On September 16, 2013, the U.S. Department of Labor (DOL) announced that Harris Health System (“Harris”), a Houston health care provider of emergency, outpatient and inpatient medical services, has agreed to pay more than $4 million in back wages and damages to approximately 4,500 current and former employees for violations of the Fair Labor Standards Act’s overtime and recordkeeping provisions.  The DOL made this announcement after its Wage and Hour Division (“WHD”) completed a more than two-year investigation into the company’s payment system prompted by claims that employees were not being fully compensated.

Under the Fair Labor Standards Act (“FLSA”), employers typically must pay their non-exempt employees an overtime premium of time-and-one-half their regular rate of pay for all hours worked in excess of 40 hours in a workweek.  Notably, an employee’s “regular rate of pay” is not necessarily the same as his hourly rate of pay.  Rather, an employee’s “regular rate of pay” includes an employee’s “total remuneration” for that week, which consists of both the employee’s hourly rate, as well as any non-discretionary forms of payment, such as commissions, bonuses and incentive pay.  The FLSA dictates that an employee’s “regular rate” of pay is then determined by dividing the employee’s total remuneration for the week by the number of hours worked that week.  The FLSA also requires employers to maintain accurate time and payroll records for each of its employees.  Should an employer violate these provisions, the FLSA allows employees to recover back wages and an equal amount of liquidated damages.

The DOL’s investigation into Harris’s payment practices found that the company (i) had failed to include incentive pay when determining its employees’ regular rate of pay for overtime purposes, and thus had failed to property compensate its nurses, lab technicians, respiratory health care practitioners and other workers for overtime; and (ii) had failed to maintain proper overtime records.  As a result, Harris owed its employees a total of $2.06 million in back wages and another $2.06 million in liquidated damages.  Further, Harris has now taken steps to ensure compliance with the requirements of the FLSA by instituting changes in its payroll system and setting up a compliance program to ensure that its employees are properly compensated.

Because an employee’s “total remuneration” for a workweek may consist of various forms of compensation, employers must consistently evaluate and assess their payment structures and payroll systems to determine the payments that must be included in an employee’s overtime calculations beyond just hourly wage.  Additionally, employers should conduct periodic audits to ensure that it is maintaining full and accurate records of all hours worked by every employee.  Our Firm’s WHD Investigation Checklist could help employers ensure that they have thought through these and other essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit.  These simple steps could significantly reduce an employer’s exposure under the FLSA and similar state wage and hour laws.