How Overlooked Overtime Regulations Nearly Destroyed One Bank

How Overlooked Overtime Regulations Nearly Destroyed One Bank

It was our first call with the client, and we could tell immediately that they were highly motivated. We could hear the payroll practitioner’s and HR director’s voices trembling, because they were in the crosshairs to prove compliance. The payroll person’s job, career, and reputation were at stake and we were their best hope of success.

The client was a regional bank in Oklahoma. They had suddenly found themselves facing a significant FLSA audit and fines because they had mortgage loan officers whose commission pay hadn’t been applied to the overtime they worked when the commissions were earned. The bank immediately turned to one of our Human Capital Management (HCM) partners looking for a solution to help them with lookback, or prior-period adjustment. That’s when we were brought in.

An Intimidating FLSA Audit Experience

We began talking with the bank at length to describe our process. Unbeknownst to us at the time, all of our communications were being reviewed and filtered by labor attorneys, consultants, and government agents to make sure they were on the path to compliance. They were facing a lot of fines—upwards of 7 figures—because they weren’t compliant with the Fair Labor Standards Act, which they had been ignorant of.

They had 90 days to show that they had a plan in place to correct the noncompliance. Stating that they would start using a spreadsheet for tracking wouldn’t be good enough—the government was expecting them to show that they had a systematic plan to be in compliance. If they didn’t resolve the situation, they would be fined upwards of $1M, as well as the possibility of regulatory restrictions on the kinds of services they could offer.

As the payroll practitioner spoke, it was clear she was visibly shaken as she described what had to happen, and by when. But when we explained how we do things and our timeline—and the nameless government agents and lawyers on the line blessed our proposal—there was a huge release in her voice because there was a light at the end of the tunnel with a positive outcome.

A Root Cause of Overtime Noncompliance

Prior-period adjustment is one of those overtime aspects that companies turn a blind eye toward. But because of the success of financial institutions, the government is seeing them as a ripe opportunity to collect revenue.

Because of the way the government is going after companies more and more, businesses that pay commissions and bonuses should see audits in terms of when, not if.

And with the overtime rule change in December, more companies will be heading into these waters for the first time. More organizations will be subjected to this kind of lookback functionality for their bonuses and incentives.

Prior-period adjustments are becoming more and more of a need, and it’s not something that’s generally available out-of-the-box with HCM systems because it requires calculations that go back in time by a month, a quarter, or a year.

But fortunately for the bank, this was an easy solution for us to implement.

Implementing the Solution

There were always several people that were on the initial calls, scrutinizing every word and design consideration to make sure it was going to be in compliance. A couple calls were tenuous—people’s livelihood and careers were on the line, as well as the bank’s reputation. It wasn’t just a nice-to-have situation, it was a critical-to-have situation.

Hearing the anguish she was going through added another layer of motivation for us to help get them peace of mind. We wanted to do whatever we could to help this organization get out from under the weight of the world.

We worked closely with our HCM partner and the client to satisfy the timeline and get our solution implemented and tested against their existing data. We implemented frequent checkpoints and all hands were on deck to make sure progress was being made in accordance with the timelines and requirements.

We implemented, tested, and verified the solution within the 90-day window. The bank was grateful to see their payrolls running correctly. “IDI’s Time Bank fulfills our needs for FLSA overtime compliance by correctly calculating prior period adjust­ments,” they said. “The process works reliably each pay period and has become second nature to our team.”

Don’t Be Ignorant About Overtime Laws

Many companies think that if salaries are accurate and commissions are on time, then they’ve done their due diligence. But they don’t realize that the bonus needs to be applied to the previously earned overtime. The adjustments are often minimal, but the penalties are disproportionately punitive. The adjustments that our client actually owed their employees totaled only about $8000 – $12,000 per pay period. But the fine they were facing was over a million dollars based on how long they were out of compliance.

Make sure you’re not in the dark on overtime regulations, and that your payroll system is calculating bonuses and commissions appropriately. If it isn’t, don’t wait for the government audit—find an automation system that will provide the functionality you need.

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