Legal tips and traps in compliance with wage and hour laws, who are exempt from minimum wage and overtime, how overtime is calculated, how regular hourly rate is calculated, and independent contractor issues
TRAP 1: Trying to Exempt Employees Who Shouldn’t Be Exempt to Avoid Paying Overtime.
FLSA BasicsTwo categories of employees– Exempt– Non-exemptCorrectly distinguish between employees & independentcontractorsMajor Provisions of Law– Minimum Wage– Overtime Pay– Child Labor– Record keeping
EXEMPTIONS DO NOT APPLY TO: (They can almost never be exempt)Manual laborers/blue collar workers production line maintenance construction, e.g. carpenters, electricians, plumbersFirst responders/public safety workers police officers & firefighters paramedics crime investigators
Exempt EmployeesThe most common FLSA MW and OT exception is oftencalled the “white collar” exemptions which apply tocertain:– Executives– Administrative employees– Learned Professional employees– Creative Professional employees– Computer employees
EXEMPT EMPLOYEES MUST BE PAID ON A SALARY BASISGENERAL NEW RULE: must receive salary of not less than $455/week ($23,660/yr.)EXCEPTIONS: administrative & professional: can get fee basis for job equal to $455/week > agreed sum for single job regardless of hours/days computer professional: $27.63/hour or more academic administrative: or salary basis at least equal to teacher’s entry level professionals engaged as teachers or lawyers and doctors, interns, or residents: no minimum salary requirement highly compensated: $100,000/year total annual compensation > includes non-discretionary payments & commissions, but not benefits > final payment to meet compensation amount > meets at least 1 duties requirement of any exemption > performs only office or non-manual work outside salespersons: no salary requirement
Who Can Be Exempt I. EXECUTIVE EXEMPTIONNEW TESTGENERAL – primary duty of managing enterprise, or recognized department or department subdivision – customarily and regularly directs the work of at least 2 full- time employees or equivalent – authority to hire/fire or whose suggestions/recommendations re: change of status are given particular weight
EXECUTIVE EXEMPTION Further GuidanceManagement must be “primary duty” (no magic %). Includes: Activities re: employees’ selection, training, pay, hours, appraisals, discipline, complaints, safety Maintaining production/sales records for use in supervision/control Determining techniques, purchases, sales, work apportionment Controlling materials/supplies Planning the work Planning and controlling budget Monitoring legal compliance
EXECUTIVE EXEMPTIONS NuancesPrimary Duty based on all the facts in a particular case percentage of time is only one factorHint: Include qualifying duties in job description with input from employees performing job.“Concurrent duties” (Wal-Mart provision) concurrent non-exempt work does not defeat management as primary duty supervision can be shared with other exempt employee, but employee’s hours count only once working manager may be exempt
II. ADMINISTRATIVE EXEMPTION (Toughest and Broadest Category) Most Often Attacked by DOLprimary duty is office or non-manual work directly related to themanagement or general business operations of employer orcustomers> assisting with the running or servicing of the business - work in functional areas, e.g., finance, accounting, HR, PR - advisors or consultants to customers> not production work or sales in retail service establishmentprimary duty includes the exercise of discretion andindependent judgment with respect to matters of significance
ADMINISTRATIVE EXEMPTION Further Guidance“Exercise of discretion & independent judgment in matters of significance” Generally involves comparing/evaluating possible courses of action and acting/deciding thereafter > more than use of skill in applying techniques, procedures or standards Involves “matters of significance”: based on level of importance or consequences of the work
ADMINISTRATIVE EXEMPTIONSpecific examples of those generally exempt insurance claims adjusters financial services, including analyzing customer info, advising customers about products and promoting products - but not if primary duty is selling financial products team leaders for major projects even if no supervisory role executive/admin. assistant to business owner or senior executive human resources managers ! purchasing agents and buyersSpecific examples of those generally not exempt inspectors, examiners, graders public sector inspectors or investigators
III. PROFESSIONAL EXEMPTIONprimary duty of> LEARNED PROFESSIONAL: work requiring advanced,specialized knowledge customarily acquired through specializedhigher education OR> CREATIVE PROFESSIONAL: work requiring invention,imagination, originality or talent in a recognized field of artistic orcreative endeavor
IV. LEARNED PROFESSIONAL EXEMPTION Primary duty test1. Must perform work requiring advanced knowledge > mainly intellectual AND > requires consistent exercise of discretion and judgment2. Advanced knowledge must be in a field of science or learning > recognized professional status > not mechanical arts or skilled trades3. Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual always instruction > college degree is not always required but is best evidence > high school is insufficient
LEARNED PROFESSIONAL EXEMPTIONExamples of generally exempt if courses and licenses Met health care > registered or certified medical technologists > registered nurses but not licensed practical or vocational nurses > dental hygienists > physician assistants accountants > CPAs and other accountants who perform similar duties but not bookkeepers, accounting clerks chefs > executive and sous chefs but not cooks athletic trainers funeral directors and embalmers
LEARNED PROFESSIONAL EXEMPTIONSpecial categories practitioners of law or medicine > generally exempt as professionals > general duty test and salary test do not apply > degreed interns and residents exempt > paralegals generally not exempt unless other degree
V. COMPUTER PROFESSIONAL EXEMPTIONNEW TEST primary duty of work requiring: (1) application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications, and/or (2) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, and/or (3) design, documentation, testing, creation or modification of computer programs related to machine operating systems
PROFESSIONAL - COMPUTER (CONT’D)Examples of generally exempt if meet duties test> computer systems analysts> computer programmers> software engineersExamples of generally not exempt> computer manufacturer> computer repair> computer or software usersExamples of generally exempt under another exemption> administrative: planning, scheduling, coordinating activitiesrequired to develop systems to solve complex problems of employeror customers> executive: senior or lead programmer who manages 2 or moreother programmers and whose recommendations as to theiremployment status are given particular
VI. OUTSIDE SALES EXEMPTIONNEW TEST No salary requirement Test: (1) primary duty is making sales and obtaining orders/contracts, AND (2) customarily and regularly outside the office performing such duty No % or time spent outside of office requirement Primary duty includes incidental tasks, e.g., > incidental deliveries and collections > updating catalogue > writing sales reports > attending conferences > planning itinerary
TRAP 2: Improper Deductions From SalaryDEDUCTIONS NOT ALLOWED personal/sickness/disability/workers’ comp absences of less than a full day (if no sick leave, PTO, vacation available) jury duty or witness attendance, but can offset fee paid to employee military leave, but can offset fee Reimbursement or payment out of pocket for lost or damaged equipment or merchandise, “penalties” for performance deficiencies
EFFECT OF IMPROPER ARG ! DEDUCTIONS (They Can Kill You)Exemption is lost for period of improper deduction if factsdemonstrate employer did not intend to pay on salary basis (adopt apolicy to protect yourself)No loss of exemption for isolated/inadvertent deduction ifreimbursement made promptlyNo loss of exemption even after employee complaint if you have:(1) a clearly communicated policy prohibiting improper deductionsincluding complaint mechanism, (2) reimbursed promptly, and(3) good faith commitment to comply in future, unless you willfullycontinue deductions> HINT: Hand out policy at hire, post, re-issue, do training on policyPotential loss of exemption to all in job categories under samemanager
Deductions From Salary That Won’t Kill You (You Won’t Lose Exemption)Personal absences of full day (partial days must be PTO covered)Sickness/disability/workers’ comp absences of full day if per plan tocompensate for lost pay (can take paid partial days under sick leave plan)> before, during & after benefits kick inUnpaid FMLA leave> can deduct for less than full day incrementsNew--violations of safety rules of major significance (if policy says this)> can deduct any amountNew--disciplinary suspensions of full day for violations of workplace conductrules (not performance or attendance rules)> imposed in good faith> per written policy applicable to all employees (WRITE YOUR POLICY)First or last week - partial weekPublic agency employees, less than full day--§541.710
Trap 3: Non-Exempt Workers—How and When to Pay OvertimeWorkweek: A workweek is a period of 168 hours during7 consecutive 24-hour periods. (Not based on payperiod.)Hours Worked: Includes all the time an employee mustbe on duty, or on the employer’s premises or at anyother prescribed place of work, including time employeeis allowed to work.Recent DOL investigation here—Includes travel time toand from jobs; waiting time on premises (and on-calltime under some circumstances); time in companymeetings, such as safety meetings
Pay for “Breaks”Rest and Meal Periods. “Coffee breaks”, cigarette breaks, “restperiods”, or lunch periods of less than thirty minutes generallyare not deducted from hours worked—they must be paid.Even lunch periods of over thirty minutes are not deductedunless employee is generally free from work responsibilities.Watch out for employees eating lunch at desk, answering phonecalls, or performing other duties during lunch. Have a policyprohibiting work during lunch hour.
Unauthorized OvertimeAn employee must be paid for hours worked over 40 per week, evenif the employer has a policy against such work without advanceapproval, especially if it knows or has reason to know the work isbeing performed.The remedy is to discipline or fire employees who ignore such arequirement.Employers cannot ask employees to work “off-the-clock”, withoutpay. ( This should be obvious, but lots of Wal-mart cases on thisissue)Additional rules for out of town travel, on-call, and out of officemeeting timeMust be paid for pre- and post- work “donning and doffing” ofuniforms or work prep time.
Overtime Pay RateRegular Rate (RR)– It is a rate per hour– Is determined by dividing the total earnings for all hours worked in any work week by the total number of hours worked in the week– It may not be less than the applicable MW– If RR is higher than the MW, OT must be computed at the higher rateIf a non-exempt employee is paid on a annual salarybasis, an hourly (regular rate) must be calculated
Overtime PayRegular Rate (RR) includes:– Bonuses that are defined or capable of calculation such as for longevity, attendance, or job performance– Increases in pay (retro pay, too)– Example: Aide @ $15,000 per yr, plus $500 longevity & $500 for college hours = $16,000 [8 hrs per day for 187 days per year] Regular RR would be $10.70 OT rate would be $16.05
Overtime PayRegular rate does not include:– Gifts, such as Christmas or B-Day– Payments for time not worked, such as holiday, sick or vacation pay– Discretionary bonuses– Profit sharing plans– Talent fees– Premium payments– Stock options
Missed lunch breaksAn unpaid lunch break must be paid when the break isnot taken– Example: Non-exempt employee works from 7:30 am to 4:00 p.m., is scheduled for a 30 minute unpaid lunch break, but doesn’t take the break.– How many hours should be employee be paid for?– If the employee is paid a pro-rated salary, how should that salary be adjusted?If a lunch break is interrupted – the entire lunch break iscompensable
MOST COMMON OVERTIME VIOLATIONS Failure to pay overtime pay—at all, or correctly Failure to maintain a record of hours worked on non-exempt employees Failure to consider untaken meal periods, travel time and meeting time as hours worked
Another DOL Investigation Area-- Minimum Wage (MW) Current federal minimum wage is $7.25 Covered non-exempt employees must be paid not less than the MW for all hours worked (remember definition) Must be paid in cash or equivalent – free & clear (not subject to deductions) Each week stands by itself, although there is no requirement to pay weekly – define “workweek”
Trap 4: Independent ContractorsWho Aren’tMy favorite saying, “If it walks like a duck &quacks, it’s a duck”. If worker acts like anemployee—he or she is an employee, notan independent contractor!This is a favorite area for DOL audits.
Tests for I.C. vs. EmployeeHandout with main factors DOL, IRS, & TWClook at—Key often is whether worker is free to“take it or leave it” on your work assignments orto do other jobs for other people or themselveswithout repercussions.Recent case example—Oilfield gate keepers
BOTTOM LINE Compliance and RemediesAlthough most investigations are initiated by an employee complaint,they may result from a decision by the Wage and Hour Division totarget a particular industry of which your establishment is a part. –Health care, construction, restaurants recently.An employee may bring a private lawsuit against you for FLSAviolations.Successful employees can recover back overtime for up to three years.This amount is doubled if the court determines that the violation was notin “good faith”. – (rarely met) Employers will also have to payprejudgment interest and the employee’s attorney’s fees.“Collective” actions involving many similarly situated employees areeasy and commonly-pursued by plaintiff’s lawyers. Big bucks!
FLSA ENFORCEMENT REMEDIESRecovery of back wages– The Secretary of Labor may bring suit for back wages and an equal amount for liquidated damages– Employee may file a private lawsuit for back pay and an equal amount as liquidates damages, plus attorney fees and court costs
FLSA ENFORCEMENT—The Long Arm of the DOLStatute of Limitations: (Applied to EveryWorker Similarly Situated!) – 2 years applies to recovery of back pay – 3 years applies to recovery of back pay in cases of willful violations
Additional InformationWage & Hour homepage at: – www.dol.gov/dol/esa/public/whd_org.htmCall the Wage & Hour at: – 1-866-487-9243 or 1-866-4US-WAGECall the Dept. of Labor at: – 1-866-487-2365 or 1-866-4USA DOLUse the Dept. of Labor Interactive Advisor system – ELaws – www.dol.gov/elawsCall or visit the nearest Wage & Hour Division Office
Good Luck! Adair Buckner Buckner & Cross, L.L.P. 600 S. Tyler, Suite 1313 Amarillo, TX 79101 (806) 322-7777 firstname.lastname@example.org www.bucknercross-law.comBoard Certified in Labor and Employment Law Texas Board of Legal Specialization