Sands Through the Hourglass: The Department of Labor’s View of Compensable Work Time

Kegler Brown Labor + Employee Relations Newsletter

The U.S. Department of Labor enforces the Fair Labor Standards Act, which is the federal law that mandates minimum wage and overtime pay requirements. One issue, which is sometimes thorny and often overlooked, involves time spent by employees before work begins and traveling throughout the day. An employer's failure to properly account for all compensable time, even if innocent or inadvertent, usually results in a sizeable backpay award for unpaid overtime compensation.

An instructive case in this area was just decided by the federal district court in northern Ohio. [Chao v. Akron Insulation & Supply, Inc., 2005 U.S. Dist. Lexis 9331 (N.D. Ohio 2005)]. The case is a good primer on how to properly, and improperly, handle these issues.

In this case, the Secretary of Labor brought suit against a contractor, claiming that the contractor failed to pay 45 employees overtime and also failed to keep accurate time records. The contractor utilized the following pay procedures: (a) employees were required to report to the shop each day before going out to job sites, (b) the employees clocked in when they arrived at the shop, (c) after they reported to the shop, employees received their work assignments for the day and, to the extent necessary, collected and loaded materials on trucks which traveled to the job sites, (d) crew assignments were made each morning, depending on which employees were present and the number of workers needed on the jobs, and (e) while at the shop in the morning, the employees spent a great deal of time waiting around, drinking coffee, and generally socializing. In order to get to the job sites, some employees drove company trucks (carrying materials, equipment, tools, etc.), and others rode together in their own cars. At the end of the day, all of the employees returned to the shop.

The employees also submitted handwritten time cards, which indicated the amount of time they spent at the job sites. The contractor paid the employees on the basis of the handwritten timecards. Employees were not paid from the time they reported to the shop because the contractor regarded this time as personal, social time and non-compensable travel time.

The Court's first finding was that the contractor violated the law by not paying employees from the time that the employees reported to the shop. Generally, an employer does not have to pay employees who voluntarily report for work early, as long as they do not perform any work. However, the basis for the Court's ruling in this case was that the employees were required to report to the shop by the company, and they often performed activities which were an indispensable part of their normal duties (such as receiving assignments and loading equipment). In addition, to the extent that employees were sitting around, drinking coffee and socializing, the Court said that did not matter because the employees were required to be there and they were waiting for the company's benefit.

The second finding was that the company also violated the law by not paying the employees for travel time. An employer can require employees to report for work at the job site, in which case paid time starts at the job site. However, once the contractor required the employees to report to the shop, all of the travel during the day (including from the shop to the job) must be compensated as hours worked.

Since the contractor did not include the employees' shop time and travel time in the employees' compensable work hours, the contractor violated the overtime law whenever an employee's total hours (including the unpaid shop and travel time) exceeded forty in a week. In this case, it cost the contractor a tidy $95,000 plus interest.

Mistakes in payroll procedures can be costly. Be sure to audit your payroll practices from time to time to confirm that you are paying employees properly under the law.