Premier Insurance Services Pays $120,000 In Back Wages, Damages, Penalties Because Commission-Only Comp Violated Minimum Wage, Overtime Laws


Insurance brokerage and other businesses paying commission-only compensation should review the defensibility of their payment practices in response to the agreement by Premier Insurance Services (Premier) to pay $119,570 in minimum wage and overtime back wages, liquidated damages and civil money penalties.

The settlement arises from an investigation by the U.S. Department of Labor’s Wage and Hour Division (DOL) that determined that the insurer willfully violated minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act (FLSA).  According to DOL, its investigators found that the commission-only pay practice used by the Colton, California-based employer at all of its locations resulted in employees being paid below the federal minimum wage and failing to receive an overtime premium for hours worked beyond 40 per week. DOL also charges that Premier failed to maintain employee time records.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also are required to maintain accurate time and payroll records.

The FLSA provides that employers who violate the law are, as a general rule, liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees.

Under the settlement, Premier will pay $43,297 in minimum wage and overtime back wages due to 90 employees and an equal amount in liquidated damages.  Because of the willful nature of the violations, the employer will also pay $32,976 in civil money penalties.

Premier also signed a settlement agreement with the Labor Department in which it committed to implement a timekeeping system to document employees’ hours worked, assure payment of at least the federal minimum wage of $7.25 per hour and accurately determine and pay overtime.

The Premier settlement follows DOL’s settlement of a related case last year after investigators discovered similar violations involving Upland, California-based Speedlane Insurance Services. This company was owned and operated by a close relative of Premier’s owner. That investigation resulted in $200,000 in back wages due to 96 employees.

The DOL’s announcement of the settlements alerts employers of the need to ensure that commission-based compensation meet FLSA requirements.

“Paying employees on a commission-only basis does not give employers a green light to dodge minimum wage and overtime pay requirements,” said Priscilla Garcia, director of DOL’s West Covina District Office when announcing the Premier settlement. “Premier Insurance Services knowingly violated the most basic labor laws to make a profit at the expense of their employees. This case should put other employers on notice that if they fail to pay their employees in compliance with federal law, our department will not hesitate to investigate. Employers may be found liable not only for back wages, but also for liquidated damages and other penalties.” (Emphasis added).

FLSA Violations Generally Costly;  Enforcement Rising

The enforcement record of the Labor Department confirms these risks and reflects DOL’s targeting of U.S. employers that violate wage and hour laws.

Under the Obama Administration, DOL officials have made it a priority to enforce overtime, record keeping, worker classification and other wage and hour law requirements.  See e.g.,  Boston Furs Sued For $1M For Violations Of Fair Labor Standards Act; Record $2.3 Millh ion+ Backpay Order; Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes; Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny; 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers;  Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.  In an effort to further promote compliance and enforcement of these rules,  the Labor Department is using  smart phone applications, social media and a host of other new tools to educate and recruit workers in its effort to find and prosecute violators. See, e.g. New Employee Smart Phone App New Tool In Labor Department’s Aggressive Wage & Hour Law Enforcement Campaign Against Restaurant & Other Employers.    As a result of these effort, employers violating the FLSA now face heightened risk of enforcement from both the  Labor Department and private litigation.

Employers Should Strengthen Practices For Defensibility

 To minimize exposure under the FLSA, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take other actions to minimize their potential liability under applicable wages and hour laws.  Steps advisable as part of this process include, but are not necessarily limited to:

  • Audit of each position current classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;
  • Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;
  • Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;
  • Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;
  • If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of proper corrective action after consultation with qualified legal counsel;
  • Review of existing documentation and record keeping practices for hourly employees;
  • Exploration of available options and alternatives for calculating required wage payments to non-exempt employees; and
  • Re-engineering of work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations and enforcement exposures.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel before starting their risk assessment and assess risks and claims within the scope of attorney-client privilege to help protect the ability to claim attorney-client privilege or other evidentiary protections to help shelter conversations or certain other sensitive risk activities from discovery under the rules of evidence.

For Help With Investigations, Policy Updates Or Other Needs

If you need help in conducting a risk assessment of or responding to an IRS, DOL, Justice Department, or other federal or state agencies or other private plaintiff or other legal challenges to your organization’s existing workforce classification or other labor and employment, compliance,  employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469) 767-8872 .

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 23 years of work helping employers; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit  and management policies and practices. The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer often has worked, extensively on these and other workforce and performance related matters.   She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For more information about Ms. Stamer and her experience or to get access to other publications by Ms. Stamer see here or contact Ms. Stamer directly.

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This entry was posted on Saturday, March 2nd, 2013 at 12:04 AM and is filed under Corporate Compliance, Employers, Human Resources, Internal Controls, Internal Investigations, Risk Management, Wage & Hour. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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