U.S. Department of Labor’sFair Labor Standards Act (FLSA)
Fair Labor Standards ActSigned into law in 1938 by President Roosevelt … Basic framework for the treatment of employees: Minimum wage Equal pay Child labor standards Recordkeeping Overtime payPrinciples of employee protections that continue today
Fair Labor Standards ActMost misunderstood provision governs overtime pay Requires that most employees be paid “overtime” for hours worked in excess of 40 hours in a work week … Overtime = excess of 40 hours in a work week Overtime = one and one-half times “regular rate of pay” Regular rate of pay = includes all remuneration Certain employees may be exempted from overtime pay
Fair Labor Standards ActNoncompliance can be costly During FY 2003, the DOL concluded FLSA investigations on over 32,500 cases, covering over 314,000 employees Back wages collected totaled approximately $182 million 27% increase over the $141 million collected in FY 2002
Fair Labor Standards ActNoncompliance can be costly Two to three years’ back pay (doubled for willful violations) Civil penalties = $1,100 per paycheck issued Criminal penalties = $11,000 per violation Attorney’s fees Individual liability for managers responsible for pay classifications and practices DOL investigation is expensive, invasive, and disruptive
Fair Labor Standards ActNoncompliance can be costly Example: 30 employees improperly classified as exempt; average unpaid overtime per employee per year = $4,000; willful FLSA violation Penalties and Costs Amount $4,000 x 30 employees x 3 years = $360,000 x 2 (liquidated damages) $ 720,000 $1,100 x 72 pay periods x 30 employees $2,376,000 Attorneys’ fees, admin. costs, plus defense cost $ 200,000 30 x $11,000 per violation $ 330,000 Total cost of noncompliance $3,626,000
Fair Labor Standards ActNoncompliance can be costly UPS: $18 million for employees classified as exempt Pacific Bell: $35 million for engineers Farmers Insurance Exchanges: $90 for claims adjusters University of New Mexico: $2 million for student admin. RehabCare Group: $3 million for nurses, therapists, etc. University of Phoenix: $3 million for admission counselors City of Houston: $96 million for paramedics
Fair Labor Standards ActNew FLSA regulations were issued by the DOL on April 23, 2004, to become effective on August 23, 2004 Prior regulations considered outdated and confusing Many decades of case law and interpretive guidelines Record-breaking enforcement fines and class actions FLSA lawsuits outnumbered employment discrimination cases New rules are to modernize the “white collar” exemptions
Fair Labor Standards ActFLSA overtime exemption, effective August 23, 2004 Based on a position-by-position review All three of the following tests must be satisfied: 1. Salary Basis test --- must be paid a predetermined amount 2. Salary Level test --- must be paid a minimum weekly amount 3. Duties test --- must perform work on an exempt nature Emphasis is on the evaluation of actual duties & responsibilities --- the position’s primary duty(s)
Fair Labor Standards ActFLSA overtime exemption --- Salary Basis test Employee must be paid a predetermined, fixed salary that is not subject to reductions due to quality or quantity of work performed New regulations allow for reduction of one or more full days for violations of written workplace conduct rules
Fair Labor Standards ActFLSA overtime exemption --- Salary Level test Employee must be paid at least $455 per week Clear obligation to pay overtime to all employees who earn less than $455 per week … annual equivalent of $23,660 Salary level is not prorated for part-time employees The Salary level test does not apply to bona fide lawyers, doctors, or teachers
Fair Labor Standards ActFLSA overtime exemption --- Duties test Primary duty(s) must be consistent with one or more of the following FLSA exempt types of work: Executive duties Administrative duties Academic Administrative duties Learned Professional duties Creative Professional duties Teachers at an educational institution Certain Computer duties Outside Sales duties
Fair Labor Standards ActFLSA overtime exemption --- Duties test Executive exemption Primary duty of managing the enterprise or a recognized department or subdivision AND Direct the work of two or more full-time employees AND Have authority to hire/fire or make recommendations of significant weight to hire, fire, promote, etc.
Fair Labor Standards ActFLSA overtime exemption --- Duties test Administrative exemption Primary duty directly related to the management or general business operations of the employer AND Duties requires the employee to exercise discretion and independent judgment with respect to matters of significance
Fair Labor Standards ActFLSA overtime exemption --- Duties test Learned Professional exemption Primary duty must require advance knowledge in a field of science or learning AND Must be customarily acquired by a prolonged course of specialized intellectual instruction Restricted to professions in which specialized academic training is a standard prerequisite
Fair Labor Standards ActFLSA overtime exemption --- Salary Level/Duties test Streamlined duties test for employees with total annual compensation of $100,000 or more Who customarily and regularly perform at least one of the exempt duties of an executive, administrative or professional employee Does not apply to computer, craftsmen, construction, etc. employees
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