10/11/2005

Considering overtime pay for managers

My sales manager claims that he is due several thousand dollars in overtime pay from working weekends over the past three years. He claims the goals that I set out in his commission plan are unattainable and therefore he is due compensation for the time he has worked in excess of 40 hours per week (about 450 hours/year). Is he due any compensation?

Last year, the U.S. Department of Labor (DOL) revised the Fair Labor Standards Act (FLSA) regulations concerning overtime pay. The FLSA sets the legal standard for certain employee protections, including mandatory overtime pay in certain situations. The FLSA promulgates a series of tests to determine if an employee is covered (called "nonexempt:") or not covered (called "exempt") by the FLSA. The recent changes in these rules are having an enormous impact on most employers in the United States. Although we'll discuss some general ideas regarding the question above, it is important to have all decisions regarding FLSA reviewed by your employment counsel to assure compliance for your specific circumstances.

The types of roles that are typically considered nonexempt are unskilled workers, trades people, clerical office workers, technicians, and paraprofessionals. On the other hand, there are six sets of tests an employer can use to show an employee is exempt from the overtime rules. (Only one test needs to apply for an employee to be exempt.) The six categories for exemption are: executive, administrative, learned professionals, creative professionals, computer employees, and outside sales.

The sales exemption, although the obvious first choice, probably doesn't apply in this case because its focus is on outside sales people who customarily work away from the employer's place of business. This sales manager is probably not an outside sales person. If, however, this person is truly an outside sales person, then most likely this exemption applies and no overtime is required by law.

By far, the most common exemption is the administrative exemption because its test covers most "white collar" employees-much broader than its title implies. Yes, the sales manager might be exempt under the administrative test. A job is exempted by the administrative test if the primary duty of the employee is performing office or non-manual work directly related to management or general business operations and the employee exercises discretion and independent judgment and earns at least $455 per week ($23,660 per year). It is likely that someone whose role includes "managing" is exempt either under the administrative or executive test.

The other tests likely do not apply to this sales manager job, but if you'd like more information on any of the exemption tests, the Department of Labor has good information on their website.

Finally, it's important to remember that this discussion has been about the federal legal requirements of paying overtime. Some employers have policies that exceed the legal requirements and grant overtime eligibility to employees who would otherwise be exempt. However, absent an explicit company policy granting overtime to exempt employees, this employee (if he is a bona fide management employee) would most likely not be eligible for overtime pay.

-- BILL COLEMAN

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Salary increases: on anniversary or across the board?

Has anyone gone from across the board increases to anniversary date increases? If so, what was the process used to make the change, and did they encounter any resistance?

Generally, "across-the-board increases" refers to salary increases that are the same for all employees (e.g., everyone receives a 3 percent increase). This question, however, is probably using the phrase to mean all employees receive their increases at the same time (e.g., July 1) regardless of their date of hire. This is often called a "common date" or "focal point" review. The alternative is called an "anniversary date" review, which provides an employee's salary increase on the anniversary of his/her hire date.

While some companies grant merit increases on an anniversary date basis, most have moved to a common date approach. This provides better control over compensation expenses and links pay to company performance. Common review dates help ensure that employees are treated equitably and fairly because everyone is being considered at the same times and under the same circumstances.

It is unusual to move from a common date review to an anniversary date review. One reason is that anniversary date programs are harder to manage. A more compelling reason is that the most difficult time in a common date program is the time from the employee's hire date to the end of the first review cycle, which could be between 0 and 12 months. After that, all employees are on a 12-month measurement cycle-the same 12-month measurement cycle.

To switch from a common date program to an anniversary date program would require introducing a transition period that would probably be handled the same as the short initial year for new employees under the existing common date program. But why do this? A new employee can easily understand either approach. But, once your employees are comfortable with a common date approach, there isn't a clear reason to switch them to something based on their original date of hire. That anniversary has been made somewhat irrelevant for compensation purposes so reintroducing it is awkward.

However, since you asked the question, you must be considering it - perhaps as the result of a merger or compensation philosophy change. First, management must understand what it's doing and why. Second, agree on the administrative procedures for implementing this change (determining who gets how much and when). Third, model costs and cash flow impacts from the employer perspective and employee perspectives. Forth, draft and test your communications materials. Finally, roll out the plan.

You may want to roll this out coincident with the last common date awards. At that time you can tell those whose anniversary date doesn't coincide with the common date that they will receive a prorated, interim salary increase, if warranted, on their next anniversary date and that all future awards will then be 12-month awards on their anniversary date. Getting that message along with a full 12-month raise will help calm those who think they're losing out somehow.

Overall, if you're going to do it, do it right, make the business case, show people they're not losing out, and move on.

-- BILL COLEMAN

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Workers' compensation and the FMLA

Do you have a sample, recommended policy on workers' compensation? We are specifically wondering if it makes sense to have employees access the FMLA [Family and Medical Leave Act] if they are going to be out for a while. Can they use their sick time to supplement what they are paid while on workers' Compensation?

There is no sample recommended policy on workers' compensation as this is something that each employer needs to work out in conjunction with their consultant and attorney in accordance with the rules of the state in which their employees are employed.

Individuals out of work on disability due to a work-related injury are protected by FMLA and would have up to 12 weeks of job-protected leave if the condition qualifies as a serious health condition under FMLA. Health benefits would also need to be continued during this time period under FMLA on the same basis as provided prior to the leave. Sick leave may be reserved for non-occupational injuries or disease only, but many employers will pay sick leave for occupational injuries that is then reduced by any payments received from workers' compensation so that total payments are no greater than what would normally be paid under the sick leave benefits alone.

-- PEGGY SHEEDY

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Employer obligations regarding maternity leave

We have a staff member who just went out on an 8-week maternity leave. She has been on individual coverage and our policy doesn't state that we cover the cost of her health insurance while she is out. She exhausted her earned-time benefits prior to leaving and therefore is not receiving any pay during her leave. We gave her all the details about family coverage and asked her to meet with us if she was interested but she did not meet with us before she left. What is our obligation? Must we cover her health insurance while she is out?

If your company is covered by FMLA (generally 50 or more employees) and this individual is eligible for FMLA, then she would be under FMLA protections even if she has exhausted her paid sick leave. So, she would still be eligible for up to 12 weeks of unpaid job-protected leave. The amount of FMLA leave remaining depends on how much of her previous leave was credited to FMLA leave and the method you use to calculate FMLA leave over a 12 month period. Health benefits would need to be continued for her on the same basis as provided prior to her leave for whatever FMLA period remains.

You should also be aware that some states, like Massachusetts, also have their own maternity leave requirements that provide additional obligations for employers regarding maternity leave. Massachusetts' maternity leave requirements cover employers with six or more employees and also require that health benefits be continued but at the employee's expense.

Also, if the employee notifies you that she wishes to enroll her new baby under the health plan within 30 days of the birth, HIPAA special enrollment rules require that you add the baby to the plan retroactive to the date of birth.

-- PEGGY SHEEDY

Preparing for an on-site 401k audit

I was recently notified by the Massachusetts Department of Labor that they will be conducting an on-site audit of our company's 401k plan. We have approximately 270 employees. Are you able to offer any tips or advice to our HR department to make the on-site visit go as smoothly as possible?

As the sponsor of your company's 401(k) plan, the most important thing is to understand the fundamentals, beginning with the Employee Retirement Income Security Act (ERISA). ERISA is a federal law that institutes guidelines for retirement plan sponsors, known as fiduciaries, to provide protection for employees enrolled in the plan.

It is critical for employer plan sponsors to understand and comply with the minimum requirements of ERISA. You can learn more on the U.S. Department of Labor's website.

Another resource is the Employee Benefits Security Administration. EBSA offers compliance assistance to plan sponsors, including compliance programs, advisory opinions and publications.

Once you have a handle of the fundamentals, my general advice to employers who are expecting a visit from the Department of Labor (DOL) is to make every effort to locate and present the information and documentation requested by the DOL in an organized and orderly manner. If you are not sure what the DOL is requesting to see, you may want to ask your ERISA counsel or benefits consultant to review the request before scheduling the audit. The Department of Labor also offers compliance assistance for 401(k) plans.

Even if you're not being audited, conducting an ongoing review of your plan is a good practice. Below is a checklist from EBSA that provides some information on the types of questions you should be prepared to answer about your plan.

1. Have you determined which type of 401(k) plan best suits your business?
2. Have you decided whether to make contributions to the plan, and, if so, whether to make non-elective and/or matching contributions? (Remember, you can design your plan so that you may change your rate of contributions if necessary due to business conditions.)
3. Have you decided to hire a financial institution or retirement plan professional to help with setting up and running the plan?
4. Have you adopted a written plan that includes the features you want to offer, such as whether participants will direct the investment of their accounts?
5. Have you notified eligible employees and provided them with information to help in their decision-making?
6. Have you arranged a trust fund for the plan assets or will you set up the plan solely with insurance contracts?
7. Have you developed a record keeping system?
8. Are you familiar with the fiduciary responsibilities?
9. Are you prepared to monitor the plan's service providers?
10. Are you familiar with the reporting and disclosure requirements of a 401(k) plan?
11. If you require additional assistance to prepare for the upcoming audit, you may want to talk to a retirement or a financial professional.

-- JEFF ARNOLD

Best practices for improving employee attendance

What are the best practices for attendance policy for non-exempt employees? We are a financial organization, and most of our non-exempt staff is in a call center. We have a rather strict attendance policy for non-exempts and I think it contributes to our high turnover rate. We have an occurrence system in place which combines tardiness and unscheduled time off which also includes use of sick time. In order to make any changes to our policy, I have been asked to present best practices in the industry, so it would be nice to see examples of good attendance policies.

Traditionally, most attendance policies used some form of disciplinary action as the stick to manage unscheduled absences. Today, however, employers are using research to get at the root cause of unscheduled absences in their workforces and then crafting attendance policies tailored to their specific needs in order to reduce these types of absences and their associated costs. The resulting trend is that many best practice employers are developing attendance policies incorporating more carrots than sticks to manage unscheduled absences.

Here are a few of the most common features:

• Offering employee assistance programs, encouraging healthy lifestyle, and improving the overall physical work environment to reduce the level of stress
• Creating a work environment that nurtures, involves and develops employees
• Ensuring that all employees, beginning with managers, understand that employees must balance their work needs with their personal needs
• Offering alternative work arrangements, such as telecommuting

For employees who work in call centers, a recent MetLife study revealed that the leading causes of short-term disability claims are: digestive illnesses, musculoskeletal conditions, psychiatric illnesses, neoplasms, and respiratory illness. The study also showed that stress related to work-life balance and personal issues is the single most common contributing factor to these conditions.

-- PEGGY SHEEDY

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