Fisher & Phillips LLP attorneys at law Solutions at Work

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1 Fisher & Phillips LLP attorneys at law Solutions at Work Wage and Hour Law Guide for FSPA Members Atlanta Charlotte Chicago Columbia Dallas Denver Fort Lauderdale Houston Irvine Kansas City Las Vegas New Jersey New Orleans Orlando Philadelphia Portland San Diego San Francisco Tampa

2 FREQUENTLY ASKED QUESTIONS I am a small business owner; do I even need to worry about the FLSA? Probably. There are two types of coverage under the FLSA: enterprise and individual. Enterprise coverage includes businesses with at least $500,000 in gross annual sales and two or more employees engaged in commerce. If you are a covered enterprise, all employees are subject to the requirements of the FLSA. However, even if you are not a covered enterprise, some of your employees may be individually covered if they are engaged in commerce. A more complete discussion of FLSA coverage appears on page 1. If I pay my employees a salary, do I have to pay them overtime, as well? Unless they meet all of the requirements for an exemption from overtime, yes. It is a common misconception that all salaried employees are exempt from overtime. All employees are entitled to overtime unless they meet all of the requirements for an exemption which are strictly and narrowly construed. While being paid a salary of at least $455 per week (or its equivalent) is one requirement for several overtime exemptions, there are other requirements that must be met. For a complete discussion of the requirements for exemptions relevant to the pool and spa industry, see pages 15 through 25. I allow my service technicians to take their trucks home with them, so how do I figure out when their day starts and stops? Ordinarily, normal commuting to and from work is not compensable work time (meaning that an employee s day does not start until they arrive at work and does not end until they leave work). Where an employee uses their employer s vehicle to commute back and forth to work, all of their commuting time is compensable (meaning that their day starts when they leave their house and does not stop until they return to their house), UNLESS four conditions are met in which case the normal commuting rules apply. These four conditions are set out on page 6. My technicians are on the road all day and do not clock in or out for lunch, so I automatically deduct a half-hour meal break each day. Is that OK? Although not a violation of the FLSA, automatic meal break deductions are a dangerous practice that could open an employer to potential liability for unpaid wages. An explanation of why this practice is dangerous appears on pages 4 through 5. My employees take continuing education courses; do I have to pay them for time spent in classes? Most likely yes. Time spent by employees attending meetings, training programs, and similar activities is compensable work unless four conditions are met. These four conditions are identified on page 7. -i-

3 My employees must wear company uniforms, do I have to pay to have these uniforms cleaned? No, but depending on the nature of the uniform the cost of cleaning may not directly or indirectly reduce an employee s wage to below either the required minimum wage for straight-time hours or any overtime pay due for the week in which the expense is incurred. A complete discussion of wage deductions and out-of-pocket payments appears on pages 14 through 15. I would like to make a deduction from a salaried-exempt employee to reimburse the company for tools or equipment lost or damaged by the employee. Can I? An employer can always make such deductions, but doing so may jeopardize the employee s exempt status. The Department of Labor has taken the position that deductions from the salaries of otherwise exempt employees for the loss, damage, or destruction of the employer s property would defeat the salary basis requirement of the white-collar exemptions. A more complete discussion of the salary-basis appears on pages 20 through 22. I would like to pay my service manager extra compensation for servicing pools on those rare weeks where not enough service technicians report to work. Is this a problem? It should not be a problem unless the manager is cleaning pools so often that his primary duty is no longer management. The Department of Labor has taken the position that compensation in addition to an employee s guaranteed salary is not inconsistent with the salary basis of payment and thus does not, standing alone, defeat an otherwise applicable exemption for an employee paid a bona fide salary. I have service technicians who I treat as independent contractors, is this OK? Probably not. The FLSA utilizes the economic realities test to determine whether an individual is an employee or independent contractor. This test is the broadest of the test used to determine employment status and the most likely to conclude that an individual is an employee. Under this test, workers are considered employees if, as a matter of economic reality, they are dependent upon the business to which they provide service. In making this determination, various factors are considered. These factors are discussed on page 2. An employee left and, although we mailed the final paycheck to the last known address, it was returned to the company. What do we do now? Payroll checks over $10 which remain unclaimed after more than 1 year are considered abandoned property and must be reported to the Florida Department of Revenue. -ii-

4 TABLE OF CONTENTS FREQUENTLY ASKED QUESTIONS...i TABLE OF CONTENTS... iii OVERVIEW OF THE LAW...1 THE EMPLOYMENT RELATIONSHIP...1 A. Employment vs. Independent Contractor Status...2 B. Employment vs. Volunteer Status...2 C. Employment vs. Trainee Or Student Status...3 HOURS WORKED...3 A. Time Records...4 B. Breaks Rest Breaks Meal Breaks...4 C. Medical Attention & Examinations...5 D. Waiting Time, On-Call Time, And Sleeping Time Waiting Time On-Call Time...5 E. Commuting And Travel Time Normal Commuting Out-of-Town Travel...6 F. Attending Meetings, Training, Or Similar Sessions...7 G. Civic or Charitable Work...8 THE MINIMUM WAGE...8 OVERTIME PAY...8 A. The Workweek...8 B. The Regular Rate Hourly Employees Salaried Employees Piece Rate Booked Hour Pay Plans Bonuses And Incentive Payments Commissions Exclusions From The Regular Rate...13 COMPENSATORY TIME...14 WAGE DEDUCTIONS AND OUT-OF-POCKET PAYMENTS...14 EXEMPTIONS FROM THE FLSA S REQUIREMENTS...15 A. The White Collar Exemptions Executive Employees Administrative Employees Professional Employees Computer Employees Outside Sales Employees Highly Compensated Employees Combination Exemptions iii-

5 B. The Salary Basis Issue Personal Days Off Sick Days Off First And Last Weeks Of Employment Offsets For Jury/Witness/Military Pay Safety-Rule Violations Conduct-Rule Violations FMLA Leave Rules Applying To All Salary Deductions...21 C. Other Exemptions Commission-Paid Employee Exemption Motor-Carrier Exemption...24 RECORDKEEPING...25 CHILD LABOR...26 ENFORCEMENT...27 WAGE PAYMENT...28 A. Direct Deposit of Wages...28 B. Wage Payment Upon Termination...28 C. Wage Payment Upon Death...28 D. Vacation/Sick Pay...29 E. Unclaimed Wages...29 F. Garnishment...29 CONCLUSION...29 This booklet should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult competent counsel concerning your particular situation and any specific legal questions you may have. Employers are specifically encouraged to consult an attorney to determine whether they are subject to state requirements that extend beyond the scope of this booklet. If you have any questions concerning this handbook or any other wage and hour or employment law matter, please feel free to contact any Fisher & Phillips office or you can contact David Buchsbaum in our Fort Lauderdale office directly. He may be reached at (954) or by at -iv-

6 OVERVIEW OF THE LAW The Fair Labor Standards Act (FLSA) is more commonly known as the federal wage-hour law. Its best-known requirements seem simple: with some exceptions, employers must pay employees at least the minimum wage for all their hours worked ; must pay them 1.5 times their regular hourly rate for all time worked over 40 hours in a workweek (unless they are exempt); and must keep accurate records of their daily and weekly hours worked. The devil is in the details. The FLSA s many rules, exemptions, quirks, and provisions for particular kinds of employees or industries make it one of the most complex of all federal laws and one of the most difficult to comply with. Indeed, this 60- year-old law is in many ways a creature of a different time and can be impractical as applied to the circumstances of today s workforce. Nevertheless, the FLSA remains the law, and it is applied very strictly. Broadly stated, employees are covered if they work for an enterprise which has 1) two or more employees who are engaged in commerce, are engaged in the production of goods for commerce, or are handling, selling, or otherwise working on goods or materials that have been moved in or produced for interstate commerce; and 2) an annual gross sales volume of at least $500,000. Alternatively, employees can be covered individually if they themselves engage in interstate commerce or in the production of goods for interstate commerce, or to meet the needs of interstate commerce. A complete discussion of the FLSA s provisions with respect to private employers in general is not possible in a limited space, so this booklet addresses only the FLSA s highlights and common issues as they apply to businesses in the swimming pool industry. It should be viewed only as a general guide. Keep in mind that the FLSA does not preempt state or local wage-hour provisions imposing more stringent requirements than the FLSA s. When the FLSA and a state or local law both apply to the same situation, you must follow whichever standard favors the employee more. For example, the Florida Minimum Wage Amendment and Florida Minimum Wage Act establish a state-wide minimum wage. The Florida minimum wage applies to all employees covered by the FLSA. THE EMPLOYMENT RELATIONSHIP The FLSA applies only to employment relationships. Thus, a threshold question is whether such a relationship exists. The FLSA does not offer much help in deciding this question, saying only, for example, that to employ someone is to suffer or permit the person to work. The courts and the U.S. Department of Labor (DOL) apply the concept of employment very broadly under the FLSA and tend to find that an employment relationship exists. The fact that an employer calls someone an independent contractor or a temporary or leased employee, or that an individual is not considered an employee for tax purposes or under other laws, or is paid a certain way, does not determine employment status under the 1

7 FLSA. There is substantial risk in erroneously treating someone as not being an employee. A. Employment vs. Independent Contractor Status Businesses sometimes assume that they need not follow the FLSA with respect to people they call independent contractors ; that might well not be so. In general, independent contractors are self-employed workers hired to perform specific services for another company under only limited supervision from the company. Legally speaking, however, it is not possible to define with certainty the term independent contractor. When the issue arises, the courts and administrative agencies decide whether a person is an employee or an independent contractor by examining the relationship against certain criteria, including: whether the business controls the way the work is performed; whether the person has any opportunity for profit or loss in a business sense; whether the person has any significant investment in equipment or materials; whether initiative, judgment, or open-market competition is required for the success of the claimed independent enterprise; whether the relationship is for a specific or short time, versus an indefinite or long period; and whether the service rendered is an integral part of the business receiving the service. Ultimately, under the FLSA, an individual is an employee if, as a matter of economic reality, they are dependent upon the business to which they render their services. The determination of independent contractor status is highly subjective and is usually determined on a case-by-case basis. Moreover, this is an area of increased scrutiny by the DOL. As a result, an employer would be wise to seek an independent review of the employment status of any independent contracts by someone knowledgeable in that area of the law. On the servicing side of the pool and spa industry, it could be difficult for an employee to establish that any service or repair technician who regularly performs services for the company is an independent contractor. On the construction side of the industry, however, the use of subcontractors to perform specific aspects of the project, such as electrical work, is more common. B. Employment vs. Volunteer Status People who volunteer their time for humanitarian, charitable, religious, or civic purposes might not be FLSA employees. However, among other things, the 2

8 relationship must be truly voluntary and without contemplation of pay. Employees generally cannot volunteer to their employer to perform work similar to what they do in their regular jobs. The DOL and the courts typically scrutinize employee volunteerism where the employees day-to-day employer is somehow involved in the arrangement. C. Employment vs. Trainee Or Student Status The U.S. Supreme Court has said that people who voluntarily work for their own advantage on the premises of another in order to learn a skill or trade, and who do so without any expectation of compensation for the work, are not necessarily FLSA employees. Thus, it is at least possible that people functioning as students or interns or holding some other, similar status will not be deemed to be employees. Several criteria are considered in deciding this question, but generally the non-employee status of a trainee or student is likely to be challenged if 1) the person is doing work similar to that which the business would receive from an employee; 2) on balance, the relationship is more for the business s benefit than the learner s; or 3) the person is being paid. For example, most new hires have to learn how to do their jobs, but this does not mean that they can be handled as non-employees during that time. Overall, never treat trainees or students as non-employees without carefully analyzing their status in advance. HOURS WORKED The FLSA never actually generally defines the phrase hours worked ; the closest it comes is describing the term employ to include to suffer or permit to work The U.S. Supreme Court has filled this gap to some extent with a two-point test for determining what qualifies as work: whether the activity is controlled or required by the employer; and whether the activity is pursued necessarily and primarily for the benefit of the employer s business. The DOL and the courts have construed hours worked to include all time which an employer knows or has reason to know an employee spends in activities which are work under the Supreme Court s definition. At a minimum, this includes all the time you require an employee to be on your premises, on duty, or at a prescribed workplace. However, you must also accurately record and pay for work that you simply permit, even if you do not require or request the work. For example, usually an employer will have to pay for time an employee continues working beyond the end of his or her scheduled workday; the DOL s view is that an employer should either pay for this sort of work or prevent the work from being done. The FLSA does not require employers to count absences from work for holidays, vacations, or illnesses as hours worked. 3

9 It is impossible to cover here all of the many different situations which present difficult hours-worked questions. Some of the more-common issues follow: A. Time Records While a time clock or computerized time system is recommended for accuracy, the law does not require employees to punch time cards. It simply requires that the employer maintain an accurate record of hours worked by each non-exempt employee each day and each workweek. The computerized time system is the optimal type of system because it generally results in the most accurate recording of hours. However, in some cases, a hand-written time sheet is the most practical method of tracking time. Where employees do record their time by hand, it is important that they record actual starting and stopping times, and not their scheduled hours. Regardless of the time keeping method, you should monitor the time records to ensure that employees log in and out each day. Occasionally, handwritten entries will need to be made to an automated time record because a punch was missed. When such entries are made, both the employee and the employee s supervisor should initial it at the end of the pay period. This will help ensure that the supervisor is aware of the employee s actual start and stop times and will also help to avoid any disputes concerning the accuracy of the handwritten entry. Also, it is a good idea to have employees sign their time report at the end of the workweek certifying that the hours reported are true and complete. B. Breaks 1. Rest Breaks Rest periods are considered to be primarily for the benefit of the employer, and short periods of less than 20 minutes for coffee and snack breaks are compensable hours worked. Keep in mind, however, that such rest breaks are not required by either the FLSA or Florida law. 2. Meal Breaks On the other hand, time employees spend in meal periods generally is not counted as worktime (and so need not be paid) if the employees are completely relieved from duty and are not interrupted. If the employees arguably are not relieved from duty, or if their meal period is interrupted by work, difficult questions can arise as to whether and to what extent the time should be counted and paid for. Further, according to the DOL, meal breaks are ordinarily 30 minutes or more in length. While it would be possible to have a meal break of less than 30 minutes, this would only be under special circumstances. Some employers automatically deduct 30 or 60 minutes each day from their employees for meal breaks, rather then have employees clock in and out for lunch. Such a practice is not encouraged because it is easy for employees to later claim that they did not take the full or any meal break on some days. Where an employee makes such a claim, the burden is on the employer to disprove it, which is difficult two and sometimes three years after the fact. 4

10 In very limited situations, it may not be practical for employees to track their actual meal breaks and an automatic deduction may be the only feasible solution. In such cases, it is strongly recommend that the company have a written meal break deduction policy, as well as procedures in place whereby employees can avoid automatic meal break deductions upon proper notice and authorization by a manager. In addition, employees should sign certification statements to the effect that they took the meal breaks for which deductions were made. Such practices will reduce (but not eliminate) the burden of proof with respect to these deductions. C. Medical Attention & Examinations Time spent by employees in waiting for and receiving medical attention is compensable if the medical attention is received during working hours and either 1) the medical attention is received on company property or 2) the employer directs that medical attention be obtained elsewhere. Time spent by employees receiving a physical examination that is required for continued employment is compensable. Time spent on tests, such as drug screens, by applicants seeking employment is not compensable. D. Waiting Time And On-Call Time 1. Waiting Time An employee s time spent waiting for something to happen or for something to do can be compensable worktime. One must look at all the facts to decide whether an employee is engaged to wait (which is compensable) or is waiting to be engaged (which is not). For example, unpredictable periods of inactivity while an employee is on duty, such as standing by for another assignment during a shift, are usually regarded as being engaged to wait. On the other hand, casual pickup workers who show up on their own at a job site in the hope of being hired for the day are usually waiting to be engaged and need not be paid for this time. 2. On-Call Time Questions sometimes arise as to how to categorize time an employee spends in on-call status. Naturally, all work an employee does while on-call must be treated as compensable. Whether an employer has to record and pay for time the employee spends waiting but not working while on-call depends upon how restricted the employee is in using the time for his or her own purposes. An employee who is not required to remain on your premises and who can use the idle on-call time predominantly for his or her own benefit (even if required to carry a cellular telephone or beeper) generally need not be compensated for that time. 5

11 E. Commuting And Travel Time Travel-time problems can be among the most complex of all hours-worked issues. Whether and to what extent travel must be counted as hours worked frequently can be evaluated only in the context of specific facts and circumstances. 1. Normal Commuting Normal commuting to and from work generally is not compensable worktime (although different rules might apply if an employee commutes in the employer s vehicle). However, travel between a normal workplace, such as an office, and another place of assignment, usually is counted as hours worked, as is travel between one assignment and another during a workday. If an employee travels to and from home in a company vehicle, the time spent commuting is compensable unless a four factor test is met. Where the following circumstances exist, time spent traveling between the employee s home and the first work site of the day and between the last work site of the day and the employee s home, need not be compensated: use of the vehicle to travel to and from home is strictly voluntary; the vehicle is of a type normally used for commuting; the employee incurs no costs for driving or parking the vehicle; and work sites are within the normal commuting area of the employer. In the pool and spa industry, some employers may allow their employees to take their vehicles home with them. Applying the above principles, if the company does not require employees to drive their vehicles home and the vehicles are cars, pick-up trucks, minivans, or other vehicles that individuals normally use for commuting, the time spent driving from home at the beginning of a shift or back home at the end of a shift should not be compensable time. This means that the employee is on the clock when they arrive at their first job site of the day and off the clock when they leave their last job site of the day. If employees are required to report to the company s facility in the morning to load up their vehicle, that is their first job site and their day starts when they arrive at the facility. They would then be on the clock until they return to the facility at the end of the day (if required) or until they leave their last job site of the day. 2. Out-Of-Town Travel Travel between home and the place of assignment on a one-day trip to another city by an employee who normally has a fixed place of work is hours worked. If the employee leaves from the normal place of work rather than from home, the travel between home and the normal place of work need not be counted as hours worked. If the travel is by public transportation, the time 6

12 spent traveling between home and the departure point, such as an airport, may be deducted. Overnight out-of-town travel by public transportation must be counted as hours worked to the extent that it occurs during normal working hours, even if the traveling is done on weekends and holidays. Overnight out-of-town travel as a passenger outside normal working hours does not have to be counted as hours worked, if the employee is not otherwise working while traveling. If the employee is required to drive a vehicle in connection with this travel, all of the travel time must be considered hours worked (except for bona fide meal periods). If the employee is allowed to use public transportation for the trip but instead uses an automobile for personal reasons, the employer may count as hours worked either 1) the time spent driving to the destination; or 2) the time that would have been considered hours worked if the employee had used public transportation. F. Attending Meetings, Training, Or Similar Sessions Attending meetings, training programs, and similar activities is not compensable work if each of four conditions is met: the attendance must be outside of the employee s regular working hours; the attendance must be voluntary; the meeting, training, or other such activity cannot be directly related to the employee s current job; and the employee must not perform any productive work during the attendance. Attendance is not considered voluntary if the employer requires it either expressly or by implication. Attendance is directly related to a employee s job if it is intended to make the employee better at his or her regular job, as distinguished, for example, from training that a person undertakes in order to be eligible to be considered for a promotion. There are certain exceptions to these general training-time principles, and they must be considered on a caseby-case basis. In practice, there are very limited situations in which the time spent by an employee in any such sessions will not counted as hours worked. For example, if employees are required to take continuing education courses, two of the four requirements for excluding the time are likely not being met (voluntary attendance and not being related to current job). If the course is during regular working hours, another requirement is not being met. 7

13 G. Civic or Charitable Work If an employee is directed or requested by his or her employer to do work for a civic or charitable purpose on the employer s premise, the time spent must be counted as hours worked. For example, an employee who is directed by the employer to participate in or attend a charitable function must be paid for the time. However, when the employee voluntarily spends time at such activities outside his or her regular working hours, the time need not be counted. THE MINIMUM WAGE Currently, the federal minimum wage is $5.85 per hour. The federal minimum wage rises to $6.55 on July 24, 2008, and again to $7.25 on July 24, As of January 1, 2008, the Florida minimum wage is $6.79. Unlike the federal minimum wage, the Florida minimum wage is adjusted annually based on the rate of inflation. The Florida Agency for Workforce calculates the adjusted minimum wage rate on October 30 of each year. The Agency will publish the adjusted rate by October 15, which will take effect on the following January 1. Employers can find the effective Florida minimum wage at the following website: The rate of a nonexempt employee paid solely on an hourly basis must of course be at least the minimum wage. When nonexempt employees are paid in other ways, such as on a salary, commission, or piece-rate basis, their pay must generate an hourly rate of at least the minimum wage when divided by their hours worked in the workweek. OVERTIME PAY Overtime pay must be figured at 1.5 times the employee s regular rate of pay for all time worked over 40 hours in a workweek ( overtime hours ). This seemingly simple concept can, in practice, become quite complex. A. The Workweek In most cases, the basis for determining overtime is an employee s workweek. A workweek is a fixed and regularly-recurring interval of seven, consecutive, 24-hour periods. The workweek does not have to coincide with a calendar week and can begin on any day and at any time of day. Different workweeks can be established for each employee or group of employees. Generally, you may not average an employee s hours over two or more workweeks to see whether any overtime pay is due. For instance, a nonexempt employee who has workweeks of 45 hours and 35 hours in a biweekly pay period is due 5 hours of overtime pay for the first week, even though the hours worked average 40 each week. B. The Regular Rate The regular rate used to calculate overtime must be an hourly rate regardless of how the employee s pay is otherwise computed. It is generally determined by dividing an employee s total compensation (except for certain exclusions summarized below) for any workweek by the total number of hours he or she worked in that workweek which the compensation was intended to cover. 8

14 Remember, the FLSA does not require a nonexempt employee to be paid at an hourly rate. You may pay your employee a salary, commissions, piece-rates, day-rates or a number of other ways. But regardless of how the employee is paid, the FLSA does require that those earnings be converted to a regular hourly rate in order to figure overtime pay. 1. Hourly Employees If an employee is paid solely at one hourly rate of pay, then that is the individual s regular rate. For overtime hours, in addition to straight-time hourly earnings, the employee must be paid an additional one-half of their hourly rate for each hour worked in excess of 40. Example: Tom works for ABC Pools at $10 per hour. If he clocks 46 hours in a work week, he must be paid $ (46 hours at $10 plus 6 hours at $5 per hour). Where an employee in a single work week works at two or more different types of work for which different hourly rates have been set, the individual s regular rate for that week is generally the weighted average of such rates. Example: Suppose some of Tom s work is paid at $10 per hour and other work is paid at $13 per hour. If he works 25 hours at $10 and 20 hours at $13, he must earn $28.33 in overtime premiums (25 hours at $10 plus 20 hours at $13 equals $510 divided by 45 hours equals regular rate of $11.33 times ½ times 5 overtime hours). 2. Salaried Employees Figuring overtime for salaried, nonexempt employees depends upon how many hours the salary is intended to cover. For example, if the salary covers 40 hours, then the regular rate is determined by dividing 40 into the weekly salary and then paying 1.5 times that rate for all overtime hours. Under such an understanding, you are essentially paying the employee hourly with a guarantee of 40 hours per workweek. If the salary is intended to cover all hours worked during the period, whether few or many, then one divides the salary by the actually number of hours worked in the workweek and then pays one-half of that rate times the overtime hours. This is known as the fluctuating workweek method, and it must be both clearly established and carefully preserved in certain ways. For instance, an employer s ability to make attendance-related deductions is significantly restricted under the fluctuating workweek system. Example: Jane works for ABC Pools at a weekly salary of $400 intended to cover all hours worked. In a two-week pay period she clocks 9

15 45 hours the first week and 50 hours the second. In the first week, Jane s overtime premium is $22.22 ($400 divided by 45 hours times ½ times 5 overtime hours). In the second week, her overtime is $40.00 ($400 divided by 50 hours times ½ times 10 overtime hours). Although the amount of straight-time compensation she earned per hour is less in the second week ($8.00 compared to $8.89), because of the additional overtime compensation, she earned more total compensation by working more hours. There are many other variations on these themes. As an illustration, some employers pay a salary to cover less than 40 hours, (such as a day-rate, or a 37.5-hour week, for example) while others intend for the salary to provide straight-time pay for some overtime hours up to a certain number. It is possible to maintain salary plans like these, but how overtime is calculated in those situations must be evaluated on a case-by-case basis. One thing employers generally cannot do is pay nonexempt employees a fixed salary which in itself covers both straight-time and overtime pay. The FLSA provides for a strictly-limited exception to this rule, known informally as a Belo contract, but you should never attempt to rely upon that exception without first carefully studying its limitations and requirements to see whether those conditions can be met under your particular circumstances. 3. Piece Rate A nonexempt employee must be paid overtime even if he or she is paid solely on a piece-rate basis. Where an employee is being paid a flat-amount per pool serviced, that is not tied to customer charges, the employee is likely being paid a piece-rate and not a commission (see below). The regular rate of such an employee usually is calculated by adding together the piece-rate earnings for the workweek and then dividing by the number of hours worked in the week which are covered by the piece-rate earnings. The employee s overtime pay is then figured by multiplying one-half of that rate times the overtime hours worked. Example: Suppose Jane is paid $15 per pool and cleans 55 pools in a week in which she clocks 43 hours. In that week, her overtime premium is $28.78 ($15 times 55 pools divided by 43 hours time ½ times 3 overtime hours) and her total compensation is $ ($15 times 55 pools plus $28.78). The FLSA authorizes another way to compute overtime for piece-rate employees. This special rule calls for paying 1.5 times the usual piece rate for all pieces or units produced during overtime hours. Certain conditions must be met in order to take advantage of this method, including an advance agreement or understanding with the employee making it clear that this alternative will be used. 10

16 4. Booked Hour Pay Plans Some employers charge customers as follows: They calculate the number of hours normally required to do a given type of repair or service (these are called "booked hours") and multiply that number by a dollar figure. The product of this multiplication is the labor price of the repair or service to the customer. Material costs may then be added to the labor price to come up with a final price. The employee assigned to the repair or service job is then paid his or her wage rate multiplied by the number of booked hours for the job, regardless of the number of hours that it actually takes the employee to complete the work (which may be more or less). The regular rate of a nonexempt employee paid on a booked hour basis is calculated by dividing his or her booked hour earnings by the total number of hours clocked in the week. The employee s overtime pay is then figured by multiplying one-half of that rate times the total number of overtime hours worked. Example: Ken works for ABC Pools as a repair technician on a booked hour basis. Suppose Ken s rate is $20 per booked hour and he books 30 hours in a week in which he clocks 45 hours. In that week, his regular rate is $13.33 ($20 times 30 booked hours divided by 45 clock hours) and his overtime premium is $33.33 ($13.33 times ½ times 5 overtime hours). Thus, his total compensation for the week is $ Bonuses And Incentive Payments Many employers fail to realize that all of an nonexempt employee s pay must be included when computing regular rate, unless the FLSA expressly permits the pay to be excluded. For instance, most bonuses must be figured into an employee s regular rate, including, among many others: additional sums paid for meeting production, efficiency, or sales targets; a shift differential paid to induce employees to work an undesirable shift; cost-of-living bonuses; good-attendance payments; or distributions from a gainsharing pool. If the bonus covers a single weekly period, it is simply added to the employee s other weekly earnings for purposes of calculating the regular rate. Example: Tom works for ABC Pools at $10 an hour. One week he works 50 hours and also earns a $100 bonus for meeting a production 11

17 quota. Under the FLSA, Tom s regular rate is actually $12 per hour [(50 hrs. $10) + ($100) 50 hrs]. If ABC pays overtime at 1.5 times Tom s $10 hourly rate, too little overtime has been paid. Instead, the FLSA requires ABC to pay an additional half-time premium, here ($ ) = $6.00, for Tom s ten overtime hours. Things are more complex if the bonus was earned for work over a period longer than one workweek. In that situation, once the amount of the bonus is known, the payment must first be apportioned back over the period during which it was earned. If the employer can identify particular bonus earnings to particular workweeks, then the allocation should be done that way. On the other hand, if it is reasonable to assume that the employee earned an equal amount of the bonus each workweek ending in the period covered by the bonus, an equal amount is allocated to each such workweek. Alternatively, if it is more reasonable to assume that an equal amount was earned in each hour worked in the bonus period, then an equal amount is allocated to each such hour. Whatever the allocation method is, the employer then computes and pays overtime on the bonus for each workweek for which the bonus was paid. 6. Commissions "Commissions" are typically computed as a percentage of sales. However, the payment can be of some other nature, if it is based upon or directly keyed to the goods or services the establishment sells. As with bonuses, when a nonexempt employee receives weekly commission payments, these payments are added to all that person s other earnings for the workweek. The total is then divided by the hours worked in that workweek to get the employee s regular rate. The employee then receives overtime pay equal to one-half that rate times his or her overtime hours. Example: Suppose Ken, the repair technician, is paid commissions at a rate of 20% of customer charges. If Ken works 47 hours in a workweek and is responsible for $2,500 in repairs, he will earn $500 in commission earnings plus $37.23 in overtime ($500 divided by 47 hours times ½ times 7 overtime hours). Sometimes, commissions are paid to cover a period longer than a workweek. In that case, once the commissions are figured, they must be allocated back over the workweeks in which they were earned. Each week s commission amount is then divided by the hours worked in that week, and the employee is due one-half of the resulting rate times the overtime hours worked in each corresponding week. 12

18 As with bonuses, if it is not possible to allocate the commissions back to the workweeks in the commission period in proportion to the amount of the commissions earned in each such week, then they must be allocated in some other appropriate and reasonable way so that overtime can be figured. For instance, it might be reasonable under the circumstances to allocate an equal amount of the commissions to each workweek in the commission period, or it might be more appropriate to allocate an equal amount to each hour in the commission period. 7. Exclusions From The Regular Rate The FLSA specifically allows certain types of compensation to be excluded from overtime calculations, such as: some kinds of gifts and similar payments; payments made for occasional periods when no work is performed (such as vacations, holidays, or leave), payments made to reimburse certain expenses, and other, similar payments not made as compensation for hours of employment; certain payments made under qualifying profit-sharing plans or trusts or thrift or savings plans; contributions to a trustee or third person under a qualifying plan providing old-age, retirement, life, accident, or health insurance or similar benefits. a. Discretionary Bonuses A bonus is not included in the regular rate if the decisions about whether there will be a bonus and what the amount will be rest within the employer s sole discretion and are made at or near the time of payment. Year-end Christmas gifts are one example. The bonus cannot be paid under any contract, agreement, or promise that causes the employee to expect such a payment. If the employer promises in advance to pay a bonus, it abandons its discretion with regard to it, and the bonus must be included in the regular rate. Employers should not rely on this exclusion unless and until they have studied the issue carefully and are sure that it applies. b. Premium Payments Certain sorts of premium payments may be excluded from the regular-rate computation. The idea is that employers should not have to figure overtime on payments which are themselves in the nature of overtime. For one thing, you may exclude the premium amount an employee receives for working over eight hours in a day or over 40 hours in a week, or for work exceeding the employee s normal or regular working hours, when calculating the regular rate. 13

19 You may also exclude extra compensation resulting from the payment of a premium rate of at least 1.5 times the normal non-overtime rate for work performed on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth and seventh days of the workweek. In addition, you may exclude extra compensation resulting from the payment of a premium rate of at least 1.5 times the non-overtime rate established in an agreement or contract calling for the payment of that premium rate for hours worked outside of the basic, normal, or regular workday (not over 8 hours) or workweek (not over 40 hours). The FLSA also permits an employer to take a credit for the above premiums against any overtime compensation otherwise due for hours worked over 40 in a workweek. Employers should not exclude such premium payments or take a credit for and such premiums unless and until they have studied the issues carefully and are sure that they apply. COMPENSATORY TIME Notwithstanding widespread misconceptions to the contrary, private sector employers cannot compensate nonexempt employees for working overtime in a workweek by giving them time off in another week instead of overtime pay. However, it is legal to control or rearrange an employee s hours within a workweek to prevent overtime from being worked. As an illustration, an employee who works 40 hours during the first four days of her five-day schedule can be told to take the fifth day off so as to avoid having her work any overtime hours that workweek. WAGE DEDUCTIONS AND OUT-OF- POCKET PAYMENTS In many instances, the cost of tools; equipment; apparel; lost, damaged, or unreturned equipment; shortages; bad checks, and many other such costs may be deducted from employee wages or otherwise imposed on the employee, but not to the extent that the cost cuts into the required minimum wage or overtime wages due that employee. For example, generally an employee who is required by his or her employer or by the nature of the job to purchase tools or equipment cannot be required or permitted to bear the costs of the purchase to the extent that it directly or indirectly reduces his or her wages to below either the required minimum wage for straight-time hours or any overtime pay due for the week in which the expense is incurred. This is also true even where a prospective employee must pay for such items on an out-of-pocket basis in order to become employed. Similarly, if you require an employee to wear a uniform, you may not deduct for the cost of or deposit on the uniform to the extent that this reduces the employee s pay for a workweek to below the minimum wage or required overtime compensation. However, the definition of a uniform does not include items of a general street-clothing nature if the employer specifies them only in general terms and allows variations in the details. 14

20 The cost of cleaning and maintaining required uniforms generally may not be imposed upon an employee to the extent that the employee s wages are thereby directly or indirectly reduced to below the required minimum wage or overtime wages due. However, where uniforms 1) are made of wash-and-wear materials; 2) may be routinely washed and dried with other personal garments; and 3) need not be ironed, dry-cleaned, washed daily, commercially laundered, or otherwise specially handled, then uniform maintenance costs need not be reimbursed under the FLSA. Where special treatment is required, such as in order to meet an employer s appearance standards, then a reimbursement must be made if the cost would otherwise cut into the minimum wage or overtime. An employer may permit and collect for purely personal purchases by employees on a cash basis, even if some amount of employer add-on is included, so long as the transactions are entered into voluntarily by the employee and are at arm s-length, and so long as collections for the transaction are not made from the employee s wages. However, where collection for an employee s purchase is made either directly or indirectly through payroll deduction, a violation will occur to the extent that any employer profit or other add-on cuts into the required minimum wage or overtime wages due the employee. These same principles usually apply to loans or cash advances made to an employee. Note that, where an employee is subject to the FLSA s overtime requirements, in determining the excess wages available for offset where a limitation applies, no part of the overtime wages paid for weekly hours worked over 40 may be considered. If you plan to make permissible deductions or offsets in overtime workweeks, you should say so in a policy statement explaining that those deductions or offsets will be made in both overtime and non-overtime workweeks. Also, deducting work-related costs can destroy a salaried exemption or can alter the circumstances under which an exemption applies if the required salary is impaired. This is more fully discussed later in this booklet. Finally, the courts and the DOL do not recognize or permit employee agreements which supposedly waive the FLSA s limitations in these areas. In other words, you may not require or permit employees to pay or have deducted more than the FLSA allows, even if an employee agrees to it. EXEMPTIONS FROM THE FLSA S REQUIREMENTS The FLSA exempts certain types of employees from some or all of its requirements. The DOL and the courts apply these exemptions very narrowly. If an exemption is challenged, it is the employer s burden to prove that every element of a claimed FLSA exemption applies to the employee for whom it is asserted. There are many misconceptions about how exemptions work, and improperly applied exemptions are among the most-common FLSA violations. Here is a summary of the exemptions most frequently relied upon -- and most often in dispute. 15

21 A. The White Collar Exemptions The so-called white collar exemptions from the FLSA s minimum-wage, overtime, and timekeeping provisions apply to those employed in a bona fide executive, administrative, or professional capacity or as an outside salesperson. Whether these exemptions apply to a particular person depends in part upon what kind of work he or she actually performs, rather than whether the employee is well-paid, well-educated, well-thought-of or highly skilled, or whether the employee has a high-sounding job title or is in a position covered by an impressive-looking job description. Effective August 23, 2004, the requirements for these exemptions were changed significantly. Whether a person is an exempt executive, administrative, or professional employee also depends upon how he or she is paid, with few exceptions. Exempt individuals generally must be paid on a salary basis, described below, at a rate of at least $455 per week, or its equivalent for pay periods longer than one week. But the reverse is not true: Salaried employees are not necessarily exempt. 1. Executive Employees An executive employee s primary duty (as a rule of thumb, more than 50% of his or her time) must be spent managing the organization or a customarily recognized department or other subdivision of the organization. Management can mean lots of different things, but it generally includes activities such as being involved in hiring, directing, evaluating, disciplining, and firing employees; deciding what work will be done; planning, assigning, and prioritizing work; determining what materials will be used, bought, stocked, or sold; and so on. The executive must customarily and regularly direct the work of at least two or more other full-time employees or the equivalent ( full-time usually means 40 hours a week but can be less in particular instances). Customarily and regularly is vaguely defined by the DOL as a frequency that must be greater than occasional but may be less than constant. As a rule of thumb, it includes work normally and recurrently performed every workweek, but does not include isolated or one-time tasks. The executive must also have the authority to hire or fire, or must at least make suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other significant change of status of other employees that are given particular weight. In order to determine whether an employee s recommendations on personnel decisions are given particular weight, factors to be considered include : whether it is reflected on the employee s job description as a specific responsibility, how frequently recommendations are made by the manager, and how often those recommendations are relied upon. 16