Understanding Wage and Hour Exposures

Wage and Hour (W&H) exposure is an often misunderstood and frequently underinsured risk. It is commonly — and incorrectly — assumed that W&H claims are restricted to either misclassification of exempt/non-exempt employment status or failure to pay overtime. However, W&H liability also includes allegations such as underpayment of overtime, miscalculation of wages, refusal to allow employee breaks, expecting off-the-clock work, not paying employees regularly, refusal to pay exempt employees for absences, not paying for time required to put on or remove protective gear or clothing, and only adhering to federal minimum wage guidelines when state guidelines warrant higher pay.

Featuring:

• Allyson Benda is a Senior Broker, Vice President located in CRC’s Nashville office and a member of the ExecPro Advisory Committee.

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Transcript

Dan Wentz: 0:24

According to the US Department of Labor, at least 70% of companies are not compliant with the Fair Labor Standards Act f LSA for short. As a result, Department of Labor has ramped up their wage and hour litigation in recent years. mlsa lawsuits have increased more than 500% since 1991. And those seats are costly. settlements reached 449 million in 2019. And that was before the global pandemic. In this episode, we discuss Wage and Hour exposures with Allison benda from CRC Nashville. She's a senior broker with over 16 years of experience dealing with employment practices, liability, EPL. That's all next, right here on the placing you first podcast. This is the placing you first podcast I'm Dan Wentz. And this podcast features news and insights from CRC his vast knowledge base of 2000 plus associates who right in excess of $10 billion of premium annually, and we're giving you insider access to what's happening in our company and the types of insurance we place. This is the placing you first podcast. Alison, you recently contributed to an article for us about Wage and Hour exposures. So we wanted to pick your your brain on that a little bit and learn some more about itself. Could you tell us what it is? What is wage and hour and why it's so important?

Allyson Benda: 1:44

Sure, thanks, Stan. So Wage and Hour insurance provides coverage for violations of the Fair Labor Standards Act, mostly referred to as slsa. And the Department of Labor passed FSA in 1938, to set standards for minimum wage for overtime pay and child labor in the workplace. So really, Wage and Hour claims were born out of this. Now wage and hour is typically excluded from an employment practices policy. So it's important for those placing EPL to fill the gap because all employers have the potential for being sued for violations of slsa. And this is exactly why the coverage is just so important because anyone with employees is susceptible to claims in 2020 presented employers with several challenges from a wage and hour perspective, thanks to COVID. And it's proven even more why this coverage is just so important.

Dan Wentz: 2:37

What are some of the typical claims and settlements for wage and hour

Allyson Benda: 2:41

since FSA was enacted in 1938, Wage and Hour claims have risen steadily. I found some statistics online that showed the number of 2019 cases that focused on minimum wage or overtime violations reached over 20,000 and resulted in payment of more than $225 million in back wages. Now, the average case settled for $8.2 million in 2019, which is substantially higher than the figure from 2018 of 5 million. The 20 figure 2020, excuse me, figures have not yet been released. But I expect that that's going to those numbers are going to blow out of the 2019 numbers out of the water, mostly due to the impact of COVID. And it's fairly common to see Wage and Hour claims in the form of class action lawsuits. These suits are very costly, as you can imagine, and they pose a substantial threat to employers. For example, in 2016, there was a group of more than 400 Uber drivers in California, who reached a $446,000 settlement with Uber to settle allegations of several Wage and Hour violations, things like non payment of overtime, working off the clock not being provided breaks and not being reimbursed for job related expenses. And in addition to this settlement, the company also settled an independent contractor misclassification suit for $100 million. So as you can see, class action suits and Wage and Hour violations can be very costly to employers.

Dan Wentz: 4:14

Oh, absolutely. I hadn't heard of the Uber one. That's a good one. So what are some of the most common allegations when it comes to wage and hour?

Allyson Benda: 4:21

Sure, some of the typical allegations regarding Wage and Hour include the MIS classification of employees misclassifying them as exempt or non exempt or misclassifying them as independent contractors when they are employees. And it's come to light that a lot of employers have misclassified employees so that they can not have to pay overtime wages or minimum wage or pay other benefits. Some other allegations include were wrongful deductions from pay or the failure of an employer to pay minimum or overtime wages. And in fact, this is the number one allegation when it comes to wage and hour it accounts for over 40% of wage and hour violations. Some additional allegations include unpaid meal breaks or other rest breaks in proper time keeping records and then the failure to pay wages for off the clock work. So let's say you have an employee whose boss or supervisor ask them to stop by FedEx can go on the way home and pick up some coffee, some photocopies. It's after hours work. How do you pay them? Do you pay them? So this can be tricky.

Dan Wentz: 5:30

Yeah, yeah. So you may be at risk for this and not even know you're, you know, you're at risk.

Allyson Benda: 5:36

Absolutely.

Dan Wentz: 5:37

What about COVID-19? I'm sure it's really complicated things in this world, huh?

Allyson Benda: 5:42

I will absolutely. So COVID-19 has certainly created some unique challenges to employers. when attempting to stay in compliance with Wage and Hour laws. There were significant developments that were made in Wage and Hour obligations for employers, most specifically, as you can imagine, related to work from home. The Department of Labor, they issued some guidance in several areas, such as compensation of remote workers help with tracking employee hours, and guidelines on expense reimbursement for costs associated with remote working, such as Internet usage or cell phone usage. And there was even several laws that were passed in both California and Illinois that required employers to compensate their employees for these work from home expenses. And I think that we can expect an uptick in wage and hour class actions this year, due to the dramatic spike in telework in 2020. In fact, there were more than double the amount of employees who were working from home than those who were actually working on site. And I think that that trend will continue as more and more companies shift from an in person environment to a work from home environment,

Dan Wentz: 6:51

when it comes to placing this risk isn't covered by EPO by employment practices, liability insurance.

Allyson Benda: 6:56

You know, a lot of people who aren't in this line of business or who don't place EPL on a regular basis tend to think so. But that's just not the case. There's an F LSA exclusion on EPL policies. So coverage is only available via an endorsement. And there are only about one or two markets that I know of who will provide both defense and indemnity on that endorsement under the wage and hour coverage. The majority of carriers are providing defense costs only. And it ranges anywhere from a $25,000 sublimate up to $250,000. So it really depends on the risk the carrier, there are standalone policies that are available. They offer both the defense and the indemnity, but they are very expensive. They're typically reserved for your fortune 500 companies are larger, because the premiums start at a six figure. And the retentions can start anywhere from a million going upwards to 5 million. So the small or middle market companies, they just can't pay that for standalone policy. So they're really left with that endorsement, providing the defense cost only at a sub limited amount.

Dan Wentz: 8:05

And that plays into the the next question the size of business, does that affect the restrictions and the limits? I mean, you kind of touched on the limits there, if you're a small business is a different than if you're a large business.

Allyson Benda: 8:16

Sure. I mean, size definitely matters. You know, we have a lot of carriers who will not offer the wage and hour endorsement to employers with employees have to have more than 250 employees. So, you know, if you're a larger employer, it's difficult to find the coverage. Also, jurisdiction comes into play if you're in certain states like California, we mentioned that earlier, Illinois, New York, New Jersey, Florida, these are really tough states from a wage and hour perspective. And a lot of carriers will not offer the coverage in those states. You also have an industry, think about the industries, you have hospitality like restaurants, retail financial institutions, manufacturing, think of those industries that employ independent contractors or a lot of part time workers. This makes it very difficult from a wage and hour perspective.

Dan Wentz: 9:08

So what about mitigating the risk? Are there any strategies for mitigating Wage and Hour claims?

Allyson Benda: 9:13

Yes, sure. So there's several steps that can be taken to help insurance and mitigate their risk. I would say, first of all, take advantage of the state and local government self assessment tool that's available from the US Department of Labor, go to their website, look for the Wage and Hour Division and take that assessment, review exempt and non exempt employee classifications on a regular basis. Make sure that you're updating or revising your job descriptions so that those are always accurate. enact policies that prohibit off the clock work. Regular regularly review managerial practices to ensure that supervisors only encourage after hours work when it's 100% necessary and when they're doing so that they are paying properly for that after hours work. insured should make sure that they understand the applicable state Wage and Hour laws and keep pace with local and federal changes such as the new guidelines we touched upon for COVID-19. And then finally, they should always consult with outside counsel to safely navigate all of the wage and hour issues.

Dan Wentz: 10:16

So also when it comes to placing Wage and Hour insurance. How does the CRC Producer How is a good wholesale specialist help you in this area?

Allyson Benda: 10:27

Sure. So I think it's so important for retailers to maintain strong relationships with a knowledgeable broker who has extensive marketplace connections and deep industry expertise. You know, this can make all the difference when navigating the world of wage and hour. You know, CRC has an exact pro practice where we share ideas and information on the latest trends in the professional liability area. And I'm not sure how many wholesalers can boast that collective brain power or the willingness to share among the group, so retailers really should not hesitate to tap into that resource.

Dan Wentz: 11:02

Absolutely. If you want more information, you can head to our website we've got a lot of information up there CRC group comm look for the ones you need to find a specialists in this area. Obviously Allison is great from our Nashville office and all her information is included in this podcast or on the YouTube video. However you're getting this check out the producer search it CRC group comm you can find somebody there any of our exec producers are going to be able to help you our brokers and also check out tools in incel CRC group comm it's our our newsletter, our monthly newsletter we put out with a bunch of great articles timely, just like this about wait. Allison, thank you so much for joining us today. It's been super informational. super helpful. always enjoy having you on the podcast.

Allyson Benda: 11:46

Thank you Dan.