Many employers commit the same wage and hour violations today that were prevalent 20 years ago. Before I began working in private practice, I was a prosecuting attorney for the Massachusetts agency that enforced the wage and hour laws. In that position, I quickly realized that many Massachusetts employers were unfamiliar with the wage and hour requirements in the commonwealth and found themselves in criminal court defending their pay practices.
I have developed a list of the 10 most common mistakes Massachusetts employers have made over the past two decades and continue to make, with the goal of providing guidance to employers in determining whether they need to revise their pay policies and practices.
1. Untimely payment of wages
It is an accepted practice for a Massachusetts employer to pay all of its employees on a semimonthly or monthly basis, but the employer is not always in compliance with the law. Massachusetts requires employees paid on an hourly basis to receive their paychecks on a weekly or biweekly basis. Salaried employees can be paid weekly, biweekly or semimonthly. Employers cannot pay salaried employees on a monthly basis unless the employee actually chooses to be paid monthly. Further, employers must pay employees within six days of the close of the pay period for which the wages were earned when the employee works five or six days/week. If the employee works seven days in a week, the employer must pay the employee within seven days. Employees who work overtime must receive their overtime pay in the same pay cycle in which the overtime hours were worked. Overtime payments cannot be delayed into the next pay cycle or paid on a monthly basis.
2. Failure to pay wages upon termination
An employer must pay on the final day of employment all wages owed to an employee who is terminated or laid off. When an employee leaves voluntarily, the employer can wait and pay all of the employee's wages by the next regular payday.
3. Mischaracterization of employees as exempt or nonexempt
Similar to the Fair Labor Standards Act under federal law, Massachusetts law establishes categories of employees who are exempt from the minimum wage and overtime laws. Massachusetts has adopted the same categories as the Fair Labor Standards Act for bona fide executive, professional and administrative exemptions. Massachusetts also has its own statutory list of employees who are exempt from minimum wage and overtime laws. Oftentimes companies categorize all of their employees as exempt from overtime laws, but in reality, the law is designed to have most employees be eligible for overtime pay.
4. Failure to pay overtime for salaried employees
Employees who are eligible for overtime pay must be paid one and a half times their regular rate for every hour worked after 40 hours. Oftentimes, an employer will unknowingly violate the overtime laws because the employer believes overtime pay is already incorporated in the employee's salary. Massachusetts law does not allow an employer to "incorporate" overtime pay into an employee's salary. In addition, the mere fact that an employee is paid a salary does not mean the employee is ineligible for overtime pay. The employee's eligibility status is related to the type of work the employee performs as well as a threshold minimum salary of $455/week that the employee must be paid.
5. Misclassification of employees
Employers often attempt to, but they cannot, avoid the requirements of the wage and hour laws by classifying individuals as independent contractors when indicia state that they are employees. Massachusetts law presumes an individual is an employee unless the individual (i) is free from the employer's actual control and direction; (ii) performs a service that is "outside the usual course of business of the employer"; and (iii) is "customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed." M.G.L. c. 149, § 148B. With respect to the second prong of this test, the Massachusetts attorney general has stated that in its enforcement actions, it "will consider whether the service the individual is performing is necessary to the business of the employing unit or merely incidental in determining whether the individual may be properly classified as other than an employee under prong two." See "An Advisory from the Attorney General's Fair Labor Division on M.G.L. c. 149, s. 148B." 2008/1.
6. Improperly taking deductions from wages
Without hesitation, employers deduct from employees' wages payments for, among other things, damage or losses to company property, monies stolen or embezzled from the company, school tuition, moving expenses and educational benefits. Some of these deductions are unlawful. Last year, the Massachusetts Supreme Judicial Court addressed a company policy whereby employees who were determined to be at fault for causing damage to company vehicles could accept the cost of the damage against their wages or accept disciplinary action. Camara v. A.G., 458 Mass. 756 (2011). The court determined the company's policy was an invalid setoff against the employee's wages because the company made itself the sole arbiter of the damage assessments, there was no appeal process for the employee and the damage assessment was not a "clear and established debt."
What is a valid setoff in Massachusetts? There is little guidance on this issue. The attorney general will make the determination on a case-by-case basis, evaluating the understanding between the employer and employee, the reason for the setoff agreement and the employer's overall practice for wage deductions, as well as other pertinent factors.
7. Unlawful prepayment of wages
An obscure court decision from 1959 that remains in effect interpreted the Massachusetts wage laws to prohibit an employer from paying wages prospectively. American Mut. Liability Ins. Co. v. Commissioner of Labor & Industries, 340 Mass. 144 (1959). An employer therefore cannot pay a week, two weeks or a month in advance to avoid the timely payment of wages requirements outlined in Section 1 above.
8. Failure to pay earned vacation time
Vacation time accrued or earned "under an oral or written agreement" with the employer is treated like wages under Massachusetts law, giving employees the same statutory rights to pursue vacation time owed to them that they have for their hourly pay or salary. Frequently, an employer believes it can refuse to pay earned vacation pay or establish a policy that requires employees to forfeit earned vacation time. Massachusetts law, however, does allow an employer to cap the amount of vacation time an employee may accrue or earn. An employer can also implement a "use it or lose it" policy. A "use it or lose it" policy requires employees to use all of their accumulated vacation time by a certain date or forfeit all or part of it. It is also permissible for an employer to have a policy that allows the employees to "carry over" a certain number of hours of vacation time after the period for using the vacation time has expired. The attorney general will invalidate an employer's "use it or lose it" or "carryover" policy if the employee is not provided with adequate notice of the time limitations or a reasonable opportunity to use the accumulated vacation time before it expires.
9. Mischaracterization of commissions and bonuses
A commission is compensation earned for services performed in accordance with the employer's policy or an agreement between the employer and employee. Commissions are usually compensation for selling a product or company service. A bonus is performance-based compensation in addition to the employee's salary. Like vacation pay, Massachusetts recognizes earned commissions as wages. Once an employee earns a commission, the employer must pay the commission to the employee. Commissions are often mischaracterized as bonuses, which are not wages under the law and not statutorily required to be paid.
10. Requiring work on Sundays and holidays
Massachusetts prohibits many types of businesses from opening on Sundays and certain holidays. Special provisions applying to certain retail establishments that choose to operate on Sundays require payment of premium pay and prohibit employers from requiring employees to work on Sundays.
This checklist is intended to provide Massachusetts employers with a brief overview of Massachusetts wage and hour laws and alert employers to the common traps into which many employers fall. This checklist, however, does not provide a comprehensive review of Massachusetts wage and hour laws. Employers should review their practices and policies with counsel if they believe after reviewing this checklist that they might not be in compliance with Massachusetts law.