Solving the Overtime Puzzle

“There is an increased risk of employee error when people work from home,” said Lori Dodge, CLM, SHRM-CP, Accounting Manager at Ross Scalise and member of the Austin Chapter. The firm only has three people working in its physical office: Dodge, an attorney and a file clerk. Five non-attorney staff members and five attorneys work remotely.

An increasing number of law firms are facing the same challenge as Ross Scalise: finding solutions to the puzzle of tracking staff hours in the absence of a watchful eye. The risk is especially great at firms with robust remote working policies. Some 68.4% of firms responding to ALA’s 2022 Compensation and Benefits Survey reported having some work-from-home policies, up from 58.4% in the previous year’s survey. Nearly 7 out of 10 said they had introduced such policies for the first time over the previous 12 months. Such inexperience can only increase the risk for errors, and there’s no relief in sight: Fewer than one in five survey respondents believed remote work arrangements will ever return to prepandemic levels. 

HIGH RISK

Overtime errors can arise for reasons other than accidents. Well-intentioned staff members can create problems when they decide to donate their working hours to help their employer.

“Sometimes high-performing employees will put in over 40 hours but decide to not record all the time worked out of a sense of professionalism or loyalty,” says Brian P. Gilman, CLM, Chief Operating Officer at Smith Debnam and Foundation of ALA Vice President. This scenario commonly happens when a large case has looming deadlines or when a firm is getting ready for trial or filing an appellate brief. “But as employers we are required to pay for all actual time — including overtime — worked.”

Even when personnel are conscientious about reporting, the legal profession’s pressure-cooker atmosphere can create special risks. “Law is extremely time sensitive, and we live and die by the calendar,” says Dodge, who is a certified payroll professional. “When prepping for a deadline, stress levels are increased and that can cause errors in registering time worked.”

“By the end of 2022 we anticipate seeing a notice of proposed rule-making that likely will affect the minimum salary threshold.”

Whether deliberate or accidental, overtime violations can be expensive. “The cost of wage and hour compliance is much lower than the cost of liability,” says Marty Heller, a Partner at Fisher Phillips. “First, the law firm has to pay the amount that had not been paid for overtime. And it will also owe something called liquidated damages, which is another amount equal to the backpay owed.”

There are also attorney’s fees and costs, both the firm’s own and those of a prevailing plaintiff. Finally, in a U.S. Department of Labor (DOL) investigation, the government may issue what’s called civil money penalties, or CMPs. “They can be over $1,000 per violation,” says Heller.

ENSURING COMPLIANCE

As these comments suggest, it’s incumbent upon supervisors and managers to ensure people are reporting hours accurately. Perhaps the most common technique to do so is jawboning — using one’s authority to persuade others: “We regularly remind them that employees must clock in for any work that they do,” notes Dodge.

There’s also the potential for excessive working hours, even if recorded accurately, to erode the firm’s profitability. That’s where a gatekeeping mechanism comes into play. “In training our employees, we make sure they understand they must obtain approval from their manager for any overtime that exceeds an hour within our biweekly periods,” says Dodge. “If this isn’t adhered to, they’re subject to a verbal warning and then a written warning.”

While people do on occasion forget to obtain permission, the firm’s warning system is usually sufficient to get them back on track. “If the employee does work overtime, we pay for it, whether they received approval or not,” says Dodge. “That’s the law.”

“Law is extremely time sensitive, and we live and die by the calendar. When prepping for a deadline, stress levels are increased and that can cause errors in registering time worked.”

Verbal exhortations to conform to overtime rules should be reinforced in writing. “Setting out policies clearly in the firm’s HR manual is really key, because your employees aren’t going to know or read the IRS and DOL regulations on overtime,” says Gilman. “The text needs to be clear enough that employees can understand it and you can hold them accountable to it.”

Law firms can also take steps to obviate errors caused by the legal industry’s stressful environment. “The key to alleviating this problem is to train employees on efficient time management techniques,” says Dodge. “If people understand how to manage their time by doing such things as creating to-do lists and utilizing the calendar, that can really help.”

AUTOMATED RECORDING

If jawboning staff members on the importance of accurate activity tracking is essential, so is an automated system that keeps things squared away. That’s where computer software plays a role, by tracking the working hours of nonexempt employees.

“Timekeeping systems need to properly account for regulations and the firm’s own policies — for example, those related to break time — on what is paid work time and what is not,” says  Gilman.

A variety of software programs will allow remote workers to register their working time on the web. Larger firms will use software such as ADP, Paycom, Paycor, UKG or iSolved. Smaller ones will likely gravitate toward more affordable solutions such as the Easy Time Clock software used by Ross Scalise. The program’s $10 monthly fee also allows users to monitor productivity by comparing work done with hours clocked.

Some software will also allow the separation of billable and nonbillable time. “Paralegals do a lot of work that can be billed to the client, but especially in smaller firms can often wear two hats,” notes Suzette Welling, CLM, President of Law Practice Edge, a law firm consulting service. “They may do some more clerical legal assistant tasks that cannot be billed.”

Other software will allow firms to track staff communications, complete with time stamps. This can also obviate wage and hour violations. “It’s my responsibility to review time stamps, instant messages and emails,” says Dodge, whose firm uses Slack for this purpose. “If I see that someone sent an email at 9:57 p.m., I match that time with their records. If they’re not clocked in during that time, I approach the employee and find out why.”

Automated systems, though, are not a panacea. “For any number of reasons, an employee can get delayed logging in at the right time,” says Doug Miller, Chief Operating Officer at Sutter O’Connell, a firm with 15 nonexempt employees, and a member of the Cleveland Chapter. “Suppose they are entering the office in the morning and get caught by an attorney who engages them in a conversation. Ten minutes might go by before they get to their desk and log in.” Care also needs to be taken about breaks and lunch hours, he added. The clock needs to be reset if an employee engages in any work

WHO IS EXEMPT?

The right policies and procedures can help avoid errors in the tracking of work hours. Before doing anything else, though, law firms must decide who is subject to overtime in the first place.

“The first primary area of focus in terms of wage and hour policies and procedures is classification,” says Gilman. “Are employees subject to overtime or not? That is basically a nonexempt versus exempt question. The answer requires a reasonable job analysis: Do they meet the requirements to be considered exempt? If not, they’re nonexempt and subject to overtime.”

The requirements of exemption from overtime rules are outlined by the Wage and Hour Division of the Department of Labor. Employers must be able to convince regulators that exempt personnel fall into one of the so-called “white-collar categories” labeled executive, professional or administrative. Exemptions may also be granted for some people who are computer professionals, engage in outside sales or are highly compensated.

Exempt individuals must earn at least $684 a week, which translates to $35,568 per year. Paycheck size alone, though, is not sufficient criterion. Exempt personnel must also pass the so-called “duties test.” That means they must exhibit sufficient independent authority to make essential decisions in their daily work.

3 GREATER RISKS

Deciding who meets the exemption requirements means conducting detailed job analyses that can sometimes seem more art than science. A case in point is the perennial question on the status of paralegals. Law firms are tempted to classify them as exempt from overtime, given that sometimes they conduct operations that seem to put them in a supervisory role. Yet the urge should most often be resisted.

“It’s been pretty firmly established for some years that a paralegal is not going to meet the exemption qualification,” says Gilman. “Even if they are managing other paralegals or legal assistants, that may not be enough to qualify.”

Is there room for exception? Certainly, but it’s important to take a conservative approach.

“There is no definitive answer to which classification is correct,” says Heller. “To the extent a paralegal is given the authority to exercise discretion and independent judgment in significant matters, it is possible they could be exempt. But it has probably become more common — and is certainly the safer approach — to classify them as nonexempt.”

Law firms seem to agree. Nearly all respondents to ALA’s 2022 Compensation and Benefits Survey reported classifying legal assistants and paralegals as nonexempt.

The risk of classification errors is likely to become greater very shortly, as the hurdles for exemption status get higher. “The Biden administration has signaled its intension to revisit the white-collar exemptions to the [Fair Labor Standards Act]” says Heller. “By the end of 2022, we anticipate seeing a notice of proposed rule-making that likely will affect the minimum salary threshold. It may also include proposed changes to the duties tests, which haven’t been modified in roughly 20 years.”

Wondering about things like standard billable hours goals for associates and paralegals? ALA has you covered with our 2022 Compensation and Benefits survey. Members who participated in the survey pay just $349 (nonparticipating members pay $459). Get more details at alanet.org/compsurvey.