Legal Q & A Updated By Heather M. Lockhart, TML Assistant General Counsel, and Lola Wilson, TML Law Clerk On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor to update and modernize the regulations defining which white collar workers are protected by the Fair Labor Standards Act's minimum wage and overtime standards. President Obama declared the current salary level as outdated and no longer doing its job of helping to separate salaried white collar employees who should get overtime pay for working extra hours from those who should be exempt. Proposed rules were published in the Federal Register on July 6, 2015, and the Department received more than 270,000 comments in response to the proposed rules. The feedback the Department received helped shape the final rule. The updated final rule went into effect December 1, 2016. Does a city have to pay its employees minimum wage? Yes. Section 203(s)(1)(C) of Chapter 29 of the United States Code provides that the Fair Labor Standards Act (FLSA) covers all public employees of a political subdivision of a state. The FLSA mandates a minimum wage for employees. It also mandates overtime compensation at a rate of one-and-one-half times an employee s regular hourly rate of pay for all hours worked more than 40 in a standard seven-day work period. There are exceptions to this general rule. The FLSA does not require minimum wage or overtime pay for every employee. For example, elected officials and their personal staff, legal advisors, and bona fide volunteers are not covered by the FLSA. 29 U.S.C. 203. What is the minimum wage? The current minimum wage is $7.25 an hour. 29 U.S.C. 206. A city cannot by ordinance require a private employer to pay more than the minimum wage, but it may set a higher minimum wage for its own employees or for private firms that contract with the city as a condition of such contract. TEX. LAB. CODE 62.051. Which employees are required to be paid overtime? All employers must pay overtime to all nonexempt employees if the employee works more than 40 hours in a seven-day work period. Some employees, depending on their salary and classification (e.g., executive, professional, or administrative) are exempt and do not have to be paid overtime if they are paid more than a certain amount. An exempt employee is not required to be paid overtime, but is paid his or her full salary regardless of the number of hours the employee works in a seven-day work period. How can a city differentiate between exempt and nonexempt employees?
Most employees are nonexempt and must be paid overtime if they work more than 40 hours in a seven-day work week. The three primary exemptions for overtime pay are executive, professional, and administrative. 29 U.S.C. 213. For any employee to be considered exempt as an executive, professional, or administrative employee, the employee must make at least a guaranteed salary of $913 a week. (The new overtime rule increased the required salary from $455 to $913 per week.) This means that any employee who earns less than $913 a week ($47,476 a year) is automatically entitled to overtime pay, regardless of the employee s position. What constitutes an exempt executive, professional, or administrative employee? To be exempt as an executive employee, an employee must: (a) have as a primary duty the management of the enterprise or of a recognized department or subdivision; (b) customarily and regularly direct the work of two or more employees; and (c) have authority to hire or fire other employees (or the employee s recommendations as to hiring, firing, promotion, or other change of status of other employees are given particular weight). To be exempt as a professional employee, an employee must have as a primary duty the performance of office or non-manual work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, but which also may be acquired by alternative means such as an equivalent combination of intellectual instruction and work experience. Attorneys are a common example of a professional employee. To be exempt as an administrative employee, the employee must: (a) be responsible for the performance of office work directly related to the management or general business operations of the employer or the employer s customers; and (b) exercise discretion and independent judgment with respect to matters of significance within the organization. Whether an employee is exempt is a fact question based on job duties and descriptions. City officials should consult with their city attorney and human resources professional to determine which city employees are exempt from overtime, if any. Did the new overtime rule increase the highly compensated employee threshold? Yes. The new overtime rule increased the highly compensated employee (HCE) salary threshold from $100,000 to $134,004. An HCE who earns more than $134,004 a year is exempt from overtime compensation, regardless of job classification. Does a city have to pay overtime if an employee works more than eight hours in a day? No. Overtime is based on the number of hours worked in a seven-day workweek, not on the amount of hours worked in a single day. Does a city have to pay overtime or double time if an employee works on a state or federal holiday?
No. An employee must be paid overtime pay only if the employee is nonexempt and works more than 40 hours in a seven-day workweek. It is up to the city to decide whether to pay additional amounts if an employee works on a holiday. Is a city required to provide employees a certain amount of sick, vacation, or other paid time off? No. A city generally decides how much sick, vacation, and other paid leave to give. However, federal and state laws, such as the Family Medical Leave Act, the Americans with Disabilities Act and laws applying to those in the military, may require some unpaid time off. In Texas, at least two state laws mandate some time off requirements. Section 437.202 of the Texas Government Code states that an employee who is a member of the state military forces or the armed forces is entitled to a paid leave of absence of up to 15 working days for authorized training or duty. In addition, members of a police or fire department must be given the same number of days off as other city employees. TEX. LOC. GOV T CODE 142.0013. Also, fire fighters must also have September 11 th listed as one of their holidays. TEX. LOC. GOV T CODE 142.0013. What is the difference between a part-time and a full-time employee? Federal law, benefits providers, and the city itself determine the definition of a full-time or parttime employee. Under the Affordable Care Act, if an employee works more than 30 hours a week over the course of a year, and the employer has 50 or more employees, then the employee must be offered health coverage or the employer faces a penalty. 26 U.S.C. 4980H. Benefits can often be affected by an employee s full-time or part-time status. If the city is wondering at which point it must provide benefits, such as health benefits (when not required by federal law) or retirement benefits to its employees, the city should review its personnel policies and contact its benefits providers to see what their requirements are. City policy determines what leave and other city benefits an employee receives, such as vacation or sick leave. How is employee overtime pay calculated? A city employer must pay its employees overtime compensation of one and one-half times the regular rate of payment for any hours worked in excess of 40 in a seven-day work week. What is the regular rate of payment? The regular rate of payment is defined as all compensation for employment paid to, or on behalf of, the employee. This is a broad definition. However, it excludes: (1) gifts; (2) payments made for occasional periods when no work is performed due to vacation, holiday, illness; (3) traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer; and (4) other similar payments to an employee which are not made as compensation for his hours of employment. Is compensation, paid in lieu of medical benefits, included in the employee s regular rate of pay?
Yes. Cash-in-lieu of benefits payments must be included when calculating an employee s regular rate of payment. Can a city pay its employees in compensatory time instead of overtime? Yes. City employees can be paid in compensatory time (paid time off) instead of overtime pay. In lieu of overtime, a nonexempt employee can be paid one-and-one-half hours of compensatory time for every hour of work over 40 hours in a seven-day work period. Compensatory time may be given in lieu of overtime pay only if the employee agrees before beginning work to accept it through an individual agreement or through a collective bargaining agreement. 29 U.S.C. 207(o). How many hours of compensatory time can an individual earn? An employee who is not engaged in public safety activities is limited to 240 hours of compensatory time off (160 hours of overtime). If an employee earns more than 240 hours, the employee must be paid overtime wages. Is a city required to provide an employee with a meal break or rest period, and does the city have to compensate an employee who takes such a break? A city is not required to provide an employee with a meal period or rest period. However, if a city allows an employee to take such a break, whether the break is compensable depends on the duration of the break and whether the employee worked during the break. A city is not required to compensate an employee for a meal break if the following requirements are met: (1) the employee is completely relieved from performing any job duty; (2) the employee is free to leave the worksite; and (3) the meal break is at least thirty minutes long. Bernard v. IBP., Inc., 154 F.3d 259, 265 (5th Cir. 1998). Rest breaks that are between five and ten minutes long are compensable. 29 C.F.R 785.15. The only required breaks are those for nursing mothers. The Patient Protection and Affordable Care Act amended the FLSA, requiring that employers provide special areas and break times to nursing mothers to express breast milk for one year after the birth of their nursing child. 29 U.S.C. 207(r); www.dol.gov/whd/regs/compliance/whdfs73.htm Can a city deduct from an employee s salary or require an employee to reimburse the city for damage to or loss of city equipment, such as a laptop computer or cellular phone? It depends on whether an employee is exempt or non-exempt under the FLSA. Subject to limited exceptions, the FLSA requires an exempt employee to receive the full salary for any week in which the employee performs any work, regardless of quantity or quality of work. 29 U.S.C 213(a) (1); 29 C.F.R. 541.602(a). Making deductions from the salary of an exempt employee s pay for any reason, other than for what is provided for under the regulations, would result in a violation of the salary basis rule and a loss of the employee s exempt status. Deductions also cannot be taken from a nonexempt employee s wages except in specific, special circumstances, especially if such deduction would drop the employee below minimum wage.
Can the city make any deductions from an employee s wages? Yes, under limited circumstances. There are three basic types of payroll deductions: legally required payroll deductions, employer required payroll deductions, and voluntary wage assignments by employees. These deductions are allowed only in specific, narrow circumstances, such as required taxes, employer-provided benefits, child support, student loan repayments, and employer cost recovery when the employee is primarily benefitted by the expenditure. Voluntary wage assignments include some employee benefits, charitable contributions, and union dues. Federal law specifically allows voluntary payroll deductions for union dues, even if the deduction drops an individual below minimum wage. 29 C.F.R. 531.40. These deductions must be pursuant to a collective bargaining agreement and as permitted by law. Current state law provides for some payroll deductions for union dues for certain city employees. Section 141.008 of the Local Government Code has optional and mandatory payroll deductions for union dues for city employees. Can a city official be held individually liable for violations of the Fair Labor Standards Act? Yes. The Fifth Circuit Court of Appeals, the federal court of appeals covering Texas, has held that the definition of employer in the FLSA could subject an employee or supervisor to individual liability. Lee v. Coahoma Cty., Miss., 937 F.2d 220, 226 (5 th Cir. 1991). Accordingly, city officials should carefully follow the provisions of the FLSA, not only to protect the city, but to prevent individual liability. Are city officials protected by any immunity when an FLSA claim is filed against them? Yes. While there does not appear to be any Fifth Circuit case on point, qualified immunity generally protects city officials from liability for violations of federal law. Qualified immunity is a defense that is used when an individual issued under federal law. To be covered by qualified immunity, the official has to show that the action taken: (1) was discretionary; (2) was within his authority to take; and (3) did not violate a clearly established statutory or constitutional right of which a reasonable person would have known. Perry v. Greanias, 95 S.W.3d 683, 699 (Tex. App. Houston [1 st Dist.] 2002). Thus, not every violation of the FLSA will subject an individual to personal liability, so long as the decision is not objectively unreasonable in light clearly established law. See Modica v. Taylor, 465 F.3d 174, 188 (5 th Cir. 2006) (holding that a state agency official was protected by official immunity in a case involving the Family Medical Leave Act). Is a city council authorized to give an employee a bonus? Cities are prohibited from granting extra compensation to an employee after her services have been rendered. TEX. CONST. art. III, 53; Fausett v. King, 470 S.W.2d 770, 774 (Tex. Civ. App. El Paso 1971, no writ). However, a city is authorized to correct improper payments. For example, if an employee who is classified as nonexempt under the FLSA (overtime) was not properly compensated for his or her overtime work, back pay may be proper to remedy that situation. Also, longevity pay is permissible so long as it is included in the budget and offered to
the employee before the work is performed, such extra pay may be permissible. Please consult with local legal counsel regarding specific cases. Also, a city is prohibited from paying more than the contracted amount to a current employee or a terminated employee unless the city meets certain notice and hearing requirements. TEX. LOC. GOV T CODE 180.007. Can the city just change an employee to an independent contractor to avoid overtime and benefits pay? No, whether someone is an independent contractor or an employee is a highly fact sensitive question that is determined by federal law. Generally, an independent contractor is hired for a specific job, paid a specific amount, and is not supervised or directed as to how that job is performed. In contrast, an employee is normally hired to perform a list of duties, is paid by the hour or by salary, and his or her work is directed and supervised by the employer. See Hopkins. v. Cornerstone America., 545 F.3d 338, 343 (5th Cir. 2008). Also, if an employee is misclassified as an independent contractor, a city could owe the federal government, state government, and the individual employee additional wages. In between 2010 and 2012, about 35,000 workers were misclassified as independent contractors in Texas according to the Texas Workforce Commission and reported by the Legislative Budget Board. Because this issue is so widespread in Texas, some lawmakers have tried to get laws passed related to misclassification that would create additional penalties. See, e.g., Tex. S.B. 927 (84 th Leg. 2015).