Lately, it seems that the retail industry is receiving a great deal of attention from government agencies when they investigate potential violations of employment laws. Retailers are often cited as examples of “landmark cases” in articles that address worker classification, wage issues, or other regulations. Is this the result of intentional violations, or a reflection of the complexities that arise in an industry heavily dependent on contingent workers? We believe that it is the latter. The retail industry is complex; characterized by a highly volatile workforce, high use of contingent workers, seasonal adjustments to hours, and flexible relationships between facilities in the retail company’s network.
Let us look at the origins of these issues and also consider some strategies which could help an employer avoid the resultant legal wrangles.
Retailers swear by franchisee networks for quick growth and expansion across locations. So, all locations for a retailer are not ‘brand owned’. Some are run by franchisees. The government’s Wage and Hour Division (WHD) is making it a point to compare the operations in the franchised location with those in company-owned stores. When discrepancies and/or violations are found, WHD views both the retailer and the franchisee as “joint employers”, and both parties are deemed to be responsible. The liability may be reduced or avoided by the retailer if agreements with franchisees include detailed requirements for wage and hour compliance; and also by maintaining a clear demarcation between the operations of the retailer and their franchisees, business operations and the employees.
Exempt and Non-Exempt Categories: President Obama has directed the Wage and Hour Division to update and simplify the ‘white collar’ exemptions to Fair Labor Standards Act (FLSA) with regard to overtime pay and minimum wage requirements. As described in our earlier blog, Compliance with FLSA on Non-exempt Overtimeexempt or non-exempt status is determined by examining the salary paid and the duties of the position. Currently, salaries of $455 a week or more are considered exempt. The primary duty requirement for exempt status requires the manager to spend the majority of the daily work hours on duties like recruiting and training candidates, scheduling their assignments, monitoring and disciplining them and evaluating their performance.
To protect against lawsuits claiming incorrect classification, retailers should keep exempt tasks and responsibilities in mind when deciding the designations and primary duties of store managers and assistant managers. This may pose a challenge for small and medium sized retailers, as their managers perform a variety of functions, some of which will come under exempt functions while others fail to qualify. In addition, retailers often struggle to meet the requirement of having a manager supervise two or more employees who work the same shift. Regardless of the responsibilities defined in a job description, the key to defending exempt status is ensuring that managers have authority over their stores. Even when engaged in other non-managerial tasks, the manager must retain important authority and discretion over the operation of the store.
Classification status is also affected by the worker’s payment structure. Retail workers who are paid under a commission structure may be considered exempt if more than half of the employee’s earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.
Compensability of Time spent on Security Checks:
Most retail employees face the occupational hazard of being searched for stolen goods every time they come off or on duty. It is not uncommon for the time taken to perform the checks to be more than 30 minutes! Legal precedent is clearly in favor of having the employer compensate the workers for time spent on this activity. It is considered to be overtime if it extends the workday beyond the regular hours. Retailers will necessarily have to formulate their policies on timekeeping to comply with this requirement.
Managers may not covertly or directly encourage workers to clock out and keep working off the clock. They are also prohibited from sending workers home and then completing the workers’ tasks themselves in order to avoid payment of overtime rates. At any cost, managers must ensure that workers are paid fair and appropriate wages for the hours worked.
Deductions made from employees’ wages to compensate for cash or merchandise shortages, rent or purchase required uniforms, and be provisioned with mandatory tools of the trade are not legal to the extent that they reduce the wages below the statutory minimum wage or reduce the amount of overtime pay.
Compliance is a moving target that can never be lost sight of – as policies and regulations change on an ongoing basis and hence require a focused and sincere effort from all those who would avoid legal hassles.
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