Category Archives: Recordkeeping


The US Department of Labor (DOL) announced last Thursday that it investigated an Arizona painting contractor and found Fair Labor Standards Act (FLSA) violations resulting in nearly $200,000 in damages.  This is yet another reminder for Arizona businesses that the DOL is aggressively on the hunt for employers who misclassify employees, fail to properly record workers’ time, and do not pay overtime.

Let’s review the facts of Arizona Painting Company case so that your company will not find itself in a $200,000 (or more) bind.


Arizona Painting Company is a painting contractor located in the Phoenix suburb of Chandler.

A DOL investigation found that the company failed to pay their employees the federal minimum wage and overtime in violation of the FLSA.

Employees legally-entitled to minimum wage and overtime were paid flat weekly salaries that, when divided by the number of hours they actually worked, fell short of the federal minimum wage, currently $7.25 per hour. These employees routinely worked between 50-55 hours per week, yet the employer also failed to keep an accurate record of hours worked and failed to pay them overtime for hours worked beyond 40 per week, as required by the FLSA.

Other employees, who were paid on a commission basis without regard to how many hours they had worked, were also paid less than the minimum wage and were denied overtime.

Arizona Painting Company agreed to comply with the FLSA and will pay $165,638 in back wages and damages to 79 workers. The commercial and residential painting contractor will also pay an additional $29,546 in civil money penalties. As part of the settlement, the employer notified employees about the case and agreed to provide them with training on their rights under the FLSA.


“Workers in [the contracting] industry are among the most vulnerable that we see,” said Eric Murray, director of the Wage and Hour Division’s district office in Phoenix. “As the back wages, damages and penalties paid in this case illustrate, we are committed to ensuring that workers receive every penny they have rightfully earned.”

“Other employers should take note of this investigation, and ensure that they are in compliance with the law. Other employees being paid in this manner should give us a call. Our services are free, and confidential.”


How can your business avoid the painting contractor’s mistakes?  Here’s how:

  • Make sure you have a solid and defensible recordkeeping system that accurately records all time worked
  • For FLSA recordkeeping requirements, read this previous HR Law Insider article
  • Pay non-exempt employees on an hourly, not salary, basis; this way it is much easier to accurately determine any overtime due and much less likely you will miscategorize employees
  • Conduct an annual internal audit with counsel; this should neither be difficult nor expensive — few employees fall into a grey area when it comes to classifying and properly paying employees


The tips listed above are but several of many measures that go into an effective FLSA compliance program.  Put the proper systems in place, execute consistently, and your business needn’t fear the “dreaded” DOL audit.

Art Bourque has guided businesses and individuals in various FLSA and DOL audits and investigations.  He has defended and brought claims under the FLSA and other DOL and EEOC regulated laws.  Contact Mr. Bourque with any questions regarding these or other employment or human resource issues.


As explained in a previous article, the most effective way to avoid a DOL audit is to treat your employees well —  because the number one cause of audits is employee complaints.

So, while pondering the state of your employees’ morale, enjoy The Trees by Rush.  This Neal Peart creation brilliantly captures what happens when those above (the Oaks) and those below (the Maples) do not get along.  Namely, “hatchet, axe, and saw” intervene (the Government).  At least this has always been my interpretation of the song — one of my favorites.  The lyrics appear below the video:

There is unrest in the Forest
There is trouble with the trees
For the Maples want more sunlight
And the Oaks ignore their pleas.

The trouble with the Maples
(And they’re quite convinced they’re right)
They say the Oaks are just too lofty
And they grab up all the light
But the Oaks can’t help their feelings
If they like the way they’re made
And they wonder why the Maples
Can’t be happy in their shade?

There is trouble in the Forest
And the creatures all have fled
As the Maples scream ‘Oppression!’
And the Oaks, just shake their heads

So the Maples formed a Union
And demanded equal rights
‘The Oaks are just too greedy
We will make them give us light’
Now there’s no more Oak oppression
For they passed a noble law
And the trees are all kept equal
By hatchet,
And saw…


January is a time to get back to work. With holiday vacations and 2014 now solidly in the rear view mirror, employees are working hard — and again starting to accrue vacation time. This edition of the HR Law Insider discusses what is required of employers when it comes to vacation time and vacation pay.

No law requires Arizona employers to provide vacation or vacation pay (PTO is treated the same). Providing vacation or PTO to employees is purely voluntary. Most employers provide the benefit to attract quality employees, allow employees time to recharge, and because it is almost unheard of not to provide it.

HOWEVER, if an employer provides a vacation benefit, the employer will be bound by its policy — until and unless it changes that policy. Once vacation is “accrued” or earned, an employer cannot retroactively change its policy. Rather, any change must be applied prospectively, to future events.

In my experience, employers frequently err by not a evaluating what they truly want their vacation policy to look like or how it will work in real world situations. This typically results from the use of “form” employee handbooks handed down from third parties or cut and pasted off the internet. Significant problems can occur when an employer binds itself to something it didn’t intend, such as the unpleasant surprise of having to pay a long time employee tens of thousands of dollars in unused, accrued vacation pay upon the employee’s departure.

Here are important questions every employer should ask and answer when implementing or updating it’s vacation policy:

*  Whether to allow employees to take vacation time before it is accrued.  If allowed, and an employee ends employment with a negative balance, how to treat the situation.

* Whether to allow vacation time or vacation pay to roll over into the next year, or to have a use it or lose it policy.

*  Whether to cap the maximum amount if rollover is allowed.

*  Whether to reduce exempt employees’ vacation balance if they take partial days off (this will not remove the exemption from paying overtime, whereas docking the employee’s pay would remove it).

*  Whether and how much notice will be required of employees requesting vacation.

*  Whether to have a policy that any accrued vacation is forfeited at the end of employment, or forfeited if the employee is terminated or resigns without notice.

*  Whether to treat some employees differently, and if so, how to evaluate the risk of a discrimination claim presently or in the future.

*  Whether the employer is keeping good track of vacation time and accounting for any large balances in employees’ accounts (if rollover of vacation time is allowed).

*  When and how to seamlessly implement a new policy.

Employers should review their vacation policy annually to determine whether it needs to be tweaked, overhauled, or outright scrapped. This simple task will result in a policy that works for your business, your employees, and your needs. Because there is no requirement to provide vacation, employers have unlimited discretion in drafting a policy that fits their needs.



Many employers pay wages to employees without considering the laws they must comply with. Typically, employers are never “reminded” of these laws until they confront a Department of Labor audit or damages lawsuit from a disgruntled ex-employee.

The main law governing the payment of wages is the Fair Labor Standards Act (FLSA). The FLSA establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments.   The FLSA is enforced by the United States Department of Labor (DOL). Various states, including Arizona, have their own laws regarding the payment of wages. The federal minimum wage is $7.25 per hour, but in Arizona it is $7.90 per hour. If a company’s state has a higher minimum wage than the federal minimum, the company must pay the higher amount.


Unless specifically exempted, employees covered by the FLSA must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. The overtime requirement may not be waived by agreement between the employer and employees. An agreement that only 8 hours a day or only 40 hours a week will be counted as working time does not affect an employer’s obligation to pay overtime. An announcement by the employer that no overtime work will be permitted, or that overtime work will not be paid unless authorized in advance, also will not impair the employee’s right to compensation for overtime hours that are worked. In short, employers should advise employees they can only work overtime that is authorized in advance. If an employee violates this policy, an employer may discipline the employee up to and including discharge — but the overtime still must be paid.


Certain employees are exempt from the FLSA’s overtime pay provisions. Exemptions are narrowly construed against the employer asserting them. Employers should always closely check the exact terms and conditions of an exemption in light of the employee’s actual duties before assuming that the exemption might apply. An employer that improperly categorizes an employee as exempt when, in fact, the employee does not so qualify can be liable for significant overtime pay, which may be doubled or tripled under the FLSA.

The most frequent FLSA exemption that confuses employers is the “administrative” exemption. The test to determine whether the administrative exemption is as follows: (1) the employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week; (2) the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

“Primary duty” means the principal, main, major or most important duty that the employee performs. “Directly related to management or general business operations” means an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment. Work “directly related to management or general business operations” includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities.

In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term implies that the employee has authority to make an independent choice, free from immediate direction or supervision. Factors to consider include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval, and other factors set forth in the regulation.

Wages may be determined on a piece-rate, salary, commission, or some other basis, but in all such cases the overtime pay due must be computed on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment (except for the statutory exclusions noted above) in any workweek by the total number of hours actually worked.


Every employer covered by the FLSA must keep certain records for each non-exempt employee. Employers must keep records on wages, hours, and other information as set forth in the DOL regulations. There is no required form for the records. However, the records must include accurate information about the employee and data about the hours worked and the wages earned.

An employer that fails to maintain proper records exposes itself not only to DOL penalties and fines, but also to increased employee wage claims. For example, if an employer fails to maintain records and an employee claims that he or she worked significant overtime, the DOL is more likely to accept the employee’s word when the employer possesses no records to refute the claim. This can result in substantial exposure for back wages — even for time that was never truly worked.

The following is a list of the basic payroll records that an employer must maintain:

  • Employee’s full name, as used for Social Security purposes, and on the same record, the employee’s identifying symbol or number if such is used in place of name on any time, work, or payroll records
  • Address, including zip code
  • Birth date, if younger than 19
  • Sex and occupation
  • Time and day of week when employee’s workweek begins
  • Hours worked each day and total hours worked each workweek
  • Basis on which employee’s wages are paid (e.g., “$9 per hour”, “$440 a week”, “piecework”)
  • Regular hourly pay rate
  • Total daily or weekly straight-time earnings
  • Total overtime earnings for the workweek
  • All additions to or deductions from the employee’s wages
  • Total wages paid each pay period
  • Date of payment and the pay period covered by the payment

Employers may use any timekeeping method they choose. For example, they may use a time clock, have a timekeeper keep track of employee’s work hours, or tell their workers to write their own times on the records. Any timekeeping plan is acceptable as long as it is complete and accurate.

Many employees work on a fixed schedule from which they seldom vary. The employer may keep a record showing the exact schedule of daily and weekly hours and merely indicate that the worker did follow the schedule. When a worker is on a job for a longer or shorter period of time than the schedule shows, the employer must record the number of hours the worker actually worked, on an exception basis.


Failure to comply with the FLSA and state wage laws can result in severe penalties and other consequences. Private lawsuits often result in the payment of double or triple damages plus attorneys’ fees if the employer is found liable.  The DOL uses a variety of remedies to enforce compliance with the FLSA’s requirements. When investigators encounter violations, they require changes in employment practices to bring the employer into compliance and demand payment of any back wages due to employees. In addition, willful violators may be prosecuted criminally and fined. A second conviction may result in imprisonment. For child labor violations, employers are subject to a civil money penalty of up to $11,000 per worker for each violation of the child labor provisions.  In Arizona, a bad faith failure to pay wages to employees can expose employers to damages of three times the amount actually owed.

Periodically perform self-audits to make sure you have properly categorized employees and are keeping adequate records. When in doubt, consult with legal counsel to determine if an employee is truly exempt and how best to ensure that you do not do anything to jeopardize that exemption (e.g. docking an exempt employee an hour of pay when they are late forfeits the exemption; a poor job description can be used against an employer to establish a non-exemption).