The
Magazine for the Business of Construction
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By Adam Taylor and Gregg Frame
As state and federal agencies continue to ramp up
enforcement activities for wage and hour violations, and
plaintiffs’ attorneys pursue wage-related litigation with
increasing frequency, the message to contractors across the
country is clear: Even the most enlightened construction
employers have difficulty navigating the statutes and
regulations that compel a myriad of wage payment practices and
carry the threat of significant fines and damages awards for
non-compliance.
In illustrating the perils born from casting a blind eye at
wage and hour compliance practices, the following scenario may
help construction employers spot wage and hour compliance
issues and provide a starting point for a compliance
self-assessment.
Fabulous Flooring Company is a medium-sized business with
more than 50 employees, ranging from the president to office
staff and laborers. Recently, the president called an attorney
after being visited by an investigator with the Department of
Labor’s (DOL) Wage and Hour Division. Here’s what the
president told the attorney:
“Our employees are required to be at our central office
every day at 7 a.m. for a meeting that details the jobs and
assigns sites for each employee. As soon as employees get to
their jobsites, they clock in for work and must clock out with
their supervisor at the end of the day.
This system works because I have salaried foremen in place
who work side by side with employees performing each job. Our
employees are paid more than the minimum wage and a great wage
in our region.
We occasionally do government contracting and, except for
the heightened bureaucratic issues, it’s good work.
We have few issues with increased overtime costs. It is not
unusual for workers to work 50 hours in one week, and we’ll
reward them by giving them 10 hours off in the next week. We
have had issues with independent contractors in the past. We
seem to have remedied that; now all independent contractors
have signed off on their status through a written agreement.”
Five areas of concern regarding the company’s wage and hour
practices can be derived from the president’s comments.
1. Preliminary and Overtime Activities
Rule: Fabulous Flooring violated the Fair Labor
Standards Act (FLSA) with respect to its timekeeping practices
surrounding work that is “preliminary” to what the company
considers the employees’ “real” work. The president assumes
the time spent at the central office is not compensable. In
fact, by statutory definition, the term “employ” includes “to
suffer or permit to work.”
Impact: Assuming half of all employees attend these
30-minute meetings as part of their job, the employer is
facing more than 3,000 hours in unpaid wage claims each year.
The DOL can go back two years, or three years if the violation
is willful. In addition, if the employees are working a
40-hour work week outside of these meetings, the meeting
pushes the employees into overtime hours, significantly
increasing the company’s exposure.
2. Exempt or Non-exempt Under FLSA
Rule: Fabulous Flooring may have some exposure with
respect to its characterization of foremen. A common mistake
is using the term “salaried” as synonymous with “exempt.”
Under FLSA, all employees are entitled to overtime for hours
worked more than 40 in a given workweek, unless they fit into
one of several exemptions under the act.
To classify an employee as exempt, an employer must satisfy
two tests. First, the employee must be salaried at a wage of
at least $455 per week (the equivalent of $23,600 a year).
Second, the employee must be doing exempt work. Lengthy
regulations are attached with each exemption category.
The company president notes the foremen work side by side
with the non-exempt workers. While this might be good for
morale, it poses a potential problem in terms of overtime
liability. To be exempt, the foremen’s primary duty must be
non-manual work related to management or general business
operations. The general rule of thumb is if the working
foreman is more “working” than “foreman,” the position is
non-exempt.
Impact: The foreman could bring a claim for unpaid
overtime. Because the company erroneously considered the
foreman exempt, it may not have kept accurate time records.
Often, employees can produce a record of the hours they
worked. Care should be taken that all employees who are
classified as exempt are, indeed, salaried and performing
exempt work. Employers should review job descriptions to
ensure the employee’s job duties support the exempt status and
make appropriate changes to the job description or to the
exempt status depending on the outcome of the assessment.
3. Davis-Bacon Act
The Davis-Bacon and Related Acts (DBRA) requires all
contractors and subcontractors performing work on federal or
District of Columbia construction contracts or federally
assisted contracts (in excess of $2,000) to pay their laborers
and mechanics not less than the “prevailing wage rates and
fringe benefits” for corresponding classes of laborers and
mechanics employed on similar projects in the area. The
prevailing wage rates and fringe benefits are determined by
the Secretary of Labor for inclusion in covered construction
contracts.
Rule: The president of Fabulous Flooring must
discern whether the government contracting triggers compliance
measures and wage payment obligations under DBRA or state
statutes. Assuming Fabulous Flooring is subject to DBRA, the
following issues necessitate attention:
• The prevailing wages and overtime calculations utilized
on the covered project. Covered contractors must note that the
total hourly wage rate paid to any laborer or mechanic (basic
wage or basic wage plus fringe benefits) may be no less than
the total prevailing wage rate (basic wage or basic wage plus
fringe benefits) set by the DOL for the craft in the area of
the project. The overtime rate is computed at 1½ times the
basic rate of pay plus any fringe benefits.
• Should Fabulous Flooring attempt to offset the amount it
pays as a basic rate by offering more fringe benefits to its
covered workers, the amount of the base wage is limited by
certain Internal Revenue Service (IRS) and FLSA requirements.
The prime contractor is responsible and will be held liable
for any wage restitution due to any worker employed in the
construction of the project, including workers employed by
subcontractors and any lower-tier subcontractors.
• Timeliness of payment and payroll certification. Covered
contractors and subcontractors are required to pay employees
weekly and to submit weekly certified payroll records to the
government contracting agency. Fabulous Flooring will need to
submit a weekly certified payroll report beginning with the
first week of work on the project and from every week
afterward until it completes the work.
• Postings. If Fabulous Flooring is the prime contractor,
it will be responsible for posting a copy of the wage decision
(or the Project Wage Rate Sheet) and a copy of a DOL poster
called “Notice to All Employees” (Form WH-1321) at the jobsite
in a place that is easily accessible to all of the
construction workers employed on the project.
• Record-Keeping Policy. Every contractor and subcontractor
must keep a complete set of payrolls and other basic
records—such as timecards, tax records and evidence of fringe
benefit payments—on a Davis-Bacon project for at least three
years after the project is completed. The prime contractor
also must keep a complete set of payrolls for every contractor
on a project for at least three years after completing the
project.
Impact: If Fabulous Flooring is found to be in
“aggravated or willful” violation of the labor standards
provisions of DBRA, it will be ineligible (“debarred”) to
participate in any Davis-Bacon contracts for up to three
years. Contractors and/or subcontractors that are found to
have willfully falsified payroll reports (“Statements of
Compliance”) may be subject to civil or criminal prosecution.
Penalties of $1,000 and/or one year in prison for each false
statement may be imposed. In addition, contract payments may
be withheld in sufficient amounts to satisfy liabilities for
unpaid wages and liquidated damages that result from overtime
violations.
4. Flex Time
Rule: The president of Fabulous Flooring is making a
common mistake with respect to the “flexing” of overtime
across work weeks. In the private sector, there is no such
thing as “compensatory time” for non-exempt employees;
therefore, employers may not compensate for overtime by
granting time off in a subsequent workweek. When an employee
works more than 40 hours in a workweek, the employee needs to
be paid time and a half in the paycheck issued for that work-
week. Employers often become confused because they have a
two-week pay period and think they can aggregate the overtime
provision and only be liable for overtime if more than 80
hours are worked in the pay period. This is simply inaccurate.
Impact: Fabulous Flooring’s policy, whether written
or unwritten, leaves the company vulnerable to claims of
unpaid wages. These claims are costly because they often are
brought under state statutes that have severe provisions
allowing for damages beyond the underlying wages owed,
including attorneys’ fees and costs.
5. Independent Contractors
Rule: Most labor and employment laws, such as FLSA
overtime requirements, regulate the employer-employee
relationship and do not apply to independent contractors.
Other tax and social security laws impacting companies like
Fabulous Flooring recognize the distinction between employee
and independent contractor status. State and federal agencies
glean independent contractor status from an array of
definitions and tests. For example, the definition of an
independent contractor under a state’s workers’ compensation
statute differs from the IRS’ definition and the definition
propounded by state taxing agencies.
Generally speaking, an employee has his schedule determined
by the employer, is an ongoing part of the business structure
and operation of the company, is directed and controlled by
the company’s supervisory personnel and receives employee
benefits.
Impact: An independent contractor contracts to
perform services for other companies and is under the
direction of those companies with regard to the end result,
but not with regard to the service performed on the jobsite.
These individuals do not have the legal status of an employee.
And, unlike an employee, an independent contractor pays for
all expenses, social security and income taxes and receives no
employee benefits.
In many litigated cases, workers who sign written
acknowledgements are taxed and paid as independent
contractors, but are found to be employees because they are
under the essential control of the employer or are not engaged
in a genuinely independent business. The burden of proof on
the employer in this area is difficult to sustain.
An improper classification can have a devastating financial
impact on a contractor. Aside from being mired in wage-based
litigation and subject to fines, employers found in violation
of the FLSA and similar state statues are obligated to pay
liquidated damages and the plaintiffs’ attorneys’ fees and
costs.
Resources
Visit the following websites for more
information on the Davis-Bacon and Related Acts, prevailing
wages and independent contractors:
www.dol.gov/esa/programs/dbra/index.htm;
www.abc.org/prevailingwage;
www.irs.gov/charities/article/0,,id=128602,00.html.
Taylor and Frame are founding members
of Taylor, McCormack & Frame, LLC, Portland, Maine. For
more information, call (207) 828-2005 or email
yourcounsel@tmfattorneys.com.
© Associated Builders and Contractors, Inc. All Rights
Reserved.
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