Module 2 - Fair Labor Standards Act

Bipartisan Budget Act of 2015

Congress instructed DOL and other federal agencies to increase their civil monetary penalties by the rate of inflation since 1990, and then annually index them to increases in the Consumer Price Index.

Failure to pay for all recorded hours

One of the risks of using time clocks is that employees do not generally clock in at precisely the shift start time. The time represented on the official time card versus the time the employer actually pays the employee for may differ and may serve as an area of contention. Even for those companies that do not use time clocks, if your practice is not to pay for lunch time, but employees record only their "start" and "stop" times, the official record of time will differ from the actual hours paid for.

Fair Labor Standards Act of 1938 - Purpose

The primary objective of the FLSA in 1938 was workers' rights. The FLSA is the principal federal statute that influences the design of direct compensation programs. 1. Establish a minimum wage rate 2. Eliminate detrimental working conditions 3. Protect the educational opportunities of youth

Non Discretionary Bonus

Typically defined as driven by formula, communicated to employees in advance and employees have a right to receive if conditions are met. A lump sum in lieu of a merit increase would be considered a nondiscretionary payment under the FLSA provisions. Nondiscretionary bonuses must be included in the regular rate of pay when calculating overtime pay.

Fair Labor Standards Act of 1938 - Enforcing Agency

U.S. Department of Labor, administered by the Wage and Hour Division (FLSA)

Remedial Education Exemption

1. 1989 Congress passed an amendment to increase the minimum wage. 2. Amendment included a provision for remedial education 3. Employer can enroll an employee in remedial education of up to 10 hours per week without overtime pay. a) The instruction must be conducted during set time periods and away from the employee's regular work station, if possible, but must not include job-specific training. b) The employee must be paid up to 10 hours at straight time for the training time for each workweek.

Salary Basis Test: Exempt Employees - Proper Deductions from Salary

1. Absence from work for one or more full days for personal reasons other than sickness or disability 2. Absence from work for one or more full days due to sickness or disability if the deductions are made under a bona fide plan, policy or practice 3. To offset any amounts received as payment for jury fees, witness fees or military pay 4. Penalties imposed in good faith for violating safety rules of "major significance" 5. Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules 6. Proportionate part of an employee's full salary may be paid for time actually worked in the first and last weeks of employment

Statute of limitations

1. Actions to enforce nonwillful violations must be commenced within two years of the cause of the action. 2. Actions to enforce willful violations must be commenced within three years of the cause of the action.

Child Labor Rules - Restrictions

1. Age 2. Hours of Work 3. Types of Employers 4. Types of Jobs

Other regular "pay" allowances

1. Bonus 2. Exclusion

Payments not included in the regular rate of pay for overtime calculation

1. Discretionary bonuses (i.e., holiday, gifts) 2. Vacation, holiday, sick 3. Expense reimbursement 4. Contribution to bona-fide profit-sharing plan/trust, or thrift/savings plan

Violations and Penalties

1. Employers may not retaliate against employees if they exercise their FLSA rights. 2. Employees cannot voluntarily waive their FLSA rights. 3. Employers who violate the minimum wage and overtime provisions of the FLSA are subject to the following: i. Civil suit by the DOL to collect unpaid minimum wages and overtime due employees, plus an equal amount as liquidated damages ii. Civil suit by the DOL to enjoin further violations. The DOL can request the court to enjoin the interstate shipment of goods produced in violation of the FLSA and can also request back pay for affected employees. iii. In extreme cases the DOL may go to court to issue an injunction against an employer and temporarily close down its operation or company. 4. Employers are also subject to criminal prosecution by the Justice Department for willful violations of the FLSA. i. Conviction may result in fines and, for second offenders, imprisonment. ii. Federal contractors are debarred from federal contract work if found guilty of willful violations.

Fair Labor Standards Act of 1938 - Coverage

1. Employers who are involved in interstate or foreign commerce are covered by the FLSA. FLSA coverage is broadly interpreted and includes nearly all employers of all sizes. 2. Two amendments (1966 and 1974) expanded coverage to include 90% of the American labor force.

Repeated Violations

1. Established when an employer has a prior finding against it by the Labor Department, court or another tribunal with authority to make such a finding. 2. A prior finding could be established if an employer has failed to file an appeal or if an appeal has been concluded. 3. A multi-establishment employer can be fined for violations at different establishments.

Items that apply to Non-Exempts

1. Hours of Work 2. Rate of Pay 3. Worker Economic Opportunity Act 4. Child Labor Rules 5. Record Keeping Requirements

Salary Basis Test: Exempt Employees - Improper Deductions from Salary

1. Isolated or inadvertent improper deductions will not result in the loss of exempt status if the employer reimburses the employee. 2. An actual practice of making improper deductions from salary will result in the loss of the exemption: i. During the time period in which improper deductions were made ii. For employees in the same job classifications iii. For employees working for the same manager(s) responsible for the actual improper deductions a. Possibly working in the same geographic region 3. Factors that could suggest an actual practice are: i. The number of improper deductions compared to the number of employee infractions warranting discipline ii. The time period of the improper deductions iii. The number and geographic location Clearly communicated policy permitting or prohibiting improper deductions

Fair Labor Standards Act of 1938 - Provisions

1. Minimum wage 2. Employment categories (exempt/nonexempt) 3. Hours of work 4. Rate of pay a. Overtime b. Banked hours 5. Worker Economic Opportunity Act 6. Child labor restrictions 7. Record-keeping requirements 8. Violations and penalties

Common FLSA Violations

1. Misclassification of employees as exempt. 2. Improper payment for break time. 3. On-call time 4. Training time 5. Travel time 6. Compensatory time off 7. Failure to pay for unauthorized hours worked 8. Bonus pay exclusion from regular hourly rate 9. Failure to pay for all recorded hours 10. Inaccurate records

Rest and meal periods

1. None Required under FLSA 2. Rest periods of 5-20 min count as hours worked. 3. Bona fide meal periods of 30 minutes or more are not hours worked.

Child Labor Rules - Objectives

1. Protect Education, Health, well-being. 2. Adult Worker Priority

Rate of Pay - TYPES

1. Regular 2. Overtime 3. "Banked hours" (comp time)

Salary Level Test - Definition

1. The DOL has established a salary level of $455 per week ($23,660 per year). Any employee earning less than $455 per week will not pass the salary level test, therefore will be nonexempt. 2. For employees in Puerto Rico and the Virgin Islands, the salary levels match the United States. For employees in American Samoa, the lower level is $380 per week ($19,760 per year).

Overtime

1. The FLSA requires employers to pay all nonexempt employees at least one and one-half times regular rate of pay for all hours worked over 40 hours each workweek (during established 168-hour period consisting of seven consecutive 24-hour periods). a. In certain special cases, such as hospitals and nursing homes, you can use over 80 hours in a two-week period rather than 40 hours per week. This "8 and 80" allows greater scheduling flexibility in a two-week period, but does require paying overtime for all hours over 8 worked in any given work day. b. The workweek can begin on any day of the week and at any hour decided by the employer. c. It is a period of 168 hours during the following seven 24-hour periods. 2. State law may require daily overtime. 3. Regular rate includes supplementary earnings such as commissions, bonuses or shift premiums.

Safe Harbor

1. The exemption will not be lost if: a. The employer has a clearly communicated policy prohibiting improper deductions, including a complaint mechanism. b. Reimbursement is made to the employee for any improper deduction. c. The employer makes a good faith commitment to comply with the regulations in the future. 2. If the employer engages in willful violation of the policy by continuing to make improper deductions after receiving complaints, the safe harbor option will not be available. 3. A clearly communicated policy must be included in the employee handbook, and/or posted on the intranet, and/or distributed as a handout during an orientation meeting.

Good faith defense

An employer may escape back pay or liquidated damages liability if it relied in good faith on a written interpretation of the FLSA from the Wage and Hour Administration. An employer may reduce its liquidated damages liability by showing that it had a good faith basis based on other sources for its belief that it was not violating the FLSA. An employer's good faith is not a defense to an action for an injunction.

Improper payment for break time

Any break of five to 20 minutes must be considered hours worked. Breaks greater than 20 minutes are not hours worked. Bona fide meal periods of 30 minutes or more are not hours worked.

Computer Employees

Effective March 29, 1991, Congress amended the FLSA to allow for an exemption for computer employees. a. This special exemption was previously incorporated in the professional exemption test. b. Titles noted in the language of the amendment include Computer Systems Analysts, Computer Programmers, Software Engineers, and other similarly skilled jobs c. Qualifying wage i. Hourly: regular rate of payment must exceed 6.5 times the federal minimum wage at the time the amendment was enacted (4.25 × 6.5 = $27.625/hour). ii. Salaried employees must be paid the established minimum weekly rate. d. Special consideration: Hourly paid computer employees making less than the qualifying wage ($27.625/hour) are automatically nonexempt. Salaried computer employees paid at the established minimum weekly rate may still qualify for an exemption under the executive or administrative exemption tests. In addition to the pay requirement for exempt status, the primary duties of a computer- related job must include one or more of the duties noted on this page. e. Qualifying duties are clearly related to highly technical computer tasks and duties. i. Applying systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional applications ii. Design, develop, document, analyze, create, test or modify computer systems or programs (including prototypes) based on and related to user or system design specifications iii. Design, develop, document, analyze, create or modify computer programs related to machine operating systems iv. Any combination of duties described above Note: This is the first time Congress has allowed for an exemption from the overtime and record-keeping requirements of the FLSA for hourly employees.

Regular Rate of Pay

Employee's average hourly earnings for that workweek. It includes compensation in the form of commissions, shift premiums, and nondiscretionary bonuses.

Shift Premium

Extra pay allowances made to employees who work on a shift other than a regular day shift.

Compensatory time off

For the majority of employers, there is no such thing as compensatory time off for nonexempt employees. The simplest way to ensure compliance with the FLSA is to pay every nonexempt employee for all hours worked in the week that they are worked. If those hours worked exceed 40, under the act, pay time and one-half for all such hours.

Training time

If the time spent in training is during the regular hours of work, if any job-connected work is produced during training, or if the training is considered a requirement for the ongoing employment relationship (that is, training is not voluntary), the hours in training and some amount of study time must be considered hours worked.

Willful Violations

Intended to apply to situations where the employer should have known or clearly should have sought out advice from the Labor Department before implementing the plan or program that is not in compliance. a. Occurs when the employer knows its conduct is prohibited under the act or shows reckless disregard for the requirements of the act. b. An employer's conduct will be considered "knowing" if the Labor Department earlier had advised the employer that its actions were unlawful. c. Also applies if the employer should have inquired further into whether its conduct was in compliance with the act and failed to do so.

Misclassification of employees as exempt

The Labor Department will take great care to confirm what criteria the employer used to establish exemption. What they are really looking for are attempts by employers to avoid the overtime penalty.

Worker Economic Opportunity Act of 2000

The Worker Economic Opportunity Act is an amendment to FLSA that was signed into law on May 18, 2000. a. Purpose: allows employers to exclude from overtime calculations the profits or income earned from stock option plans, stock appreciation rights (SARs) and employee stock purchase plans b. Coverage: same as FLSA c. Provisions i. Terms of the plan must be communicated to employees. ii. Employees given option not to participate iii. Stock options and SARs cannot be granted at more than 15% discount. iv. Employees must hold option or right for at least six months. v. Stock purchase plans only qualify if they are tax-qualified or are substantially similar to tax-qualified plan. d. Enforcing agency: U.S. Department of Labor (Wage and Hour Division)

Minimum Wage

The basis for pay does not affect the minimum wage law (hour, piecework or salary). Employees must earn at least minimum wage regardless of the method of pay. State or local law may be higher.

Failure to pay for unauthorized hours worked

The fact that you told your employees to leave their work stations for lunch and not show up early or leave late will not reduce your responsibility. Remember, the act specifies that you must pay the employee for all hours you "suffer, permit or allow" the employee to work.

Base Rate

The hourly Amount paid for a job performed.

Exemption Tests - Salary Basis Test - Exception

There are several exceptions to the salary basis tests: i. Computer professionals earning more than $27.63 per hour can be classified as exempt under the salary basis tests. ii. The following professions have been exempted from the salary basis tests: 1. Outside sales 2. Licensed or certified doctors 3. Lawyers 4. Teachers iii. An exception to the full weekly salary requirement occurs when an employee must miss part of a day for medical reasons covered by the Family and Medical Leave Act. The employer can dock the exempt employee for this partial absence without jeopardizing the employee's salary basis.

On-call time

Whenever the employer requires an employee to be on call and the employee is not free to pursue the majority of his/her normal nonwork activities, the on-call time is considered hours worked.

Bonus pay exclusion from regular hourly rate

With the growing interest in variable pay, at-risk pay, gainsharing, lump-sum merit bonuses and the like, it is critical that your legal counsel and/or the Labor Department be consulted before you implement a plan. You certainly do not want to find out via an audit that you have not included bonus earnings in the regular rate of pay. There is a strong likelihood that the Department would consider this not only a violation, but a willful violation of the act's provisions.

Training time

a. Attendance is work time if: i. It is required by the employer. ii. The employee is given to understand or led to believe that present working conditions or the continuance of employment would be adversely affected by nonattendance. b. Attendance is not work time if all of the following four criteria are met: i. Attendance is outside of the employee's regular working hours. ii. Attendance is in fact voluntary. iii. The course, lecture, or meeting is not directly related to the employee's job. iv. The employee does not perform any productive work during such attendance.

Prompts for an Audit

a. Employee personnel complaints to the Labor Department are probably the most common reasons for an audit. Anytime an employee feels "taken advantage of," the employee may call the local DOL office and register a formal complaint. Even if the employee's complaint has no merit, the DOL auditors will certainly review information that extends beyond the complaining employee's records. b. A second possible reason for a company to be audited is based on a random audit. The intention of random audits for the Labor Department is similar to the use of sampling for quality. The Department is looking at several employment sites to establish what the level of compliance is. c. The third way that an employer can be identified for an audit would be when the Department of Labor targets certain geographic regions of the country or particular industries. i. An example of this type of approach would be the fast-food industry - it is periodically targeted as an industry, especially for child labor compliance issues. An example of geographic targeting can be seen where there are large numbers of immigrants and the DOL is looking for minimum wage and overtime as well as record-keeping compliance.

"On Call" Time

a. Engaged to wait - All hours the employee is "engaged to wait" are considered hours worked. i. Employee required to stay on company premises, or close enough that employee is not free to pursue his/her own interests ii. A person hired to do nothing, or who is hired to wait for something to do (or happen), is still working. b. Waiting to be engaged i. Employee who is "on call" must be able to use the time for their own purposes. ii. Can require employee to be accessible by phone or pager iii. Anytime spent responding to calls is hours worked.

Salary Level Test - Exceptions

a. Exceptions - Several professions do not have a salary level test requirement (these are the same professions that are exempt from the salary basis test): i. Outside sales ii. Licensed or certified doctors iii. Lawyers iv. Teachers

Record-Keeping Requirements

a. No particular form required with regard to exempt employees but the following records must be maintained for nonexempt employees: i. Name, home address, and birth date if the employee is under 19 years of age ii. Sex and occupation iii. Hour and day when workweek begins iv. Regular hourly pay rate for any week when overtime is worked v. Hours worked each workday and total hours worked each workweek vi. Total daily or weekly straight time earnings a. Must be kept at least three years b. Include basic records of employee information (such as sex, name, address, date of birth, occupation, pay and hours worked on a weekly basis)

FLSA Does Not Require

a. Pay for time not worked i. Vacation ii. Holiday iii. Severance iv. Sickness v. Meal periods of 30 consecutive minutes or more, duty-free vi. Rest periods greater than 20 consecutive minutes b. Time clocks to record hours worked c. Premium pay for i. Saturday, Sunday, holiday, or sixth- or seventh-day work ii. Hours worked in excess of eight per day unless the employer chooses the 8/80 option d. Differentiation between exempt and nonexempt employees in any other way than minimum wage payments, overtime premiums, and records e. Pay raises or fringe benefits f. A discharge notice, reason for discharge or immediate payment of final wages to terminated employees g. Pay stubs or W-2s h. A limit on number of hours in a day, or days in a week, an employee may be required or scheduled to work (if the employee is at least 16 years old)

Creative Professional Standard Test

a. Primary duties: performing work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor b. Minimum salary: Must be paid on a salary basis and at the established minimum weekly rate exclusive of board, lodging, or other facilities.

Outside Sales Test

a. Primary duty: The person is employed for the purpose of customarily and regularly working away from the employer's place of business in one of the following capacities: i. Making sales ii. Obtaining orders or contracts for services for use of facilities for which consideration will be paid by the client or customer (such as selling radio time) b. Minimum salary: There is no salary test for outside salespeople.

Executive Standard Test

a. Primary duty: management of the enterprise, or a recognized department or subdivision i. Planning Directing Controlling b. Other duties i. Customarily and regularly direct the work of at least two or more full-time (or full-time equivalent) employees ii. Have the authority to hire or fire, or recommend hiring or firing; or have recommendations on these and other actions affecting employees given particular weight c. Minimum salary: Must be paid on a salary basis and at the established minimum weekly rate exclusive of board, lodging, or other facilities. To be salaried under the FLSA exemption means to be paid the full salary for the workweek regardless of hours worked that workweek.

Administrative Standard Test

a. Primary duty: performing office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers b. Other duties i. Exercises discretion and independent judgment with respect to matters of significance 1. Discretion and independent judgment involves the comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. 2. Matter of significance refers to the level of importance or consequence of the work performed. c. Minimum salary: Must be paid on a salary basis and at the established minimum weekly rate exclusive of board, lodging, or other facilities.

Learned Professional Standard Test

a. Primary duty: performing work requiring advanced knowledge, defined as work that is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and independent judgment. Advanced knowledge of an advanced type must be in a field of science or learning customarily acquired by a prolonged course of specialized individual instruction. b. Minimum salary: Must be paid on a salary basis and at the established minimum weekly rate exclusive of board, lodging, or other facilities. Special note: Because at the present time there is too great a variation in standards and academic requirements for computer programmers and systems analysts, they do not qualify as members of a true profession, and, hence, do not qualify for exemption as professionals based solely on the job content exemption test seen here. They may qualify, however, under the administrative exemption or, as will be explained, may qualify for a special professional exemption.

Employee Categories

a. The FLSA divides all employees into the two major categories of exempt and nonexempt. b. The Department of Labor's position is that all jobs are nonexempt until proven otherwise.

Travel Time

a. The time spent by nonexempt employees in travel from domicile to workplace is generally not considered time worked. b. If the employee makes a trip by operating a vehicle on the employer's behalf (such as a van pool driver), the trip is counted as hours worked. c. Any other travel required by the employer during the employee's normal work hours is usually counted as hours worked, even if it occurs on the employee's normal day off.

Hours of Work

all time which the employer requires, suffers or permits the employee to be on duty or at a prescribed workplace or on employer's premises. 1. Rest and meal periods 2. Training time 3. On call time 4. Travel time 5. Remedial education

Bright-line exemption/highly compensated employees

i. If an employee earns at least $100,000 per year and performs nonmanual work, the employee is a "highly-compensated employee" and can be categorized as exempt, provided he or she performs at least one exempt duty as defined by the primary duty test. ii. This $100,000 per year salary must include at least $455 per week in base salary, however the remaining amount would be considered "total annual compensation." Total annual compensation can include commissions, nondiscretionary bonus and other nondiscretionary compensation. Total annual compensation does not include benefits [e.g., 401(k) contributions, payment for medical insurance]. iii. If an employer has an employee who qualifies for this exemption, and at the end of the year, the employee will not meet the salary level requirement of $100,000 per year, the employer can within one month either (1) pay the employee for all overtime worked during the year or (2) allocate a bonus in the amount that will raise the employee to the $100,000 amount. 1. The $100,000 may be prorated for employees who do not work the full year. The employer may choose any 52-week period to test for the $100,000 total compensation.

Exemption Tests - Salary Basis Test - Definition

i. In order to be considered an exempt employee, an individual must be paid on a salary basis, as distinguished from an hourly basis. ii. Under the FLSA, an employee is paid on a salary basis if "the employee regularly receives each pay period ... a predetermined amount constituting all or part of the position's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. The employee must receive the full salary for any week in which he or she performs any work without regard to number of days or hours worked."

Piece Rate

A direct performance payment based on production by an individual worker.

Travel time

A nonexempt employee traveling on company business must be paid within the framework of the FLSA provisions. Many employers think that nonexempt employees are somehow grateful for the opportunity to travel and have the company pay for the airplane ticket. It is this innocent ignorance that can prove embarrassing.

Public Sector Employers and "Banked Hours"

An amendment was passed by Congress in 1985 in response to a case in San Antonio, Texas to ease the burden of FLSA compliance on state and local governments. a. State and local government can substitute compensatory time off, "comp time," rather than pay for the time in the week worked. b. "Banked time" is at time and one-half. c. Maximum hours allowed for "banked time" i. 480 hours for public safety, seasonal and emergency workers (320 overtime hours times 1.5 hours) ii. 240 hours for all others (160 overtime hours times 1.5) d. Paying for "banked time" is an absolute employer obligation - no "use it or lose it." e. Paid out at employee's current rate, not rate paid at time overtime was worked.

Discretionary Bonus

Discretionary bonuses are paid to employees without any prior communication or agreements. Discretionary bonuses do not need to be included when calculating overtime pay.

Inaccurate records

There are a number of ways that this can occur. Failure to pay for all recorded hours is arguably one of the ways that time records are inaccurate. Employees making changes, supervisors altering records, or lost records, someone else recording (punching in) an employee, are all ways that record keeping can become suspect. Great care must be taken to ensure that the recording of time and payment of nonexempt employees are handled correctly - these are legally required documents.