, commission, etc. received in a week by the hours worked in the week.

2) Then take ½ of that figure times the number of overtime hours

3) That gives you the additional overtime due


Using a poorly-drafted pay plan

Sales Pay Plans

1. Wage and hour aspects

2. Contract aspects

Wage and Hour Aspects

• You can pay commissions weekly, bi- weekly,

semi-monthly or monthly.

• You must satisfy minimum wage on the same

basis: weekly, bi-weekly, semi-monthly or

monthly

• You can “loan” or advance a sales person money

to cover the minimum wage and then recoup it in

subsequent weeks or months

• You must pay for all hours worked: sales

meetings, off day deliveries, prospecting, etc.

Sales Pay Plans

• Put the pay plan in writing and reissue it

whenever you make a change

• All sales people should punch a time clock

• If they punch in but not out, make an

estimate of the hours actually worked and

calculate pay on that basis

CONTRACT

ABC Motors hereby contracts

with XYZ Company to have XYZ

do some work for it and agrees

to pay XYZ about $50,000.

___________________

For ABC Motors

Contract Aspects

A pay plan, whether

written or oral, is a

legally binding contract

A court will normally

construe a contract

against the party who

drafted it (you!)

What is…

? “25% gross profit”

? “Commissionable gross”

? “Pack”

? “Market Adjustment”

? “Wholesale reserve”

? “Over/under trade allowance”

? “Inventory adjustment”

Sales Pay Plans

• Be sure that you define every important term so that a jury will

understand exactly what you mean.

• Use examples of how the commissions will be calculated (show

the math).

• Cover all the common problems:

Split deals

Commission payments after the employee leaves

Right to see how commissions are calculated


Drafting Managers’ Pay Plans

• Do not use “short hand” terms or dealership industry jargon

• “Salary” or “draw” or “advance” or “guaranteed draw” ???

• Refer to lines on the financial statement

• Explain in detail how compensation will be calculated for first and last month of employment

• Provide for inventory and accounting adjustments.

• Watch out for “guarantees”


Promising an employee a “guarantee”

What is a “guarantee” ?

A. A guarantee of a certain amount of pay?

B. A guarantee of employment for the entire period of the guarantee?


Treating employees as “independent

contractors”

Who is an “independent contractor”?

• No clear line

• Depends on the forum you are in

• Factors to consider:

– The extent to which services rendered by an individual are an integral part of the principal’s business

– The permanency of the relationship between the individual and the principal

– The amount of investment in facilities and equipment by the individual

– The opportunities for profit or loss by the individual and the method of compensation

Who is an “independent contractor”?

• Factors to Consider:

– The degree of independent business organization and operation by the individual

– The degree and nature of control of the individual by the principal

– The degree of independent judgment exercised by the individual who performs the services

– Performance of the same or similar services by the individual for third parties in addition to the principal

– Employment of the individual by the principal in any other capacity

– A comparison of the relationship to other independent contractor operations of a similar nature in the industry

– The right of either party to terminate the relationship on short notice without penalty

• Wage and Hour: failure to pay wages due

• IRS: penalties for failure to withhold taxes

• Unemployment: failure to make proper contributions

• Negligent hiring / retention

• Unemployment compensation

• Workers compensation

• Negligence toward third party

Your Potential Liability

Time Records

• The employer shall maintain an accurate record of the hours worked by each non-exempt employee each day and each week

• The employer can delegate this duty to employees, but it remains responsible for compliance

• No required format: Punched time cards, handwritten time sheets, computer log, etc., so long as they are accurate

• There is no fine for failing to require employees to keep accurate records

• However, without good time records, you are at your employees’ mercy

• Most accurate: Punched time card

Federal versus State Law

• Federal law does not preempt state employment laws

• Employees are entitled to the provision most favorable to them

State Wage Law Concerns

1. Higher minimum wages

2. Different or non-existent exemptions

3. Wage payment laws

4. Wage deduction laws

5. “Living wage” laws

Some Exemption Examples

• IL and NV do not recognize “partsman”

• MA does not recognize “s,p,m”, but has an exemption for “garageman”

• NY recognizes “s,p,m” only if they receive 1½ times the NY minimum wage

• NV and CA require OT after 8 hours in a day

Payroll Practices: Red Flags

Watch out for “red flags” regarding payroll practices:

– Improper deductions from salaried employees

– Improper calculation of “regular rate”

– Job descriptions for exempt employees that do not reflect exempt duties

– Nonexempt employees working through meal breaks

– Nonexempt employees performing work before or after they punch or log in/out

– Employees who routinely stay late but have no overtime

– Not complying with employer’s own written policies

James F. Hendricks Jr.

Partner, Chicago Office

312-960-6118

[email protected]

Contact Information


www.kpaonline.com

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866-356-1735

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Essentials of Wage and Hour Law for Dealerships