FLSA Overtime Rules Explained

James K. Cowan, Jr.
Eric D. Chapman
540.443.2850 (office)
jcowan@cowanperry.com
echapman@cowanperry.com
The FLSA & Overtime Rules

In spring of 2016 the Department of Labor ("DOL") released
its final regulations making changes to Part 541 governing
overtime exemptions under the Fair Labor Standards Act
("FLSA") and specifically to the application of the FLSA's
"White-Collar" exemption rules.
• Under the new regulations, employees who are
currently exempt from overtime will lose that
exemption unless their salary is above the new
$47,476.00 threshold.
• These new regulations, which go into effect on
December 1, 2016, also contain a few other
important changes.
The New FLSA Salary Threshold

CURRENT REGULATIONS
(EFFECTIVE UNTIL NOVEMBER
30, 2016)
NEW REGULATIONS
(EFFECTIVE DECEMBER 1, 2016)
WHITE COLLAR EXEMPTION
SALARY BASIS TEST $23,660 per year ($455 per week) $47,476 per year ($913 per week)
WHITE COLLAR EXEMPTION
DUTIES TEST
Employee is required to meet the
duties test in order to be exempt.
No change.
COMMISSIONS AND
BONUSES
No current provision to count
non-discretionary bonuses or
commissions towards salary.
Up to 10% of salary can come from
non-discretionary bonuses, incentive
payments, and/or commissions, if
paid at least quarterly.
HIGHLY COMPENSATED
EMPLOYEE EXEMPTION $100,000 per year
(total annual compensation)
$134,004 per year
(total annual compensation)
So What Has Changed?

• The new regulations also include a provision for
automatically adjusting this salary threshold for the
White Collar Exemption.
• The salary threshold will be adjusted every 3 years
to maintain the salary level at the 40th percentile
of full-time salaried workers in the lowest-wage
Census region.
DISCUSSION POINT: Does bumping “on the bubble”
salaries result in automatic raises and putting the
employee on an escalator?
Indexed to Wage Inflation

One of the most frequent requests we are getting at the moment
is to assist with an audit and review of all of the currently exempt
jobs with employees in the classification making less than
$50,000.00. The basic steps involve:
• Create a list of jobs to be reviewed;
• Evaluate whether each actually meets one of the
white-collar exemptions;
• Of those that do, evaluate from a budgetary/breakpoint,
consistency, operational impact (including frequency
of overtime, off hour communications, etc.), and
perception standpoint;
• Recommendations, including changes to roles and
job descriptions, changes from salaried to hourly;
• Communication Plan to affected employees; and
• Implementation
Time for a Self Audit?

White Collar Exemption Tree
Does the position have as its primary duty work consisting
of the management of the enterprise in which it is located or
of a recognized department or subdivision?
NO
Does the position customarily
and regularly direct the work of
two or more employees in the
enterprise, department, or
subdivision?
YES
NO YES
Administrative
Exemption
Executive
Exemption
Does the position have as its primary duty
office or non-manual work directly related to
the management policies or general business
operation of the employer?
NO YES Does the position customarily
and regularly exercise discretion
and independent judgment in
performance of duties?
Professional
Exemption
Non-Exempt
Does the position have as its primary duty the
performance of work requiring knowledge of an
advanced type in a field of science or learning and
the consistent exercise of discretion and judgment?
NO YES
Does the position have as its primary duty
the performance of work requiring
invention, imagination, or talent in a
recognized field of artistic endeavor?
NO YES
YES
NO

Computer Professionals Exemption Decision Tree
Does the position have as its primary duty the application of systems
analysis techniques and procedures including consulting with users to
determine hardware, software or system functional specifications?
Computer
Professionals
Exemption
Computer
Professionals
Exemption
Computer
Professionals
Exemption
Does the position have as its primary responsibility the design,
development, documentation, analysis, creation, testing, or modification of
computer systems or programs including prototypes based on related to
user or design system specifications?
NO YES
NO YES
Does the position have as its primary responsibility the
design, documentation, testing, creation or modification
of computer programs related to machine operation
systems?
Non-Exempt
NO YES

The Salary Basis Test
• Most of the exemptions require that employees be paid
on a “salary basis”
• Payment of a salary has always been required for the
“white collar” exemptions
• The new regulations increase the salary threshold, but
the DOL has made clear they will also apply scrutiny
to whether the exemptions apply

The Salary Test Defined
• Regularly receives a predetermined amount of
compensation each pay period (on a weekly or less
frequent basis)
• The compensation cannot be reduced because of
variations in the quality or quantity of the work
performed
• Must be paid the full salary for any week in
which the employee performs any work
• Need not be paid for any workweek when no
work is performed

The Salary Test Defined
• An employee is not paid on a salary basis if
deductions from the predetermined salary are
made for absences occasioned by the employer or
by the operating requirements of the businesses
• If the employee is ready, willing and able to work,
deductions may not be made for time when work
in not available
• These rules are subject to only a few carve-outs

Permitted Salary Deductions
Seven exceptions from the “no pay-docking” rule:
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 deductions are made under a
bona fide plan, policy or practice of providing wage
replacement benefits for these types of absences

Exceptions from
“No Pay-Docking” Rule
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

Exceptions from
“No Pay-Docking” Rule
6. Unpaid leave taken pursuant to
the Family and Medical Leave Act
7. Proportionate part of an
employee’s full salary may be
paid for time actually worked in
the first and last weeks of
employment

Improper Deductions – Examples
• Deduction for a partial-day absence to attend a
parent-teacher conference
• Deduction of a day of pay because the employer
was closed due to inclement weather
• Deduction of three days of pay because the
employee was absent from work for jury duty,
rather than merely offsetting any amount
received as payment for the jury duty
• Deduction for a two day absence due to a minor
illness when the employer does not provide
wage replacement benefits for such absences

Effects of Improper Deductions
• An “actual practice” of making improper
deductions from salary will result in the loss of the
exemption only:
– During the time period in which improper
deductions were made
– For employees in the same job classifications
– Working for the same managers responsible
for the actual improper deductions
• Isolated or inadvertent improper deductions,
however, will not result in the loss of exempt
status if the employer reimburses
the employee

Safe Harbor
• The exemption will not be lost if the employer:
– Has a clearly communicated policy prohibiting
improper deductions and including a
complaint mechanism;
– Reimburses employees for any improper
deductions; and
– Makes a good faith commitment to comply in
the future
• Unless the employer willfully violates the policy
by continuing to make improper deductions
after receiving employee complaints

Clearly Communicated Policy
• The best evidence of a clearly communicated policy
is a written policy distributed to employees prior to
the improper pay deductions by, for example:
– Providing a copy to the policy to employees at
the time of hire
– Publishing the policy in an employee
handbook
– Publishing the policy on the employer’s
Intranet

Payroll Practices That Do Not
Violate the Salary Basis Test
• Taking deductions from exempt employees
accrued leave accounts
• Requiring exempt employees to keep track of and
record their hours worked
• Requiring exempt employees to work a specified
schedule
• Implementing bona fide, across-the-board
schedule changes

Additional Compensation
• An employer may provide compensation in
addition to the guaranteed weekly salary, such as:
– Commissions
– Bonuses
– Additional pay based on hours worked beyond
the normal workweek, so called voluntary
overtime payments

So with that background,
let’s review the basic rules
affecting pay and overtime
obligations under the FLSA.
You will see that these
nuances may affect your
decision making or require
changes in your current
processes.
Back to the Basics….

A. Single Workweek Snapshot
1. Workweek Concept. The FLSA requires that wages be calculated on a
workweek-by-workweek basis. Work schedules, which may not be on a
seven-day basis, must be translated into workweeks to determine FLSA
wages due.
Overtime Rules

1. Workweek Concept. The FLSA requires that wages be calculated
on a workweek-by-workweek basis. Work schedules, which may
not be on a seven-day basis, must be translated into workweeks to
determine FLSA wages due.
1. Determining the Work Week. An employee’s workweek is a fixed
and regularly recurring period of 168 hours—seven consecutive
24-hour periods. 29 C.F.R. § 778.105. It need not coincide with
the calendar week but may begin on any day and at any hour of
the day. A single workweek may be established for a plant or other
establishment as a whole, or different workweeks may be
established for different employees or groups of employees. Once
beginning time of an employee’s workweek is established, it
remains fixed. However, it may be changed if the change is
intended to be permanent and is not designed to evade the
overtime requirements of the FLSA. id.; 29 C.F.R. § 778.301.
Practice Point: Should you change your workweek to start on the
weekend so that you can allow comp. time off the following
week for salaried and newly nonexempt employees?
Overtime Rules
A. Single Workweek Snapshot cont.

3. Determining the Workweek. Work time may not be “averaged” from
workweek to workweek. 29 C.F.R. §§ 778.103, 778.104. So, for example, an
employee who is paid every two weeks and works 47 hours in week one,
followed by 33 hours in week two, is entitled to 7 hours of overtime pay for
the first week, even though the average hours for the pay period are 40 per
week.
a. Exception. Some medical care employees and government police
officers and firefighters are permitted to be paid on special
“alternative work periods.”
Overtime Rules cont.

4. Time of Overtime Payment. Overtime compensation does not
have to be paid weekly. 29 C.F.R. § 778.106. Rather, the
general rule is that overtime pay earned in a particular
workweek must be paid on the regular payday for the period
in which the workweek ends. If the correct amount of
overtime pay cannot be determined until some time after the
regular pay period, the employer must pay the overtime
compensation as soon after the regular pay period as
practicable. Payment cannot be delayed for a period longer
than is reasonably necessary for the employer to compute and
arrange for payment. Overtime payment may never be
delayed beyond the next payday after such computation can
be made.

B. Computing Regular Rate
Overtime is one and one-half times the regular rate of pay. Therefore, before
overtime can be computed, the employer must first determine the
employee’s regular rate of pay.
1. Regular Rate of Pay. Regular rate of pay include all
remuneration for employment, except for certain payments
excluded by law, and cannot be less than the minimum wage.
29 U.S.C. § The regular rate of pay is calculated as a rate per
hour, although the FLSA does not require an employer to pay an
employee an hourly rate. Therefore, no matter how an
employee is paid—whether by the hour, by the piece, by
commission, or by salary— the employee’s compensation must
be converted to an equivalent hourly rate from which overtime
can be calculated. 207(e)(1)-(7). 29 C.F.R. § 778.109.

The regular rate is “the hourly rate actually paid the employee for the
normal, non-overtime workweek for which he is employed.” 29 C.F.R. §
778.108. The hourly rate of pay of an employee is determined by
dividing the total remuneration from employment (except the statutory
exclusions) in any workweek, by the total number of hours actually
worked in the workweek. 29 C.F.R. § 778.109.
a. Items Included in Regular Rate of Pay
(1) Bonuses. Employers who pay nondiscretionary
bonuses to employees in addition to base pay must
include these bonuses in the regular rate of pay for
computing overtime rate. 29 C.F.R. § 778.209.
B. Computing Regular Rate cont.

If a bonus is paid on a weekly basis, the bonus is simply added
to the straight-time pay for hours an employee has already worked.
For example, if an employer pays $5.50 per hour and the employee
works 46 hours in a week, the overtime rate is $8.25 per hour
and the employee is entitled to receive $269.50 for that week
(40 times $5.50 plus 6 hours times $8.25—time and one-half).
But if the employee receives in addition to his hourly rate a bonus
of $25.00, the regular rate of pay would actually be $6.04 an hour
(46 hours at $5.50 equals $253.00 plus the $25.00 bonus, making
a total of $278.00; this total divided by 46 hours yields a regular
rate of pay of $6.04). The additional six hours would be paid at
one-half the times the hourly rate, or $9.06.
The devil is in the details…
a. Items Included in Regular Rate of Pay cont.
(1) Bonuses cont.

In such a case, the bonus must be allocated over the workweeks
corresponding to the bonus period. If any of those workweeks had
overtime hours, extra overtime pay would have to be paid
corresponding to the increase in the regular rate due to the bonus.
The simplest method—assuming that the bonus is given to cover an
entire quarter, or one-half-year, or year—is to allocate the bonus
equally over each workweek in that period.
For a workweek with overtime hours, the extra overtime pay would
be equal to one-half of the increase in the regular rate due to the
bonus, multiplied by the number of overtime hours that week. The
regular rate increase only needs to be multiplied by one-half because
the bonus allocation itself represents the straight-time payment.
Where the bonus is paid for a longer period of
time, the calculation is even more complicated…
(1) Bonuses cont.

For those workweeks in the bonus period where they were no
overtime hours, the bonus allocation for that week would have
no effect with regard to overtime pay.
(2) Shift Differentials. Extra pay per hour for working graveyard
or weekends or other undesirable times must be added to the
regular rate of pay for computing overtime.
(3) Non-Overtime Premium. Lump sum payments that
are paid without regard to the number of hours worked are not
overtime premiums and must be included in the regular rate.
For example, where an employer gives 8 hours pay for a
particular job, whether it is performed in 8 hours or in less
time, the extra premium of 2 hours pay received by an employee
who complete the job in 6 hours must be included in
the regular rate.
(1) Bonuses cont.

Similarly, where an employer pays a flat sum such as $20
for a job performed during the overtime hours, regardless
of the time spent on the job, no part of the premium paid
qualifies as true overtime.
(4) Commissions. Commissions are included in the total
compensation paid to the employee for purposes of
calculating the regular rate. Commissions must be included
in the calculation of total wages paid, regardless of
whether the commissions are computed as a percentage of
total sales, sales in excess of a quota, or some other
method

Since commission payments often vary from week to week, it is
common for employees paid on a commission basis to have a
regular rate that also varies from week to week. 29 C.F.R. § 778.117.
Since the commission payments and other forms of pay represent
the straight-time earnings for that week, any overtime would be
compensated by paying one-half of the regular rate times the number
of overtime hours on top of the straight-time earnings, thus
bringing the employee up to time and one-half. 29 C.F.R. § 778.118.
Commission payments are often made on a deferred basis. If
commissions are paid on a deferred or delayed basis, then
commission payments are excluded from the regular rate until they
can be determined. 29 C.F.R. § 778.119. When the commission
can be ascertained, the additional overtime compensation
must be paid.

To compute the past-due overtime compensation owed, the commission
is apportioned back over the workweeks of the period during
which it was earned. The employee must then receive additional
overtime pay for each week during the period in which overtime was
worked. If it is not possible to allocate the commission on the basis of
the amount of commission actually earned each week, some other
reasonable and equitable method must be adopted.
One such method is to allocate an equal amount of commission
earnings to each workweek in the period in which the commission
was earned. Another is to allocate equal amounts to each hour
worked in that period. 29 C.F.R. § 778.120. If the commission
computation period is one month, the employer would multiply
the commission payment by 12 and divide that sum by 52 to get
the amount of commission allocable to a single week.

Example: Employee is paid $10.00 an hour works 40 hours and is
paid $25 for being on-call over the weekend. If called back for 4
hours of work, the pay is $400 (40 hours x $10.00) plus $25 on
call pay plus $40 straight time pay for 4 overtime hours, or
$465.
Dividing the total earnings of $465 by 44 hours worked yields a
regular rate of $10.57 an hour. One half the regular rate times 4
overtime hours equals $21.14 overtime pay, making the total pay
$486.14 for the week.
The commission for each week would then be divided by the
total number of hours worked in that week, to get the increase in
the hourly rate. Additional overtime due is computed by
multiplying one-half of this figure by the number of overtime
hours worked in the week.

(5) On-Call Pay. If employees who are on-call are not confined to
their homes or any particular place, but are required only to
leave word where they be reached, the hours spent on-call are
not regarded as working time. However, any payment for such
on-call time, while not attributable to any particular hours of
work, is paid for performing a duty connected with the job and
must be included in the employee’s regular rate. If an on-call
employee is called out for a job assignment, the time spent on
the assignment is hours worked and must be counted and paid
for.
b. Items Not Included in Regular Rate of Pay
(1) Time Off Pay. Payments made for occasional periods
when no work is performed due to vacation, holiday, illness, or
jury duty are excluded from an employee’s regular rate of pay.
However, no such payments may be credited toward overtime
compensation due under the FLSA. 29 U.S.C. § 207(e)(2).

b. Items Not Included in Regular Rate of Pay cont.
(2) Pay for Foregoing Holidays and Vacations. If an employee is
entitled to holiday or vacation pay but foregoes the holiday or
vacation and works on that day or period and receives his or
her customary rate (or higher), the additional sum given as
holiday or vacation pay is excluded from the regular rate of pay.
29 U.S.C. § 778.219(a).
(3) Discretionary Bonuses. A discretionary bonus is a
payment made to the employee under circumstances
and conditions completely under the employer’s
control. But these cannot be included in determining
if an employee meets the new salary threshold.

(4) Percentage of Earnings Bonuses. A bonus based on a percentage
of the employee’s total earnings is excluded when calculating the
employee’s regular rate of pay. This type of bonus must be based
on a percentage of the employee’s total earnings for the bonus
period. An employer is not required to retain discretion when
awarding a percentage of total earnings bonus.In other
words, employees can be aware of the employer’s
intention to provide a bonus before the end of the bonus
period.
A bonus is not included in the regular rate if the employer retains discretion both (1) that a bonus
will be paid and (2) that the amount is not determined until the end, or near the end, of the
bonus period. For example, if an employer paid a bonus without a prior contract or promise
and the decision as to the fact and amount rests with employer, the bonus would be excluded
from the regular rate. On the other hand, if the employer announced in January that a bonus
will be paid in June, discretion regarding the fact of the payment does not exist. Such a bonus
would be included in the regular rate. 29 U.S.C. § 207(e)(3)(a).
Tip: A % bonus can be one of the cleanest incentive
bonus systems for nonexempt employees.

(5) Gifts, Christmas and Special Occasion Bonuses. Sums paid as
gifts, such as bonuses paid at Christmas or on other special
occasions, are excluded when calculating the employee’s regular
rate of pay. To fall within this gift exclusion, the bonus must not
be determined by the total number of hours worked,
production, or efficiency. Nor may the bonus be so substantial
that the employee considers it a component of his yearly income.
In addition, a gift bonus cannot be excluded if it is made pursuant
to an agreement or contract. 29 U.S.C. § 207(e)(1).
(6) Premium Pay. Extra compensation provided by a premium rate
of at least time and one-half which is paid for work on Saturdays,
Sundays, holidays or regular days of rest or on the sixth or
seventh day of the workweek may be treated as overtime pay. If
the premium rate is less than time and one-half, the extra
compensation must be included in determining the regular rate
of pay and cannot be credited toward statutory overtime. 29
U.S.C. § 207(e)(6). Premium pay for hours worked in excess of
a contractually established eight-hour work day or of the
maximum workweek is also excludable. 29 U.S.C. § 207(e)(5).

(7) Profit-Sharing or Thrift of Savings Plans. Payments made by an
employer on behalf of an employee to a bona fide profit-sharing
plan or trust, or a bona fide thrift or savings plan, which meet the
requirements of regulations issued by the Department of Labor,
may be excluded from the regular rate of pay. 29 U.S.C. §
207(e)(3)(b).
(8) Travel Expenses. Travel expenses for business trips taken by the
employee for the employer’s benefit and at the employer’s
expense are excludable from the employee’s regular rate of pay.
This includes a per diem earned by an employee that is not part
of his regular pay. 29 U.S.C. § 207(e)(2).
(9) Show-Up and Call-Back Pay. Some employment agreements
provide for a stated number of hours pay if the employee is
not provided with the expected amount of work. For
example, an employee might be guaranteed at least 4 hours’
pay for reporting for work, or if called back to work after
the scheduled hours have been ended.

b. Items Not Included in Regular Rate of Pay cont.
If the employee works only 2 hours but is paid for 4 hours, the
pay for the 2 hours not worked is not regarded as compensation
for working time and may be excluded from the employee’s
regular rate of pay. However it may not be credited towards
statutory overtime. 29 C.F.R. § 778.220, 778.221.
(10) Welfare Plan Benefits. Contributions irrevocably made by an
employer to a trustee or a third person pursuant to a bona fide
plan for old-age, retirement, life, accident or health insurance or
similar benefits may be excluded from the regular rate of pay. 29
U.S.C. § 207(e)(4).
(11) Payment In Lieu of Comp Time. Payments made to an employee
for periods of absence due to use of accrued compensatory time
(applicable only to the public sector).

C. Compensatory Time
1. The FLSA Generally Allows Only Public Entities To Use Compensatory
Time in Lieu of Overtime for Nonexempt Employees
a. Rule. Unless an employer is the state or a political subdivision of
the state (city, county, special district), it cannot allow nonexempt
employees to accumulate compensatory time (comp time) in lieu
of receiving overtime pay.
b. Restrictions on Public Entities’ Use of Comp Time.
While the FLSA permits state and government employers to
allow compensatory time in lieu of monetary compensation for
their employees, there are restrictions on the use of comp time.
(1) Comp Time Is Accrued At A 1.5 Hour Rate. Comp time
must be granted at a rate of not less than one and
one-half hours of compensatory time for each hour of
overtime worked.

(2) Limits on Banked Comp Time. Public sector employees may accrue
(or bank) up to 240 of comp time. Additional hours are available for
employees who work in public safety, emergency response and/or
seasonal activity. In these capacities, the maximum accrual is 480
hours of comp time.
(3) Use of Comp Time. Employees must be allowed to use their
accrued comp time within a reasonable period. 29 U.S.C.
§ 207(o)(5). While a public employer cannot prohibit the use
of comp time when an employee request to do so, the employer
may dictate the timing of the employee’s use of accrued comp
time. Christensen v. Harris County, 529 U.S. 526 (2000). If an
employee is unable to use all accrued compensatory time at
the time of termination, the public employer must pay the
employee for accrued but unused compensatory time upon
the employee’s termination of employment.
C. Compensatory Time

2. Comp Time and Private Sector
a. Time-Off Plans. The regulations to the FLSA are clear that employees
must be paid time and one-half for all hours worked over 40 in one
week. However, on a de minimus basis, the Department of Labor
permits private sector employees to use time-off plans. These
time-off plans, in which overtime hours are offset by a
proportionate number of time-of hours, must meet the following
requirements:
• Employees must be either hourly or salaried;
• The plan must provide a fixed number of working hours per week;
• The pay period must be bi-weekly, semi-monthly, or monthly;
• Time off is credited at one and one-half the amount of overtime; and
• The time off must be taken within the same pay period.
G
Example:
An employee works 44 hours in the’ first week of a two-week pay period, the employer
must pay the employee overtime for the four additional hours worked and then lay the
employee off for six hours in the second week of the pay period in order that the
employee’s bi-weekly salary remains the same. DOL Wage and Hour Opinion Letter, 5/5/94.
C. Compensatory Time cont.

2. Comp Time and Private Sector cont.
b. Flexible Workweek Plans. Private sector employees may control
payment of overtime by granting time off in a week to ensure that
an employee does not work in excess of 40 hours. For example,
suppose an employee’s regularly scheduled work week is 9:00 a.m.
to 5:00 p.m., Mondays through Fridays. If the employee works
until 6:00 on Wednesday, nothing prohibits the employer from
allowing the employee to take an hour off on Thursday or Friday
of the same week to “compensate” the employee for the extra
hour worked on that Wednesday. No overtime is owed to the
employee for the extra hour worked on Wednesday, because
the employee has not exceeded 40 hours of work for that
week. However, to be effective, the time off granted must be
taken in the same week that the extra hours are worked by the
employee. Employees may not take time off in other
workweeks to compensate them for overtime worked in an
earlier workweek.
C. Compensatory Time cont.

Recordkeeping Requirements of the FLSA
The FLSA requires that employers maintain certain records for all employers
within the coverage of the Act, including those employees who are exempt from
minimum wage and overtime compensation provisions. These requirements are
set forth in detail in 29 C.F.R. § 516.2 et seq.
The basic recordkeeping requirements of the employer include, for each
employee: (1) full name; (2) home address, including zip code; (3) date of birth, if
the employee is under age 19; (4) sex and occupation in which the employee is
employed; (5) time of day and day of week on which the employee’s workweek
begins; (6) the regular hourly rate of pay for any workweek for which overtime
compensation is due; (7) the hours worked each workday and total hours
worked each workweek; (8) total daily or weekly straight time earnings or
wages due; (9) total premium pay for overtime hours; (10) total additions
to or deductions from wages paid each pay period; and (11) total wages
paid each pay period

Recordkeeping Requirements of the FLSA cont.
In addition, with respect to each employee who is employed in a bona fide
executive, administrative, or professional capacity, or an employee employed in
outside sales (as discussed later in these materials), the employer is not required
to maintain records of items (6) through (10) of the preceding paragraph, but
must preserve records with information as to the “basis on which wages are paid
in sufficient detail to permit calculation for each pay period of the employee’s
total remuneration for employment including fringe benefits and prerequisites.”
29 C.F.R. § 516.3.
The FLSA also requires employers to keep posted a notice explaining the
provisions of the FLSA, as prescribed by the Wage and Hour Division.
All payroll records and employee information outlined above, collective
bargaining agreements, sales and purchase records showing total dollar
volume of sales or business must be preserved for at least three years.
29 C.F.R. § 516.5. All basic employment and earnings records must be
kept at least two years. 29 C.F.R. § 5b6.6.

Recordkeeping Requirements of the FLSA cont.
These records must be kept in a “safe and accessible” place for inspection on 72
hours notice by the Wage and Hour Division, unless an exception is granted by
the Administrator of the Wage and Hour Division. 29 C.F.R. § 516.7 and 516.9.
DOL Wage and Hour Investigations
The FLSA authorizes the DOL to investigate and gather information concerning
wages, hours and other employment practices. As stated above, the DOL has the
authority to enter and inspect the employer’s premises and records without a
subpoena and to question employees directly about possible FLSA violations.
Investigations are initiated by an employee complaint and the employer will
not know customarily the reasons for the investigation as the DOL will treat
the complaint confidentially.
Wage Hour Investigations

DOL Wage and Hour Investigations cont.
It is usual and normal for the DOL investigator to inform the employer of the date
and time the investigation is to occur and to ask for production of the records to
be reviewed. During the first interview, the DOL representative will outline for the
employer the scope of the investigation, including document review and
employee interviews. After documents are reviewed, various employee
interviews may be conducted in order to test the accuracy of the employer’s
records and to discover whether there is corroborating evidence of any alleged
violation of the Act.
After the fact-finding investigation occurs, the DOL representative will sit down
with the employer and inform the employer of the results of the investigation.
If violations are found, the DOL representative will tell the employer what is
necessary from DOL’s standpoint to correct those violations. These discussions
may result in negotiations with DOL to resolve any alleged violation. If
resolution of the dispute does not occur, the employer needs to weigh the
potential of a lawsuit either by DOL or the employees affected.
Wage Hour Investigations cont.

DOL Wage and Hour Investigations cont.
An employer can do much to minimize the disruption of a DOL investigation by
cooperating with DOL regarding the information requested and making available
employees for interviews. A cooperative attitude will, most likely, expedite the
investigation: The FLSA prohibits retaliation against employees or complain about
alleged violations of the Act or participate in an investigation or litigation.
Therefore, the employer should let all employees who are to be interviewed
know that they are to give truthful information to the DOL and in no way
pressure the employees to provide certain information.
Remedies For Violations of Provisions of the FLSA
Back Pay, Liquidated Damages and Attorneys’ Fees
Employees can bring civil actions against their employer for violations of the
minimum wage or overtime compensation provisions of the FLSA for back pay,
so-called “liquidated damages” and attorneys’ fees. In addition, the Secretary
of Labor can bring civil actions against the employer, on the employee’s
behalf, for recovery of back pay and liquidated damages, or recovery of back
pay and an injunction prohibiting future violations of the FLSA. Attorneys’
fees are not awardable to the Secretary of Labor if he or she commences
the civil action.
Wage Hour Investigations cont.

Back Pay, Liquidated Damages and Attorneys’ Fees cont.
THE BURDEN OF PROOF IS ON THE EMPLOYER TO ESTABLISH THAT AN EMPLOYEE IS
“EXEMPT” FROM THE FLSA OVERTIME REQUIREMENT. If the employee is not paid
overtime after 40 hours in a workweek, the employer must prove, if challenged, that
the employee is exempt from the FLSA.
1. Presumption. The legal presumption is that overtime must be paid.
This means that an employee who is not paid overtime will win a claim
Against the employer for the unpaid overtime compensation
without proving anything other than the number of overtime hours
worked per workweek, unless the employer can prove that the
employee was exempt when the work was performed.
2. The Exemptions are Narrowly Construed. An employee must
clearly fall within an exemption or he is likely to be deemed
nonexempt and entitled to overtime.
Remedies for Violations of Provisions of the FLSA

3. Evidence of Exempt Status. Job titles, job descriptions and written
contracts identifying the employee as exempt are some evidence of exempt
status, but these are not controlling. The duties the employee actually
performs on the job and how he is actually compensated are controlling.
These facts are often established by testimony from the employee, his
co-workers and supervisors.
4. The Dreaded Challenge to Exempt Status. When overtime is not
paid, a disgruntled employee or the Wage and Hour Division of the U.S.
Department of Labor may challenge the employer’s practice.
Unfortunately, the process of proving that an exemption applies can be
more costly than paying the overtime.
a. The Wage and Hour Division of the U.S. Department of Labor
will investigate charges filed by employees for overtime
compensation.
Remedies for Violations of Provisions of the FLSA cont.

f
b. Wage and Hour investigations are time consuming, and disruptive
to the workplace and morale.
c. Wage and Hour investigations often encompass all aspects of
compliance for all job categories, even though the charge was
filed by only one employee. If Wage and Hour looks hard enough,
it can almost always find something the employer is doing wrong
under the FLSA or the other laws that the Department is
responsible for enforcing
(e.g., I-9, Family Medical Leave Act, Polygraph Protection Act).
d. Wage and Hour generally determines that overtime must be
paid when the exempt status is in a “grey area.” If an
employer disagrees with the determination, Wage and
Hour must file suit to enforce this determination.

d. Cont. The trial court (judge or jury) makes its determination, then
either party may appeal to the Court of Appeals. The final tribunal
is the Supreme Court. Frequently, each level of appeal will have a
different opinion regarding the applicability of an exemption.
e. During a Wage and Hour investigation the Department can find
the employer liable for the last three years of unpaid overtime
and up to a 100% penalty, plus interest.
f. Even if Wage and Hour does not pursue the claim, employees
can file suit against the employer in state or federal court. If
successful, the employees will recover their attorney’s fees
and costs of litigation. The employer is not compensated for
its attorney’s fees and costs of defense even if it wins,
unless the suit was frivolous and groundless.

g. Penalties of up to 100% of the amount of the unpaid wages will
be awarded by the Court unless the employer proves it acted in
“good faith.”
Claims cover two years from the date of filing of the civil action, but may go back three
years if a “willful” violation of the FLSA is alleged and proved.
Liquidated damages are awarded in an amount equal to the amount of
compensation found to be wrongfully withheld. 29 U.S.C. §216(b). The court has
the discretion to reduce or eliminate the award of liquidated damages if the
employer proves that its act or omission giving rise to the failure to pay overtime
was in good faith and that it had reasonable grounds for believing that the failure
to pay minimum wage or overtime compensation was not in violation of the
FLSA. Advice of counsel is which can be used to support the
“good faith/reasonable grounds” defense.
29 U.S.C. §260; See, Dalheim, v., KDFW TV, 712 F.Supp. 533, 539 (N.D.Tex. 1989.
This is part of the value of involving your counsel in any audit or review of
exempt status.

The “good faith” defense contains two distinct components. The first is: did the employer demonstrate
“that it had an honest intention to ascertain what the FLSA required and to act in accordance with it.”
Put another way, did the employer act in “good faith”. The second component is: was the employer’s
failure to pay overtime “objectively reasonable” i.e., would a reasonable person in the employer’s
position believe that the employer was not in violation of the ELSA.
d
Although early cases applied an “objective test” to determine the first component of the
good faith defense, more recent case law appears to lean toward a “subjective” analysis.
Thus, the inquiry is whether the employer demonstrated “an honest intention to ascertain
what the Fair Labor Standards Act requires and to act in accordance with it.” Addison v. Huron
Stevedoring Corp., 204 F.2d 88, 93 (2d Cir.1953), cert. denied, 346 U.S. 877 (1953).
The second component of “reasonable grounds” is, indeed an objective standard. Many of
the cases discussing this component recognize advice of counsel, among other factors,
as satisfying this component. Hill v. J.C. Penney Co., 688 F.2d 370 (5th Cir. 1982). Further,
where the case involves an unsettled area of the law, some courts have exercised their
discretion and disallowed an award of liquidated damages.
See, e.g., General Elec. Co. v. Porter, 208 F.2d 805 (9th Cir. 1954), cert. denied,
347 U.S. 951 (1954).

I. Virginia Wage Payment Statute:
A. General.
Payment of wages or salaries must be in lawful money of the United States or
by check payable at face value upon demand in lawful money of the United
States (Sec. 40.1-29). Employers must establish regular pay periods and
rates of pay for employees except executive personnel. Employers must pay
salaried employees at least once each month and employees paid on an
hourly rate at least once every two weeks or twice in each month, except that
a student who is currently enrolled in a work-study program or its equivalent
administered by any secondary school, institution of higher education or
trade school may be paid once each month if the institution so chooses (Sec.
40.1-29).
Virginia Wage Payment Statute

I. Virginia Wage Payment Statute cont.:
A. General cont.
With the employee’s agreement wages or salaries may be paid by electronic automated
fund into an account in the name of the employee at a financial institution designated
by the employee. No employer may withhold any part of the wages or salaries of
any employee except for payroll, wage or withholding taxes or in accordance with
law, without the written and signed authorization of the employee (Sec. 40.1-29).
An employer, upon request of his or her employee, must furnish a written
statement of the gross wages earned during any pay period and the amount and
purpose of any deductions therefrom. No employer may require any employee,
except executive personnel, to sign any contract or agreement that provides for
the forfeiture of the employee's wages for time worked as a condition of
employment or the continuance, except as otherwise provided by law
(Sec. 40.1-29).
B. Termination.
Upon termination of employment, an employee must be paid all wages or salaries due him
or her for work performed prior thereto; payment must be made on or before the date on
which he or she would have been paid for work had the employment not been terminated
(Sec. 40.1-29).
Virginia Wage Payment Statute cont.

To qualify for the outside sales employee exemption, all of the following tests must be met:
d
(a) The employee’s primary duty must be making sales (as defined in the FLSA), or
obtaining orders or contracts for services or for the use of facilities for which a
consideration will be paid by the client or customer; and
dg
(b) The employee must be customarily and regularly engaged away from the
employer’s place or places of business.
d
(c) The salary requirements of the regulation do not apply to the outside sales
exemption.
s
(d) The employee must be customarily and regularly engaged away from the
employer’s place or places of business.
d
(e) The phrase “customarily and regularly” means greater than occasional
but less than constant; it includes work normally done every
workweek, but does not include isolated or one-time tasks
Outside Sales Exemption

To qualify for the outside sales employee exemption,
all of the following tests must be met:
(f) “Sales” includes any sale, exchange, contract to sell, consignment for sales,
shipment for sale, or other disposition. D
(g) It includes the transfer of title to tangible property, and in certain cases, of
tangible and valuable evidences of intangible property.
d
(h) Obtaining orders for “the use of facilities” includes the selling of time on
radio or television, the solicitation of advertising for newspapers and
other periodicals, and the solicitation of freight for railroads and other
transportation agencies.
s
(i) Any fixed site, whether home or office, used by a salesperson as a
headquarters or for telephonic solicitation of sales is considered one
of the employer’s places of business, even though the employer is
not in any formal sense the owner or tenant of the property.

To qualify for the outside sales employee exemption,
all of the following tests must be met:
(j) An outside sales employee makes sales at the customer’s place of business,
or, if selling door-to-door, at the customer’s home.
(k) Obtaining orders for “the use of facilities” includes the selling of time on
radio or television, the solicitation of advertising for newspapers and other
periodicals, the solicitation of freight for railroads and other
transportation agencies.
(l) Any fixed site, whether home or office, used by a salesperson as a
headquarters or for telephonic solicitation of sales is considered one of
the employer’s places of business, even though the employer is not in
any formal sense the owner or tenant of the property.
(m) Promotion work may or may not be exempt outside sales work,
depending upon the circumstances under which it is performed.

202 South Main Street, Suite 202
Blacksburg, VA 24060
p: 540.443.2850
317 Washington Avenue, S.W.
Roanoke, VA 24016
p: 540.777.3450
www.cowanperry.com
James K. Cowan, Jr.
jcowan@cowanperry.com
Eric D. Chapman
echapman@cowanperry.com
540-443-2850 main
888-755-1450 fax
www.cowanperry.com
250 South Main St., Suite 226
Blacksburg, Va. 24060
P: 540.443.2850
1328 3rd St, SW
Roanoke, VA 24016
p. 540-777-3450

FLSA Overtime Rules Explained

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