Dear Workforce: How Do We Correct Misclassifications Under FLSA?

Dear Workforce:

Under FLSA, what is the statute of limitations on making overtime payments to nonexempt employees that were misclassified as exempt? This occurred at our company for about 20 years. We are under new management, which is trying to address the wrongdoing. However, there are still employees in management positions here who knowingly misclassified people. We are being told that our hours of overtime (eligible) to be compensated is limited to the last three years, and have been asked to estimate the actual hours we worked beyond straight time. How does this comport with federal statutes?

—No Cheating, manufacturing, Oregon

Dear No Cheating:

First off, your employer should be congratulated for addressing this very difficult subject head on and making strong efforts to resolve a misclassification situation. Under federal law (the Fair Labor Standards Act), the statute of limitations or "look back" period used is normally two years, and can be as long as three years if it is determined that a violation was "willful."

Here, it sounds like your employer is being conservative and is using the longer, three-year look-back period. Obviously, this is of greater financial benefit to the employees who were misclassified, and who now are being asked to estimate the overtime they worked over the past three years.

In addition to asking misclassified employees to estimate overtime worked in the past, your company most likely will be implementing measures to ensure compliance in the future.

Typically, companies in these situations may implement or recommunicate their wage and hour policies, covering topics like proper time reporting, meal and rest periods, overtime, and the time and manner of wage payments. They also might run periodic audits of their policies and job classifications to ensure ongoing compliance.

Proactive companies also will reinforce these policies with mandatory wage and hour training for both managers and nonmanagerial employees.

Both state and federal wage and hour laws can be quite confusing, and there is generally very poor knowledge about the basic rules among both employees and managers (which is probably the reason for the past errors at your company.) Making wage-and-hour rules clear with training is a strong current trend among forward-thinking employers; it can help avoid very costly future mistakes.

It makes a lot of sense to invest in compliance efforts in this arena, as wage and hour liability is the No. 1 employment law exposure for U.S. companies—greater even than workplace discrimination. And the Barack Obama administration has vowed even stricter enforcement of wage and hour laws.

So get ready to see an even larger tidal wave of lawsuits in the coming months and years against organizations that, unlike yours, may not be taking their wage/hour compliance obligations seriously.

SOURCE: Shanti Atkins, ELT-Inc. San Francisco, February 20, 2009

LEARN MORE: Please read Top Five Employer Mistakes Under the FLSA

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.