As part of the Wage & Hour Division’s fissured industries initiative, which focuses on those industries where there is something less than a direct employee-employer relationship, temporary and other staffing agencies -- and the companies that use the services of those agencies -- have come under increased WHD scrutiny over the past several years.  WHD reports that it has conducted approximately 1,000 investigations involving temporary employment agencies since 2009, resulting in more than $11.5 million in back wages for more than 1,000 employees.

In one recent investigation, WHD an agreement to pay nearly $500,000 from a storage and packaging facility that used a temporary employment agency to provide up to 600 workers per day.  Consistent with our previous reporting on the increased use of liquidated (i.e., double) damages, the agreement to pay includes $249,000 in back wages and an equal amount as liquidated damages.  WHD determined that the storage company and the employment agency were joint employers and, thus, were jointly responsible for minimum wage and overtime compliance.

WHD’s investigation found that workers on the production line at the facility were required to be present 15 minutes before the scheduled start of the shift to ensure full staffing and to receive instructions, but were not paid for those 15 minutes.  In addition, temporary employees were occasionally assigned to unload trailers and were paid at a piece rate of $40 per trailer, but the piece rate was not included in the regular rate of pay for overtime hours.

We Have to Pay Overtime for Piece Rate Payments on Top of “Regular” Overtime?

Yes.  Piece rate -- and many other forms of “supplemental” payments over and above a normal hourly rate -- must be included in the “regular rate of pay” for the purposes of overtime compensation.  The “regular rate” is determined by dividing the total compensation (less permissible exclusions) by the number of hours worked in the work week.  So, assuming that an employee earns $10 per hour, works 50 hours, and unloads two trailers at $40/trailer, total compensation is determined as follows:

“Regular” Pay:  $10 x 50 hours (straight time) = $500.00

Piece Rate Pay:  $40 x 2 trailers = $80.00

Total Straight-Time Compensation:  $580.00

Regular Rate:  $580/50 = $11.60

Because the regular rate calculation includes all straight-time remuneration, the overtime compensation due is determined by taking one-half of the regular rate for all overtime hours worked:

$11.60 x 0.5 x 10 = $58.00

Total Compensation Due:  $580.00 + $58.00 = $638.00

Another way to approach the calculation, which results in the same total compensation due, is to simply calculate the additional overtime premium due on the piece rate payments:

Hourly Compensation:  (40 x $10) + (10 x $15) = $550.00

Piece Rate Per Hour:  $80/50 = $1.60

Additional Overtime Premium for Piece Rate:  $1.60 x 0.5 x 10 = $8.00

Total Compensation Due:  $550 + $80 + $8 = $638.00     

Although there are multiple methods by which the appropriate overtime compensation can be determined, the important thing to remember is that it must be determined.  Although there are several forms of additional compensation -- e.g., discretionary bonuses, the “premium” portion of a daily overtime payment -- that may be excluded, many other forms of additional compensation -- e.g., non-discretionary bonuses, shift differentials, piece rate payments -- must be included in the regular rate calculation. 

Well . . . What Should We Do?

First, review your payroll practices to ensure that the calculation of non-exempt employees’ pay includes overtime payments based on the proper regular rate of pay. 

Second, ensure that employees are being paid for all hours worked under the FLSA (or applicable state law).  Where an employee has been instructed to arrive at his or her workstation at a particular time for the purposes of receiving instructions about the day’s work, that time is almost certainly compensable and should be included in the employees’ work hours.

Finally, whether you are a staffing agency or the user of a staffing agency, you should take care to ensure that temporary/staffing agency workers are being paid in compliance with the law.  With WHD’s efforts to use all of its enforcement tools -- including liquidated damages, the “hot goods” provisions, and civil money penalties -- we’re going to keep hearing about these large back wage/liquidated damages recoveries, particularly in industries such as hotel, restaurant, construction, and, yes, employee staffing.  These types of investigations are not going away any time soon.

W.H.D.? (“What Happened, Dude?”) is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.