Episode 102: I Owe the State $800k!

In this episode of What the Hell Just Happened? Paul Edwards sits down with CEDR Solution Center Manager Grace Godlasky to discuss how a small business found itself facing an $800k wage claim. How did this happen? Using the incorrect pay period hour calculations with their employees. This mistake is more common than you might think, and being aware of what it takes to avoid it is essential for any business owner. Listen as Paul and Grace dissect this common HR issue and discuss how you can avoid facing the same problem at your business.

What The Hell Just Happened?
What The Hell Just Happened?
Episode 102: I Owe the State $800k!

Paul: Hello. My name’s Paul Edwards, and welcome to the WTHJH podcast. You’re about to listen to an episode of “What the Hell Just Happened in HR?”. 

I’m an HR nerd who loves to talk about HR with just about anyone who will listen. So, during each podcast, we’re going to delve into the solutions for dealing with a real-life HR issue. Plus, occasionally, we’re going to share some big-company, HR-strategy ideas. 

Keep in mind that for every HR problem you solve, there are state, federal, and local laws that govern what we can and cannot do. And now, let’s get started.

Grace: Hey, Paul. So, I am a big HR nerd. I’m on all these listservs. Where I get these emails each week with HR and Employment Law News.

Paul: Okay.

Grace: And I saw one this week that caught my eye and I wanted to see what you thought. So, a small business, 35 employees.

Paul: Okay.

Grace: Got hit with an $800,000 wage claim. 

Paul: Owee!

Grace: Which is really pretty high… 

Paul: That’s very high.

Grace: …for a business of that size.

Paul: Yeah.

Grace: So, I’ll tell you what the problem was and then would love to get your thoughts. So, the problem was they were paying their employees based on 80 hours in a pay period. And, you know, I know we see this in the Solution Center and speak to it a lot. But then when they got the knock on the door, they also weren’t very forthcoming with the Labor Commissioner. They didn’t give them all the records and cooperate as much as they could.

Paul: Oh wow.

Grace: So, I wanted to see what words of wisdom you had for this situation. See if we could unpack it a little bit.

Paul: Okay, so just for everybody, this is a common mistake. Like this is, I don’t want to call it a rookie mistake because that’s not fair, but I guess it is a little bit of a rookie mistake. I’ll tell you what kind of a mistake it is. It’s one of those things that you don’t learn until someone teaches it to you. It’s just not readily available, the knowledge around how you’re supposed to do this. So, they made a very simple mistake. What they did was they considered, because they pay their employees every two weeks, they were like, “Well, then that must mean that’s when overtime applies.” And, further, what they did, which got them in some trouble, I’m sure, is one week an employee, one employee would work 35 hours, and then the next week in the pay period, they’d work 44 hours and so, they would say, “Well, that’s not more than 80 because we pay every two weeks and therefore, we just average the hours and there’s no overtime worked.”

Grace: And we’re good. Yeah.

Paul: And we’re good. When in fact, there is a pay period and then there’s also a.. what’s the official term for it?

Grace: It’s the workweek.

Paul: It’s the workweek, yeah. So, you have to establish the workweek.

Grace: Yup.

Paul: And you know this. And the work week is, with only a few exceptions, and those exceptions make it tighter, right? California is a notable one where overtime occurs every day but a workweek is seven consecutive 24-hour days.

Grace: Yup.

Paul: And so, if you pay every two weeks, it doesn’t matter. You have to keep resetting the work week within the pay period. And this can get even a little more confusing when we say there’s, every month isn’t exactly two weeks but we’re just not going to go down that rabbit hole. So, that’s the first mistake they made, right?

Grace: Yeah.

Paul: Am I right, Grace?

Grace: Absolutely. Yeah.

Paul: So, they had a bunch of people working overtime in this small business and, I mean, we could see it in a medical practice, a dental practice, a medi-spa, a car wash. I mean, I could just list.. A restaurants.. I mean, all kinds of small businesses make this mistake because they don’t know it until it’s too late. And it can be one of the problems that occur when you do your own payroll.

Grace: Absolutely.

Paul: You go to like…

Grace: Tech is the solution to this.

Paul: Yeah, tech is a solution and even a third party, like, payroll company, even the worst of them are going to get this right. They should at least be telling you about it and not allowing you to average hours across pay periods or workweeks. Alright. So, the fine that they got probably said, “You have to pay these people all this overtime.”

Grace: Yup.

Paul: And I’m going to guess that they were not, well, you said it, they were not as cooperative as they could be. Well, here’s the problem: When you try to cloud the waters for them or you’re not providing the entire record to the Department of Labor Wage and Hour. When you do any of those things, you’re fighting against a tide that you can’t win.

Grace: Yeah.

Paul: I mean, when they first come in the more records you give them, the more complete they are, the better off you’re going to be.

Grace: Yeah.

Paul: And so, there are components to these complaints, Grace, as you well know. What we really want, well, what we want is for everything to be right and nobody to be in any trouble. So, what we really want is for someone to say, “Hey, you aren’t paying these people or we think you might not be paying them, or you have an employee who’s filed a complaint and we have to investigate on their behalf.” Well, good records given to them early on that are complete and make sense are what I refer to as “helping them help you.” So, you can help the Department of Labor Wage and Hour help you by having good, complete records and that applies to the EEOC and all sorts of outside bodies.

So, what I mean by “help them help you” is that the investigators are overworked, there’s not nearly enough of them, they’re quite busy, and they’re looking for stupid mistakes, and they’re looking for things that are substantial. And, if you’ve got your records in order, then their first thought is, “There’s just nothing here. I mean they might have made some mistakes somewhere but I’m just not going to investigate to go find that one tiny instance.” But the moment you say, “Well, we could get those records for you but it could take a while,” or, “Here’s exactly what you ask for when giving you anything else until you ask for it.” The moment you start to do that, you are not helping them and they will just come full bore.

Grace: Yeah.

Paul: I mean, the tide will rise against you.

Grace: And you start to see those fines and the penalties that get applied on top of the wage claim, which is how you start to see big scary numbers like this.

Paul: Yeah, exactly. Because then they make the supposition that you knew that you were doing it improperly. And that now you’re trying to hide what you knew that you weren’t supposed to be doing and the only way that you would have corrected it is if you got caught.

Grace: Yeah.

Paul: And, so, again look at it as what we really want is no fine. Help them help you because you’ve gotten everything right. The next thing is you’ve gotten something wrong, you’ve made a mistake, and we all make mistakes, and have them just say, “Look, you’ve got to correct the mistake. Thank you for all the records. We’ve looked through it. We’re convinced that you were acting in good faith. We’re not going to penalize you here.”

Grace: Right.

Paul: “You’ve got to still pay these people all the time. We’re going to require..” They actually will require you to go back through everything and fix it and present it to them. And then they’ll make a decision on it. They may give you a little slap on the hand. And then you move forward and then there’s the third level where you will use it, the HR term, you pissed them off.

Grace: Yeah.

Paul: And now they’ve had to come after you and it’s found that you, as I said before, you might have known that this was going on, you should have known, or you tried not to know or whatever that might look.

Grace: Willful.

Paul: Yeah, and then the last thing, Grace, you know what it is. If you get this kind of complaint, you have to hire a lawyer.

Grace: Absolutely, first step.

Paul: First step. You have to hire a lawyer to represent you. You have to hire, not just any lawyer, you’ve got to hire a lawyer who specializes in this area and actually has adjudicated things with your State Department of Labor Wage and Hour. You just have to. It’s something that you need representation. And, in a lot of States, it’s kind of weird how this works, but a lot of states an attorney can actually bring the claim on behalf of the employees that could turn it into a class action. But they can bring the complaint on behalf of the employees but yet the state does most of the work for the attorney and the attorney does get to keep billing you as they represent the employees. So, now I would venture to guess this $850,000 complaint.

Grace: Attorney’s fees.

Paul: The attorney’s fees. I’ll bet, on both sides, added up to probably more than a quarter of a million dollars.

Grace: Yeah, that’s a huge… It’ll be a huge chunk.

Paul: I mean, but even if they were, let’s just say it was $50,000 that they added up to on both sides. Then you have to pay, not only your own attorney fees, but you have to pay the winning sides attorney fees in most instances as well. So, this was… I feel bad for them.

Grace: It was a tough one. Nobody has $800,000 they can just light on fire, no matter how successful your business is.

Paul: No.

Grace: So, it’s unfortunate to see… we sometimes see these cases where it’s big businesses and it’s hard to relate to as a small business owner. You think, “Well, okay, that’s not going to happen. I don’t have that going on.” But this one, I thought, was very relatable. And, the question that I get on this topic from, especially new managers and new business owners is, “Wait a minute. My pay period and my work week don’t line up.”

Paul: No, they never…they can’t.

Grace: They never do, right. 

Paul: Maybe twice a year…

Grace: So they’re sitting there trying to make it work perfectly where, “Wait but overtime.” So, there – and CEDR’s system does this, if you use our timekeeping – you’ll have a running tally of what the overtime is linked to the workweek. And that’ll roll over into the following pay period.

Paul: Right. Not into the following workweek, people. We said “into the following pay period.”

Grace: So, it’s two balls.

Paul: It’s like two balls. Yeah.

Grace: It’s like a cup game and you’re tracking two of them. And that is like a light-bulb moment for so many people if they’ve not been doing this before. And it’s the simplest thing. Like you said this is a simple, you know, issue that occurred. But if you don’t know that those are two different moving pieces and how to track them, that’s how you would get into this sort of hot water.

Paul: And then I’ll add one more little nugget for everybody. If you’re listening to this and you’re in the kind of medical practice or in the kind of business where you travel, where your team goes out, where you do continuing education, where you work… you know, sometimes this happens a couple times a year on the weekends and stuff. How you establish where that work week begins and ends.

Grace: Yeah.

Paul: By the way, you don’t get to keep moving that. Can’t move that ball around, but how you establish it can actually impact how much of that travel ends up in overtime. So, it’s a very cost effective. I think in a lot of ways, we actually pay for ourselves if we help a practice get this right.

Grace: Yes.

Paul: We really do. I mean you save a bunch of money if you get this right and you understand the rules around travel pay and all that, which is a completely different podcast.

Grace: Yeah.

Paul: But this is interesting. I appreciate you bringing this. I love talking about wage an hour things and.

Grace: Me too.

Paul: And I think I still remember all the details.

Grace: You still got it.

Paul: I still got it.

Grace: And, well, we’ll keep an eye on our listservs…

Paul: Okay.

Grace: …and see what other juicy stories come down the line. But this one was fun.

Paul: Great problem Grace, thanks.

Grace: Cool.

Closing: Thanks for joining us for this week’s episode of what the hell just happened. If you have an HR issue or a question you’d like us to discuss on this podcast, send it to podcast@WTHjusthappened.com

For more HR advice and insights from Paul and his team of experts, you can also join our private Facebook group, HR Base Camp, or visit HRbasecamp.com. Make sure to tune in next week. And remember, when you improve your workplace, you improve your life.

This podcast is sponsored by CEDR HR Solutions. The old way of keeping your staff HIPAA compliant is over. Train your team anytime, anywhere, and keep them current with automatic reminders to retrain. Why shut down your office and pay a trainer for a day of HIPAA training when you can bring your staff into compliance for free with CEDR’s on-demand system? Get one year of free HIPAA training from CEDR HR Solutions and start training your team today. Visit www.cedrsolutions.com/HIPPA to learn more!

Jul 12, 2022

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.
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