Is Your Dealership Prepared for an Hourly Wage Investigation?
With the wide variety of jobs, payment scales and pay plans in any given dealership, it is easy to run afoul of Department of Labor rules.
June 17, 2016
The Department of Labor, through its Wage and Hour Division, is responsible for ensuring compliance with federal laws regarding pay and job classifications. Over the years the DOL has targeted automotive dealerships in particular for such investigations.
This should come as no surprise. With the wide variety of jobs, payment scales and pay plans at any given dealership, it is easy to run afoul of these rules simply by not being aware of all of the intricate details of compliance.
Recently the DOL once again has turned its scrutiny to auto dealers; several of our clients have received DOL audit letters requesting information about their employees’ wages and status.
Usually, the main areas where dealerships find themselves in trouble are employee classification, such as who is an “employee” and who is an “independent contractor,” as well as minimum-wage and overtime pay.
Staying compliant with wage and hour laws can be complex. But it can be dealt with by good record keeping and being proactive. Remember, as an employer, you are 100% responsible for keeping accurate payroll records for at least three years.
Once a dealership is notified of an investigation, there is little that can be done, and you almost surely will be hit with a large back-wage assessment, even if your violation was an innocent mistake.
Do Your Own Audit
The best way to be sure of compliance with federal wage and hour regulations is to do your own annual proactive audit of your workforce. If any problems are found they can be fixed before they become an issue with DOL.
So what do you look for? Here are the five most common targets of a DOL investigation:
1099 contractors: Be careful that anyone paid as an “independent contractor” really is one. The DOL will want a complete list of those paid on a Form 1099 to determine if they should be classified as “employees.” How often they work at your location and whether they have their own business and/or invoice you for their services usually are the criteria the DOL uses. The IRS has a 20-factor test it uses to determine employee vs. independent contractor. The test is based on the level of the employer’s control over the employee in behavior and financial terms, as well as the relationship between the two.
Sales people: Commissioned sales people always are in the DOL’s crosshairs. A dealership’s and the DOL’s definition of salesperson can be very different. For example, if the title “product specialist” is used for those who make initial contact with the customer and then hand them off to the sales manager, he or she likely will not meet the DOL’s definition of a salesperson and therefore is entitled to overtime compensation. Even commissioned sales people need to be paid a minimum wage to comply with federal law. If commissions are paid weekly or biweekly, you must check the payments for minimum-wage requirements weekly or biweekly and not monthly, as many dealers do.
Warranty staff paid salary and commission: A common mistake dealerships make is thinking anyone who earns a salary is exempt from overtime compensation. There is no such exemption. The exemption is based on responsibilities, not wages. These people could be entitled to overtime after 40 hours. The same goes for bookers and dispatchers, even if they are paid both salary and commission.
Service shop foremen: Foremen do not “manage” your service department. They also are not spending the majority of their day actually working on cars. So they fail to meet the requirements for either the “executive” or the “mechanic” exemption from overtime compensation. As in the previous two examples, just because they are on salary, even if it is a salary plus commission, that does not make them exempt from overtime either.
Managers: Auto dealers love to give out the title of manager. But not all managers qualify for DOL’s definition of an executive who is exempt from overtime. A manager is an executive only if he or she is in charge of a recognized department and/or supervises the work of two or more full time employees, has the authority to hire and fire and receives a salary in excess of $455/week. Most auto dealership “managers,” other than true department heads, will not qualify for this exemption and must be paid overtime on all of the compensation they receive.
It is extremely important to keep track of the hours worked by all employees. Even those in managerial-type positions who you think are exempt from overtime compensation should punch in and out of a time clock.
The Penalties
If found in violation of any of the regulations, penalties can be severe.
In addition to having to pay back wages, fees will be assessed. The first violation results in a fee equal to 10% of the unpaid wages, a second violation runs 18% and a third or more offense will cost 25% of the total.
There are other penalties as well for such things as noncompliance with the Affordable Care Act. Depending on the results of a DOL investigation, criminal charges also are possible.
Making matters even more complex, the DOL is concerned only with federal laws regarding hours and wages. Dealerships also are likely to be subject to state regulations, which may in fact conflict with federal law.
It is true the DOL is looking more closely at auto dealerships. However, most DOL wage and hour audits are the result of employees feeling their complaints are being ignored. Always follow up on any employee dispute over hours and wages and make sure your payroll records are 100% accurate, complete and up-to-date. An annual self-audit of your labor practices based on the five tips above is highly recommended.
It’s also a good idea to implement a hotline to your dealership’s law firm so a disgruntled employee has the opportunity to resolve the issue with your attorney before a complaint is made to the DOL.
Ira Silver, CPA, CGMA, is the principal-in-charge of the Orlando office of accounting firm MBAF, one of the top 40 accounting firms in the country. For more information, visit www.mbafcpa.com.
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