C-store Retailers Should Prepare for Tighter Overtime Rules

NATIONAL REPORT — Retailers should brace for a tougher regulatory environment as the Biden Administration tightens overtime rules and strengthens enforcement.

“Convenience stores are at special risk of overtime violations because they have a substantial hourly worker base,” said Marty Heller, a partner at Fisher & Phillips who has represented convenience stores in wage and hour matters.

The Biden Administration has already reversed some Trump era initiatives meant to lower the hurdles required to exempt workers from overtime. Heller anticipates additional moves ahead. “What I expect to see moving forward is a new attempt to raise the minimum salary level for exemptions. Also, the DOL [U.S. Department of Labor] may change the regulatory guidance for white collar exemptions.”

He also anticipates a substantial increase in the budget for the Wage and Hour Division of the DOL. “We believe that will lead to the hiring of new investigators. The immediate impact for convenience stores will be more workplace investigations,” he said. 

The federal moves are happening at the same time that more states are passing employee-friendly legislation that expands the work subject to overtime.

“Employers often overlook the fact that compliance with the federal Fair Labor Standards Act doesn't necessarily mean compliance with state laws,” noted Heller. “This can be a particular problem for employers that operate multiple convenience stores in more than one state. We often see pay policies that violate state laws in operations that have recently expanded.”

RISKY AREAS

Attorneys advise convenience store retailers to avoid these high-risk practices:

Unrecorded Off-the-Clock Work

Some employees in the c-store industry fall into the practice of checking out at the end of the day and then performing additional tasks before going home. Others may work during their lunch hour or before their morning check-in. “Retailers need to ensure there is an effective policy and procedure for employees to report work they complete outside of normal work hours,” said Heller.

Unrecorded Remote Work

Employees working at home present special risks. “One of the most common mistakes is failing to correctly track remote workers’ time,” said Vicki Lambert, director of ThePayrollAdvisor.com. “Sometimes, people will work off the clock for a few minutes—maybe they check their emails over dinner or make a phone call or two — and the employer thinks that’s OK.” But employees must record even short work-related tasks.

Unrecognized Stand-By Time

Retailers can stumble when negotiating the often-uncertain level of labor requirements. “Very often, retail workers will come to the stores in response to a manager’s order, but are then told to stand by because they are not needed for a while,” said Douglas E. Witte, who represents businesses in labor and employment law matters at Boardman & Clark. Employers must record and pay for what the legal world calls “engaged to wait” time.

Incomplete Record Keeping

Time-pressed employers sometimes allow record-keeping to fall through the cracks. “Problems can arise when an hourly recording system is not sufficiently detailed, or not contemporaneous,” said Matthew C. Heerde, principal at Heerde Law in New York City. “Then, when an inspection occurs, employers find themselves sorting through old emails for evidence of work hours to prove an employee was paid correctly.”

Unrecognized Joint Employment Status

Convenience store management sometimes fails to pay overtime properly when they do not correctly aggregate hours worked by an employee in more than one retail location. The challenge here is to determine when the law considers two outlets a single entity. “Joint employment can be a very fact-intensive inquiry,” said Heller. “The regulatory guidance on this is weak. But a lawyer can walk a retailer through the case law specific to a situation.”

Failure to Pay for Unauthorized Work Hours

Employees must be compensated for all the time they worked, even if some off-the-clock labor violates company policy, said Lambert. Employers that wish to discipline workers who put in extra time without permission must use nonfinancial penalties such as verbal and written warnings, personnel file notations, or termination if appropriate.

Improper Substitute Hours

In lieu of paying time-and-a-half for overtime, some employers offer compensatory time off the following week. This violates the law requiring overtime pay for labor exceeding 40 hours in any single seven-day period.

Misclassification of Assistant Store Managers

Retailers often run afoul of the law by exempting upper-level personnel who do not exercise sufficient management duties. “A common mistake made with assistant managers is to classify them as exempt under the executive exemption even though they are not managing people,” said Heller. “That doesn’t necessarily mean they cannot be classified as exempt under the administrative exemption. But this is something to look at closely. Employers cannot rely on job title alone.”

Misclassification of Independent Contractors

While employers are not obligated to pay overtime to independent contractors, it can be tough to determine just who qualifies for that status. “The Trump Administration had come up with a multipart test for independent contractor status, which the Biden Administration rescinded,” said Heller. “So, we're back to where we were, which was mostly relying upon guidance created by case law. The fact is that it is very difficult to create a definitive set of rules on the topic.” Attorneys advise having independent contractors submit invoices for all work done and processing their payments through accounts payable rather than payroll.

AVOIDING PENALTIES

The employment law environment is changing in favor of worker rights.

Employers and employees alike should be aware of the common violations of overtime law and ensure compliance before federal and state governments further tighten wage and hour regulations.

“Now is really a good time for convenience stores to focus on compliance,” advised Heller. “They should reach out to whomever they work with on employment matters to have them review company pay practices. Being preventative on the front-end is a great way to catch something before it becomes a liability.”