Wage And Hour Division

When it comes to compliance with the federal Department of Labor's wage and hour regulations, most pest control operators are confused by the sheer number of regulations that apply to them, and are disturbed by the Department of Labor's fluctuating opinions and interpretations of the regulations. Just when you think you have a complete understanding of how the government enforces its guidelines, you find there is a change and your policies and procedures are not in compliance. It is at this point, between total dismay and confusion, that many employers too often find themselves.

WHAT TO DO? It's no secret that each year thousands of pest control companies are investigated by the U.S. Department of Labor, Wage and Hour Division, and are found guilty of violating wage or hour provisions. This occurs despite the fact their employees were paid generously and fairly, and every effort was made to comply with the regulations. In so many cases, employers end up "paying the price" simply because they either misunderstood or were not aware of certain critical regulations.

To reduce the likelihood of your company becoming part of the Department of Labor's positive cash flow, you'll want to ensure compliance with the following important federal Wage and Hour division requirements. (This list is not all-inclusive and only contains federal requirements. Several states have additional state regulations that are more restrictive and inclusive.)

These five regulations are widely misunderstood and misapplied by PCO's and often result in huge back-wage liabilities.

1) Proper classification of administrative workers. Many PCOs are under the mistaken belief that simply paying a person a salary automatically exempts him or her from wage and hour overtime requirements. This is not true! In order for an in-dividual to be classified as "exempt" from overtime, he or she must meet a number of tests set forth in the federal regulations that relate to job duties.

For example, to qualify for the "executive" exemption, besides receiving a guaranteed salary of at least $250 per week, an office manager would have to supervise at least two full-time employees and would have to spend a minimum of 50% of his or her time in "supervisory" duties. Many office managers do not meet these requirements and are misclassified under the executive exemption. In fact, most administrative employees of pest control companies do not qualify for any overtime exemption and should be paid time and one-half for all hours over 40. (Some states, like California, have even more restrictive overtime requirements.)

2) Proper design of pay plans for technicians paid under Section 7(i) of the Fair Labor Standards Act. Ah, yes, the infamous "7(i) regulation" which is, without a doubt, the most confusing wage and hour requirement PCOs have to deal with! Section 7(i) of the federal regulations provides an overtime exemption for certain commission-paid employees of "retail" establishments. Before using the exemption, a PCO must first determine its "retail" status.

Under federal Wage and Hour Law, a "retail" establishment is one in which 75% of the annual dollar volume of sales is not for resale. In the pest control industry, residential accounts are clearly "retail" accounts. As for commercial accounts, the Department of Labor has this to say:

"However, where the facilities and equipment of an establishment are designed for the service of factories or commercial buildings and are of a type which the general consuming public does not ordinarily have occasion to use, the services are specialized and are not traditionally recognized as retail within the meaning of the exemption even though the firm may also, occasionally, render services to the general consuming public. On the other hand, if the exterminating facilities and equipment used in servicing commercial buildings are no different from those used in servicing private residences, such services may be regarded as retail.

"Exterminating services performed regularly and repeated for commercial or industrial firms under contract, covering an extended period of time, constitute maintenance operations and are not, therefore, recognized as retail services."

For multi-unit pest control operations, the Wage and Hour Division applies the retail test to each separate place of business ("establishment") versus the entire company ("enterprise"). So, if you have a "commercial division" office where more than 25% of the work is nonresidential, then this location could not legitimately utilize the overtime exemption under Section 7(i) for its employees.

Let's assume for a moment that your company does meet the definition of "retail." The next step is to ensure that your pay plans meet the requirements of Section 7(i). The overtime exemption only applies to employees who meet the following criteria: (1) more than 50% of their wages for a representative period of not less than one month must be in the form of commissions; (2) the employee must average earnings of at least time and one-half the minimum wage (currently $6.38) for each hour worked; and (3) the employee must maintain an accurate record of all hours of work to verify the wage requirement. All these requirements must be met, or the overtime exemption may be lost and back wages due to affected current and terminated employees.

3) Maintain accurate records of all hours of work. All nonexempt employees and employees paid under section 7(i) must maintain true and accurate records of their work time. To meet this wage and hour requirement, the employee must record the exact time in and exact time out each day, including meal times. Times should not be rounded, they should be recorded as exact, to the minute.

Employers must ensure that nonexempt employees record all of their hours of work, including meeting time, waiting time, time spent working at home (this is quite common in most pest control operations) and others.

4) Ensure all deductions from pay are proper. For employees paid under Section 7(i) of the federal regulations, employers must ensure that deductions for uniforms, equipment, business cards, damage to or loss of company property, automobile expenses, etc., do not take the employee below the minimum required hourly rate ($6.38). If the employee's pay drops below this level, the overtime exemption may be lost and overtime due to the employee.

Employers must also ensure that exempt employees who are paid a guaranteed salary receive the full salary in any week they work, regardless of quantity or quality of work. Deducting money from an exempt employee's salary for damages, losses or other similar reasons is a violation of the federal regulations and could result in loss of the exemption.

Nonexempt employees of pest control companies must always receive at least the minimum wage (currently $4.25 per hour) for every hour they work up to 40 and time and one-half the minimum wage for all hours over 40 per week. To reduce an employee's pay below this rate for losses, damage, equipment, or for a similar reason, is in violation of the federal regulations.

5) Pay for overtime on all compensation including commissions. Nonexempt employees must receive overtime on all of their wages, not just their hourly rate. This means that if you have a nonexempt employee who is paid an hourly rate plus commissions, you must calculate overtime on the hourly rate and the commissions. The Department of Labor takes the position that commissions are wages and, as such, effectively increase the average hourly rate.

CONCLUSION. Pest control operators would do well to abide by these requirements and continually check their compliance. One Department of Labor investigation can have a huge impact on a company's bottom line. Pest control operators can help ensure their compliance by (1) attending continuing education seminars and workshops that focus on wage and hour issues; (2) working closely with their human resource director to ensure properly structured pay plans, policies and practices; (3) subscribe to various management newsletters and publications that focus on compensation issues; and (4) work with consultants or other human resource experts who can provide guidance on compliance issues. PCT