Some operators may be unnecessarily paying their route drivers overtime. Others who think they're paying by the books could be out of compliance with labor laws, inadvertently exposing themselves to legal and financial risks. Heather Bailey, an expert on labor and employment law issues, put operators into the big picture at the recent National Automatic Merchandising Association Coffee Tea & Water conference in Nashville.
"Three-quarters of the calls I get are about how to pay route drivers. There's so much risk if you're not paying them right," cautioned Bailey, who is a partner at SmithAmundsen LLC, a Chicago-based law firm. "When disgruntled employees are fired, they will go to their attorneys, and the first thing they'll want to know is how they were paid. This can make it an immediate class-action suit, if they look for the bigger picture."
Vending and OCS operators compensate their route drivers in various ways: salary only, hourly (with overtime), commission only, or a combination; or on the lesser-known "fluctuating workweek" basis. "What many don't know is that sometimes they have to pay overtime, and that sometimes it's a choice," Bailey explained.
One provision that can relieve operators of the need to pay overtime, but of which many are unaware, is the Motor Carrier Exemption in the U.S. Department of Labor's Fair Labor Standards Act, which took effect for NAMA members in 2005. It applies to trucks with an over-10,000-lb. gross vehicle weight rating whose drivers are engaged in interstate commerce.
"What this means is you don't have to pay overtime if your routes cross state lines -- even if they don't do it every day -- no matter how many hours they work," Bailey explained.
Since many items vending companies sell are shipped from out-of-state vendors or distributors and do not "come to rest" in their warehouses, their drivers are considered to be just one leg of those goods in interstate commerce under that Motor Carrier Exemption.
"The Department of Labor has a 1968 opinion letter that says vending should be exempt under the Motor Carrier Exemption, and the courts are upholding the determination that there's no overtime for vending operators," Bailey explained. "If you get a Department of Labor audit, you don't need to show records right then and there. It gives us time to write to them, and let them know about the law and the opinion letter. Don't just open up your books."
The labor law expert emphasized that NAMA is working for all members in support of the Motor Carrier Exemption. In the Southern District of Florida, for example, a NAMA member fought a route driver on the exemption and won.
"The operator was sued in a class action, and we argued before the court that the Motor Carrier Exemption applied," said Bailey. "His product distributor was in Florida, but the judge recognized the merchandise came from out of state. It was a great win for the industry, and now it's on the books."
She also cited a case in the Middle District of Tennessee in which the judge ruled against the operator, but changed her opinion as a result of an amicus brief that NAMA filed in support of the industry regarding the Motor Carrier Exemption.
STATE LAW PREVAILS
However, Bailey warned, there are states where the Motor Carrier Exemption is not valid because state law takes precedence; in those states, operators are required to pay overtime. They are Alaska, California, Colorado, Washington, Hawaii, Kansas, Maine, New Hampshire, New Jersey, New Mexico, New York and Washington, as well as the District of Columbia. In one of those states, for example, drivers have to be paid at least $1,000 a month in commission, or half of their pay must come from commission, in order for them to be considered exempt. In another state, overtime is not required as long as the driver is guaranteed a monthly salary of $2,000 or more. Still, in another state among this group, overtime is not required when a driver is paid on a commission basis.
"Assuming the Motor Carrier Exemption applies, you do not need to pay your route drivers overtime," Bailey emphasized. "You may pay them a weekly salary for all the hours they work, whether they worked for 20 hours or 60."
She warned operators to avoid deducting losses from drivers' salaries, since this can prevent their qualifying for the Motor Carrier Exemption. "If there's a cash shortage or a lost Bluetooth, you can't recover it by docking salary," Bailey instanced. "Doing so turns the driver into a non-exempt hourly employee and then you have to pay overtime," she explained. "You can recover those costs from commission or bonus, but not salary."
Operators covered under the Motor Carrier Exemption can choose to pay their route drivers based on commission only and can still choose to pay overtime, Bailey pointed out.
If employees are absent or take full days off, the operator doesn't have to pay them. But if they work any part of a day, the operator should pay them for the full day and make sure to document that this was done, Bailey advised.
There are many more scenarios of which operators should be aware, if the Motor Carrier Exemption applies to their drivers, to avoid the risk of losing it. If an employee takes a whole day off and is paid for a sick or a vacation day, for example, the operator does not have to pay any more than that amount. If they used all their paid time and take a sick day, the operator can deduct from their salary. If they're still in their 90-day waiting period to qualify for paid days off, the operator can deduct from their pay.
"This applies to any salaried employees, not just drivers," Bailey explained. "If they take jury duty leave, you can offset what they got paid for their service and make deductions. And if they take time off under the provisions of the Family and Medical Leave Act, you can make deductions; that's unpaid."
Operators can also deduct pay if an employee comes to work intoxicated, or violates another major written work or safety rule that requires them take a half-day off or a longer unpaid suspension.
Operators who subtract hours for their employees' lunch breaks should implement a sign-in sheet on which employees check off that they took a break. "You need documentation, and you must pay them if they don't take the break," Bailey advised. "We have to show we paid them for every hour they worked if they're hourly employees."
Employers who pay hourly salaries with overtime must agree to pay at least minimum wage. Depending upon the state, operators must pay time-and-a-half for hours worked beyond 40 in a week or eight in a day, and some states require double time. "You cannot combine weeks, or average out, to make the determination. It's on a work-week basis," Bailey explained.
When paying commissions with overtime, it's critical that operators have in writing the amount they agree to pay based on percent of commission. Overtime is calculated by taking commissions for the week divided by hours worked to arrive at an hourly rate. Half that rate times the number of overtime hours -- again, more than 40 hours in a week or eight hours in a day -- is the overtime pay.
"If you're not covered under the Motor Carrier Exemption, you must pay overtime," advised Bailey. "You have to keep track of hours so your records will document the number of hours worked, because employees lie -- and 100% of the time, they get believed."
She provided as an example for calculating commission for a nonexempt driver who earned $1,000 in weekly commissions and worked a total of 48 hours during the week. The employee's hourly rate for that week is $20.83 ($1,000 divided by 48).
Thus, the operator needs to compensate this employee at an additional $83.32 for his overtime hours ($20.83÷2 = $10.415), the "half" rate, multiplied by eight overtime hours.
Another example for computing the driver's overtime rate, for use by operations that calculate sales on a monthly basis, would be to take the monthly commissions of $2,000, multiply that by 12 months in the year ($24,000) and then divide that by 52 weeks in the year to arrive at the employee's weekly commissions of $461.54.
So if the employee worked 48 hours in one of the weeks that month, his overtime would be calculated as follows:
$461.54÷48 hours=$9.62 [or "$461.54/48 hours"] for a regular rate. The employee's additional overtime compensation would be $4.81 multiplied by the eight overtime hours (the hourly rate $9.62÷2) [or $9.62/2] to get the half-time rate $4.81.
"It's more tedious, but you can do it if it's the way your operation works," Bailey said.
An alternative to paying time-and-a-half overtime is to use the "fluctuating workweek method," which pays only half time for overtime. "It's much like paying a salary but with overtime," Bailey explained. "You must give notice if you're going to do it that way, and it's best to have employees agree to it in writing."
The reason operators are allowed to do this is that their employees may work 40 hours one week, 30 the next and 60 the next, she explained. "You agree on a weekly salary amount and agree to pay $X per week guaranteed. Each week, you take that salary, divided by the number of hours worked, to get the hourly rate and then multiply half that hourly rate by the number of overtime hours worked."
For example, suppose a driver of a smaller truck who is not exempt makes a fixed salary of $500 per week and worked 45 hours one week. The operator divides $500 by 45 hours, which equals $11.11 per hour, the employee's rate that week for straight time.
The operator then divides $11.11 by two in order to calculate the half-time for the five hours of overtime worked, which equals $5.56 per hour overtime, because the driver was already compensated straight-time for those hours with the fixed salary. "Compensate the employee for straight time for every hour worked that week. And document it or the employee will win the argument," Bailey stressed.
Operators can also pay their drivers through a combination of compensation plans, such as salary or hourly plus commission or commission plus nondiscretionary bonuses, safety awards or similar perks. In these cases, Bailey explained, "You have to combine hourly and commission divided by total number of hours worked and give half overtime pay."
Any pay that the driver is entitled to receive for his work gets included in these "weekly compensation for hourly rate" determination formulas, the labor law expert continued. She noted that gifts, holiday and other discretionary bonuses and premium payments added to hourly wages are not included.
Bailey cautioned operators to beware of the risks involved in paying employees incorrectly, from individual complaints and lawsuits for wages to a U.S. Department of Labor audit.
"All individual lawsuits can turn into class actions for all drivers," continued Bailey. "So it's best to get it right the first time." Potential damages, if the employer is found liable, range from back pay -- which can go back as far as five years with both former and current employees -- to interest penalties, attorney fees and even criminal consequences, along with all the resulting headaches and low morale.
Bailey's advice to operators is to determine whether the Motor Carrier Exemption applies or not, based on relevant state law, the type of vehicles used and whether interstate commerce applies. If so, they need to determine and pay salary each pay period, and know when they can and cannot deduct for a driver not working a full workweek.
An operator who does apply for the exemption must determine which method to use in calculating pay for route driver overtime. No matter which method is chosen, it's imperative that operators ensure that overtime is calculated on the basis of a workweek, and that all applicable compensation is included when determining the hourly rate.
"Always ensure that the driver is paid minimum wage," the speaker summed up. "Check your payroll system; many have automatic increases when rates change. When in doubt, contact labor and employment counsel. I see a lot of people get in trouble when it's the employee's word against theirs -- that employee always works 100 hours a week!" Here, again, good record-keeping is essential.
Bailey concluded by recommending a valuable resource that's available through NAMA. It's called the Essential Guide to Paying Your Employees and it's listed on the NAMA website, vending.org, under "Publications."