Fair Labor Standards Act June 2016 Roger L. Bates Hand Arendall LLC 2001 Park Place North Birmingham, AL 35203 rbates@handarendall.com Fair Labor Standards Act ( FLSA ) Establishes standards for minimum wages, overtime pay, and other items. See 29 U.S.C. 207-207 When Does the FLSA Apply? Applies to enterprises who engage in interstate commerce; produce goods for interstate commerce; or handle, sell, or work on goods or materials that have been moved in or produced for interstate commerce. 1
Does the FSLA Apply to a Non-Profit? There is no exclusion in the FLSA for non-profit organizations. The Supreme Court decided in Alamo Foundation v. Secretary of Labor that despite the nonprofit corporation status of an organization, if it engages in commercial activities in competition with other businesses, its employees are entitled to its full protection. What Employees Are Covered? The FLSA covers both full-time and part-time employees in the private and public sector. Exempt vs. Non-Exempt Employees Employees whose jobs are governed by the FLSA are either "exempt" or "nonexempt. 2
Exempt vs. Non-Exempt Employees Whether a job is exempt or nonexempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do. Employees are non-exempt unless they meet three requirements. Test for Exempt Employees Generally, an individual is only an exempt employee if she meets the following three tests: Is paid at least $23,600 per year (or $455 per week) until November 30, 2016; FINAL DOL RULE increases minimum to $47,476 per year (or $913 per week) will be effective December 1, 2016 Is paid on a salary basis (guaranteed minimum) AND Performs exempt job duties. Department of Labor Final Rule On May 18, 2016, the DOL issued the Final Rule updating the overtime exemption regulations of the FLSA at President Obama s directive. Most significantly, the Final Rule: Increases the minimum salary level for exempt executive, administrative, and professional employees (also known as white collar exemptions) from $455 to $913 per week or $23,660 to $47,476 annually; Increases the minimum annual compensation level for exempt highly compensated employees from $100,000 to $134,004; and Provides that the salary thresholds will automatically change every three years so that the minimum for the white collar exemption is maintained at the 40th percentile of earnings of full-time salaried workers in the lowestwage Census Region and the minimum for highly compensated employees is maintained at the 90th percentile of full-time salaried workers nationally. Under the new rule, employers may now use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new minimum salary level for white collar exemptions, but only if those payments are paid at least quarterly. The Final Rule does not in any way change the existing job duty requirements necessary to qualify for the white collar exemption. The Final Rule becomes effective December 1, 2016. 3
Exempt Job Duties These FLSA exemptions are limited to employees who perform relatively high-level work. Whether the duties of a particular job qualify as exempt depends on what they are. Job titles or position descriptions are not particularly useful for purposes of this test. It is the actual job tasks that must be evaluated, along with how the particular job tasks "fit" into the employer's overall operations. Common Exempt Categories There are three typical categories of exempt job duties, called "executive," "professional," and "administrative. Executive Exemption Job duties are exempt executive job duties if the employee: regularly supervises two or more other employees, has management as the primary duty of the position, and has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments). 4
Professional Exemption The job duties of the traditional "learned professions" are exempt. lawyers, doctors, dentists, teachers, architects, Clergy registered nurses (but not Licensed Practical Nurses), accountants (but not bookkeepers), engineers actuaries, scientists (but not technicians), pharmacists, and other employees who perform work requiring "advanced knowledge" similar to that historically associated with the traditional learned professions. Professional Exemption Professionally exempt work means work which is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school, and usually beyond college, in fields that are distinguished from (or more "academic" than) the mechanical arts or skilled trades. Professional Exemption Advanced degrees are the most common measure of this, but are not absolutely necessary if an employee has attained a similar level of advanced education through other means (and perform essentially the same kind of work as similar employees who do have advanced degrees). Identifying most professionally exempt employees is usually pretty straightforward and uncontroversial, but this is not always the case. 5
Professional Exemption Creative Professional Jobs Some employees may also perform "creative professional" job duties which are exempt. This classification applies to jobs such as actors, musicians, composers, writers, cartoonists, and some journalists. It is meant to cover employees in these kinds of jobs whose work requires invention, imagination, originality or talent; who contribute a unique interpretation or analysis. Administrative Exemption The most elusive and imprecise of the definitions of exempt job duties is for exempt "administrative" job duties. There is no bright line. Administrative Exemption The Regulatory definition provides that exempt administrative job duties are: office or non-manual work directly related to management or general business operations of the employer or the employer s customers a primary component of which involves the exercise of independent judgment and discretion about matters of significance. 6
Administrative Exemption Designed for relatively high-level employees whose main job is to "keep the business running. A useful rule of thumb is to distinguish administrative employees from "operational" or "production" employees. Employees who make what the business sells are not administrative employees. Administrative employees provide "support" to the operational or production employees. They are "staff" rather than "line" employees. Administrative Exemption Examples of administrative functions include: labor relations and personnel (human resources employees), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations, and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration). Administrative Exemption Administrative work is not exempt just because it is financially important, in the sense that the employer would experience financial losses if the employee fails to perform competently. Administratively exempt work typically involves the exercise of discretion and judgment, with the authority to make independent decisions on matters which affect the business as a whole or a significant part of it. 7
Administrative Exemption Questions to ask might include : whether the employee has the authority to formulate or interpret company policies; how major the employee's assignments are in relation to the overall business operations of the enterprise (buying paper clips versus buying a fleet of delivery vehicles, for example); whether the employee has the authority to commit the employer in matters which have significant financial impact; whether the employee has the authority to deviate from company policy without prior approval. Administrative Exemption An example of administratively exempt work could be the buyer for a department store. S/he performs office or non-manual work and is not engaged in production or sales. The job involves work which is necessary to the overall operation of the store -- selecting merchandize to be ordered as inventory. It is important work, since having the right inventory (and the right amount of inventory) is crucial to the overall well-being of the store's business. It involves the exercise of a good deal of important judgment and discretion, since it is up to the buyer to select items which will sell in sufficient quantity and at sufficient margins to be profitable. Other examples of administratively exempt employees might be planners and true administrative assistants (as differentiated from secretaries with fancy titles). Bookkeepers, "gal Fridays," and most employees who operate machines are not administratively exempt. Administrative Exemption Tasks that are not high-level enough to be administratively exempt: filing, filling out forms and preparing routine reports, answering telephones, making travel arrangements, working on customer "help desks," and Routinely ordering supplies (and even selecting which vendor to buy supplies from). 8
Administrative Exemption Many clerical workers do in fact exercise some discretion and judgment in their jobs. However, to "count" the exercise of judgment and discretion must be about matters of considerable importance to the operation of the enterprise as a whole. Administrative Exemption An employee s title is helpful but is not dispositive of whether they fall within an exemption. A secretary may be a high-level, administratively exempt employee (for example, the secretary to the CEO who really does "run his life"), while an employee with a fancy title (e.g., "administrative assistant") may really be performing nonexempt clerical duties. Other Exemptions The executive, the professional and the administrative we just covered are the most common exemptions. We will now discuss less common FLSA exemptions to consider. 9
Computer-Related Occupations Exemption The FLSA provides an exemption from both minimum wage and overtime pay for computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field who meet certain tests regarding their job duties and salary level. Outside Sales Exemption To qualify for the outside sales employee exemption, the following tests must be met: Step One: The employee s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which consideration will be paid by the client or customer; and Step Two: The employee must be customarily and regularly engaged away from the employer s place or places of business. The salary basis test does not apply to the outside sales exemption. Highly Compensated Employees A highly compensated employee can also be classified as exempt so long as both of the following conditions are satisfied: Step One: The employee earns at least $100,000 in total annual compensation (This amount will be changed to $134,004 on December 1, 2016 as a result of Pres. Obama directive); and Step Two: The employee customarily and regularly performs one or more exempt duties of an executive employee, administrative employee, or professional employee. 10
Rights of Exempt Employees An exempt employee has virtually "no rights at all" under the FLSA overtime rules. About all an exempt employee is entitled to under the FLSA is to receive the full amount of the base salary in any work period during which s/he performs any work (less any permissible deductions). Nothing in the FLSA prohibits an employer from requiring exempt employees to "punch a clock," or work a particular schedule, or "make up" time lost due to absences. Nor does the FLSA limit the amount of work time an employer may require or expect from any employee, on any schedule. Rights of Exempt Employees COMP TIME??? There is no requirement under the FLSA for employers to pay exempt workers for extra hours worked. However, an employer may offer comp time if the employer chooses. See Section 541.604 of the FLSA. Non-Exempt Employees If an employee does not meet the test for an exempt employee (or is not statutorily exempted), then the employee is a nonexempt employee. 11
Are you exempt or nonexempt? Why is this important to know? Overtime rules are different Documenting time is expected of non-exempt employees Most businesses cannot afford to routinely pay overtime to non-exempt employees, so managers and employees alike understanding the rules can help more effectively manage costs of the business Non-Exempt Employees Federal and state laws require most employers to pay overtime to nonexempt employees. The overtime premium is 50% of the employee's usual hourly wage. This means an employee who works overtime must be paid "time and a half" -- the employee's usual hourly wage plus the 50% overtime premium -- for every overtime hour worked. 12
Non-Exempt Employees Federal and most state laws impose a weekly overtime standard, which means that nonexempt employees are entitled to overtime for every hour more than 40 that they work in a workweek, regardless of how many hours they work in a day. Non-Exempt Employees For example, Alex is a nonexempt employee who works 12 hours on Monday and 6 hours on Tuesday (and doesn't work any additional hours in the week). He is not entitled to receive overtime under the weekly overtime standard, even though he worked more than eight hours on Monday, because he didn't work more than 40 hours that week. Non-Exempt Employees FLSA overtime pay is due on the regular pay day for the period in which the overtime was worked. The overtime pay requirement may not be waived by agreement between the employer and the employee. The overtime pay requirement cannot be met through the use of compensatory time off (comp time) except under special circumstances applicable only to state and local government employees. 13
Comp Time Some employers adopt a policy of giving their employees compensatory time (referred to as "comp time ) -- an hour off at some later date for every extra hour worked -- instead of paying them overtime. These policies are generally illegal under federal law, at least for private employers because they preclude employees from collecting an overtime premium, the extra pay to which they are entitled for working more than a set number of hours. Comp Time This means that if you wish to give your employees time off instead of money for extra hours worked, you cannot simply establish an hour-forhour policy (that is, letting the employee take an hour off for every hour of overtime worked). Alternatives to Comp Time You may be able to rearrange an employee's schedule during a workweek to ensure that the employee does not work overtime. Under federal law, an employee who works no more than 40 hours in a week has not worked overtime and is not entitled to overtime pay. For example, an employee who works four 10-hour days and then has three days off need not be paid overtime. 14
Alternatives to Comp Time You can also adjust an employee's hours during a pay period so that the amount of the employee's paycheck remains constant. To make this work, the employee must take an hour-and-a-half off for every extra hour worked. Alternatives to Comp Time For example, if an employee who usually earns $1,600 every two weeks (or $20 an hour) works an extra 10 hours during the first week of the pay period, the employee is entitled to $300 in overtime pay -- 10 hours multiplied by one-anda-half times the employee's hourly rate, or $30. If the employee took 15 hours off in the second week of the pay period, however, his or her paycheck would remain the same -- the employee would receive $300 in overtime pay, but would be docked $300 (15 hours multiplied by $20 an hour) for the time not worked. While you'll have less of the employee's time, it will help keep costs down. Attendance at Receptions, Dinners, Other Social Events Many employers sponsor or host receptions, dinners, happy hours, and other social events. If a non-exempt employee is required to attend a reception, dinner, happy hour, or other social event, that time is treated as compensable time, even if the employee is not performing work that he or she usually performs in the office. 15
Attendance at Receptions, Dinners, and Other Social Events Again, it is important to clearly communicate to non-exempt employees what is required and what is not required. In addition, supervisors should be trained not to pressure non-exempt employees to attend an event that is not mandatory. Attendance at Overnight Conferences or Meetings On days when an employee is out of town (but not traveling), the employee is compensated for hours worked such as attending a conference or a meeting. The employee is not compensated for time not working even if it cuts across the employee s regular work schedule (e.g., employee goes sightseeing instead of attending a session of the conference or the conference sessions are only from 9-4). Seminars, Lectures, and Training Programs Many non-exempt employees attend lectures, seminars, and training programs outside the office. Attendance at lectures, meetings, training programs, and similar activities is not considered compensable time if all of the following criteria are met: Attendance is outside the employee s regular working hours, Attendance is voluntary, The course, lecture, or meeting is not directly related to the employee s job, AND The employee does not perform any productive work during such attendance. 16
Seminars, Lectures, and Training Programs Training is considered related to the employee s job if it is designed to help the employee handle his or her job more effectively and it is related to the job. If it is training for another job or a new or additional skill, then it is not job-related even if the course incidentally improves skills in doing the regular work. For example, an IT employee who takes classes toward an accounting degree may incidentally improve his or her organizational skills but that training is not job-related. Seminars, Lectures, and Training Programs When employees attend independent trainings, courses, and college after hours, and it is not required by the employer, such time is not compensable time. Even if the employer pays or reimburses the employee for part of the tuition through an employee benefit plan, the time spent at the course is not compensable time. Seminars, Lectures, and Training Programs Similarly, if an employer offers a lecture or training session for the benefit of employees, voluntary attendance outside of work hours is not hours worked, even it if it is jobrelated or paid for by the employer. 17
Seminars, Lectures, and Training Programs For example, an employer may offer all employees an opportunity to hear an author to speak about a new book about improving management skills. If it is during work hours, the time at the session is compensable time. If the speaker event is outside of regular hours, and is completely voluntary, it is not compensable time. Travel Under the FLSA, a non-exempt employee must be paid for all hours the employee is suffered or permitted to work. This section addresses under what circumstances time spent traveling is considered compensable (i.e., the time is counted as hours worked). Home to Work Travel As a general rule, an employee who travels from home before his regular workday and returns home at the end of the workday is engaged in ordinary home-to-work travel (ordinary commute) which is a normal incident of employment and is not compensable. Compensable: Talking on a phone, running work related errands (e.g., picking up supplies) while traveling from home to work or vice versa is considered compensable if it is work related. Non compensable: Ordinary travel from home to work is not considered hours worked. 18
Travel During the Work Day/In-Town In general time spent traveling as part of the employer s principal activity counts as hours worked. Compensable: Travel during the work day as part of the employer s principal activity counts as hours worked. (e.g., travel from job site to job site). Same Day Travel/Out-of-Town In general, time spent traveling out-of-town and returning in the same day counts as hours worked without regard to whether the employee is driving or riding as a passenger and without regard to whether the travel cuts across the employee s normal work schedule. Travel counts as hours worked. Compensable: Time spent traveling to and from a one day seminar, conference, meeting, etc. is counted as hours worked. Non Compensable: Regular meal periods do not count as hours worked. Overnight Travel In general, whether travel time counts as hours worked when an employee travels overnight, depends on whether the travel cuts across the employee s normal work schedule, and whether the employee is driving or riding as a passenger. 19
Overnight Travel Oftentimes, employees are asked to travel longer distances to attend conferences or other out-of-town events. However, if all of the following conditions are met, even this longer form of travel to a different city is not considered compensable time: the employee is a passenger on an airplane, train, boat, or automobile; the travel is during non-shift hours; AND no work is performed during the travel. Overnight Travel For example, an employee who takes a four-hour plane trip to a week-long conference during non-shift hours but performs no work on the plane need not be compensated for this travel time. Overnight Travel On the other hand, if an employee travels to an out-of-town conference during shift hours, that employee must be compensated for the commuting time to the conference which exceeds that employee s regular commute, whether or not he or she performed any work during the commute. For example, an employee whose regular commuting time is 30 minutes, and who takes a three-hour train ride for a one-day trip to another city during regular shift hours and performs no work on the train, must be compensated for the two-and-a-half hours which are not part of the regular commute. 20
Overnight Travel Compensable Any portion of authorized travel that cuts across an employee s normal work schedule counts as hours worked. Travel on non-work days (like weekends) also counts as hours worked if it cuts across the employee s normal work schedule. Driving a vehicle, regardless of whether the travel takes place within or outside normal work hours, counts as hours worked. In other words, the act of driving is considered manual labor activity which must be counted as hours worked if it is for the benefit of the employer. If an employee is required to attend meals, social events, etc., that time is counted as hours worked. Time spent waiting at the airport counts as hours worked if it cuts across normal work hours. Any work while traveling, which an employee is required to perform while traveling, is counted as hours worked (e.g., answering e-mails, taking business related phone calls.) If an employee is required to ride as an assistant or helper in an automobile, the travel time counts as hours worked. Overnight Travel Non-compensable: Regular meal periods do not count as hours worked. Riding as a passenger outside of normal work hours, via airplane, train, boat, bus or automobile does not count as hours worked. In other words, the act of riding as a passenger is not considered work. Time spent sleeping does not count as hours worked. Time spent waiting at the airport outside of normal work hours does not count as hours worked. Travel between home and work or between hotel and worksite is considered normal commuting time and does not count as hours worked. Overnight Travel Notes: When an employee travels between two or more time zones, the time zone associated with the point of departure should be used to determine whether the travel falls within normal work hours. If an employee drives a car as a matter of personal preference when an authorized flight or other travel mode is available and the travel by car would exceed that of the authorized mode, only the estimated travel time associated with the authorized mode will be counted as hours worked. If the employer provides hotel accommodations for overnight travel but the employee wishes to drive back home each evening, this time is not counted as hours worked. 21
Overnight Travel Examples 22
FLSA Posters Every employer of employees subject to the FLSA s minimum wage provisions must post, and keep posted, a notice (http://www.dol.gov/whd/regs/complianc e/posters/flsa.htm) explaining the Act in a conspicuous place in all of their establishments. Although there is no size requirement for the poster, employees must be able to readily read it. 23
Wage and Hour Law Alabama does not have any specific state laws governing wages and hours. All employers must follow the federal guidelines set for by the U.S. Wage and Hour Division, which is a division of the U.S. Department of Labor Questions? Roger L. Bates Hand Arendall LLC 2001 Park Place North Birmingham, AL 35203 rbates@handarendall.com 24