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Pay Plan Reboot

February 2011, F&I and Showroom - Feature

by Lon Leneve

Given the attention auto retailing has received over the years, it might be difficult to fathom that one area has escaped the watchful eye of federal regulators: pay plans. Recent actions by the Department of Labor and heightened awareness for wage and hour laws among employees could change that.

The subject of pay plans was covered in a recent Webinar co-hosted by my company, Compli, and John Donovan, a partner at noted labor law firm Fisher & Phillips LLP. The goal of the presentation was to highlight common misconceptions and best practices to help dealers in an area that’s often challenging, especially when dealing with poorly written, out-of-date and, sometimes, undocumented pay plans.

But there’s good reason to plug this noncompliance hole. The Department of Labor recently hired 250 new investigators to more aggressively investigate employee complaints. Employees also are more aware of employment laws these days, and wronged staffers no longer have to discuss employment matters with their bosses; they can go straight to their lawyer.

Also remember that if a dealership employee sues for wage and hour violations because his or her pay plan didn’t comply with the law, the dealer can be on the hook for three years’ worth of wages. Even if your new guy or gal has been with you only six months, you can bet his or her attorney will track down his or her predecessors until they can build three years’ worth of claims. Remember, a prevailing lawyer automatically gets all of his or her fees paid.

Let’s review some common misconceptions about pay plans:

Misconception No. 1: “We’ve used this pay plan for five, 10, maybe 15 years, and we’ve never had a problem, so I’m sure it’s okay.”

Reality: Most payroll managers will tell you they learned their job from their predecessor, which means their bad practices get carried on from year to year.

Misconception No. 2: “Well, he signed the pay plan and he signed his timecard, so he agreed to this amount.”

Reality: If an employer pays an employee at variance with what he has previously agreed to, it is a potential contract claim.

Misconception No. 3: “Oh, everyone in my 20 Group does this.”

Reality: The “everyone else does it” excuse doesn’t provide you with any protection, because regulations vary from state to state.

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