Ring in the New Year with an Internal Wage and Hour Audit

Headshot - Peg O'Brien
Margaret "Peg" O'Brien
Director, Litigation Department and Chair of the Employment Law Group
Published: New Hampshire Business Review
December 15, 2022

The start of a new year is the perfect time for New Hampshire employers to review their pay practices for compliance with state and federal wage and hour laws and regulations.  The COVID-19 pandemic changed how many businesses utilize employees by embracing remote work and flex-time policies.  Some employers even find themselves for the first time with a workforce outside of New Hampshire.  With so many changes, an internal audit may help employers avoid liability before a complaint is filed by an employee or an investigation is commenced by a state or federal department of labor.  Below are some common wage and hour mistakes made by New Hampshire employers.

We pay all employees on a salary basis, and therefore do not need to pay them overtime.

 Many employers hold this incorrect understanding of the law.  The federal Fair Labor Standards Act (“FLSA”) requires that all employees be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked in excess of forty hours in a workweek, unless the employee is “exempt” from overtime.  To qualify for an exemption from overtime, usually the employee must perform executive, administrative, professional, computer or outside sales duties.  The US Department of Labor has useful fact sheets describing these exemptions on its website.  While it is correct that most exempt employees must be paid on a salary basis, the mere fact that a non-exempt employee is paid on a salary basis does not eliminate the company’s overtime pay obligations under the FLSA.

We do not need to be concerned about our 1099-MISC classifications because our worker(s) want to be classified as independent contractors, and we have a written agreement with them.

 This too is an incorrect presumption made by many employers.  While it is helpful to have a written agreement in place with a contractor, that is not the end of the analysis, or even the key part of the analysis.  A company cannot avoid the costs of overtime pay, taxes and the Affordable Care Act by classifying a worker as a contractor rather than as an employee.  Some key factors to consider in assessing this classification issue are: whether the work performed by the contractor is part of the company’s regular business; whether the contractor is a former employee performing the same job duties the contractor performed as an employee; whether the business has employees who perform the same type of work as the contractor; whether the contractor performs work exclusively for the company and does not work in an established trade or business, and relies upon the company’s tools and equipment; and whether the company controls the work of the contractor.  Affirmative answers to these considerations indicate a more careful analysis is required.

We do not put vacation terms in writing because we like to have flexibility with the terms.

 Employers in New Hampshire are not required to have a vacation policy.  However, if a company provides employees with a vacation benefit, the New Hampshire Department of Labor’s regulations require that all employers place the terms and conditions of their fringe benefits in writing and, further, that the employee acknowledge receipt of the fringe benefit policy in writing.  Employers should retain a copy of this acknowledgement in the employee’s personnel file and provide a copy to the employee.  When drafting vacation policies, it is important to identify which employees are eligible to earn vacation, when it accrues (lump sum or gradually over the course of the benefit year), whether accrued but unused vacation may be carried over into subsequent calendar years, and whether it is paid out upon termination of employment (note: many states require payment of accrued unused vacation at termination, but New Hampshire does not, so long as the company’s written policy is clear).

We do not include shift differentials paid to our employees in our overtime pay because our employees have a very generous base pay and they have agreed to the pay plan.

 Many employers make this mistake.  The overtime pay rate is not based on an employee’s straight time hourly rate.  Instead, it is based on the “regular rate” of pay.  This means that the overtime pay rate must be calculated by dividing “all remuneration” for employment earned by the employee in a 7-day workweek by the total number of hours worked.  Thus, if an employee earns extra pay for working the second shift, then that compensation must be included in the overtime pay calculation.  For example, if an employee with an hourly rate of $20/hour also earns $5 per hour shift differential for working the second shift, the overtime pay rate is ($20 + $5) * 1.5 = $37.5 per hour (and not, $20 * 1.5 or $30 per hour).