Avoiding a Double-Play: Regular Rate and Hours Worked Issues for Non-Exempt KANSAS SHRM CONFERENCE 2017 SEPTEMBER 21, 2017 The Playing Field Fair Labor Standards Act imposes requirement to pay overtime to non-exempt employees who work more than 40 hours in a workweek. All employees are non-exempt unless a specific exemption applies. Overtime calculations are (not so) simple math: How many hours did the employee work? If more than 40, at what rate is overtime calculated? = Hours x 1.5(Reg Rate) = Overtime No Turning Two ACCURATELY TRACKING ALL HOURS WORKED Kansas SHRM 2017 1
Hours Worked Rule of thumb Any time an employee is (1) on duty, (2) required to be at a prescribed place, or (3) performing services on the employer s behalf. Test: Did a manager/supervisor know or reasonably should have known that the employee was performing services for the employer s benefit? Knowledge of your supervisors and managers will be imputed to the employer. Time Outs Rest breaks must be treated as working time Generally these are any breaks of less of than 20 minutes. Consider the practical issues if employees are taking breaks off-site. Meal breaks may be excluded from working time as long as employee is relieved from job duties during break. Generally, break must be at least 30 minutes. Interruptions can be problematic. On-Call Time Compensability depends on whether the employee can effectively use the on-call time for his or her personal pursuits. Look at all facts and circumstances that may impact the employee s ability to use the time, including: Employer s time and geographic restrictions for callbacks Other limitations on activities Actual frequency of callbacks Ability to respond remotely Ability of employees to swap on-call periods Kansas SHRM 2017 2
Renfro v. City of Emporia, 729 F. Supp. 747 (D. Kan. 1990) Firefighters scheduled on 17-day tours of duty. Subject to call-back on rotating basis during first 24-hour period following completion of a tour. No limits on activities during call-back period, except no alcohol consumption. Must respond back to station within 20 minutes of call. Call-backs averaged 3 to 4 per 24-hour period, and lasted an average of one hour each. Pre- and Post-Shift Tasks Deals with required activities that occur at the start or end of an employee s workday. Sometimes referred to as preliminary and post-liminary tasks. Compensability depends on whether the tasks are integral and indispensable to the employee s primary job duties. Look at all facts and circumstances, with focus on the relationship of the tasks to primary duties. Pre- and Post-Shift Tasks Two Supreme Court cases pave the way. IBP v. Alarez, 546 U.S. 21 (2005) Meat packing plant employees Time spent changing into and out of required clothing, including protective gear Companion case involving poultry processing employees Integrity Staffing Solutions v. Busk, 547 U.S. (2014) Warehouse pickers for Amazon Time spent waiting for security screening Kansas SHRM 2017 3
Travel Time Home to work commute Walking, riding, or travelling to and from the actual place of performance of the employee s principal activity or activities = NOT Compensable DOL has taken enforcement position that emergency or other after-hours return to worksite are still considered commuting time. Travel during the work day Once workday starts, all travel time is compensable until released from duty at end of the day or for bona-fide meal break. Continuous Workday Rule Once an employee starts compensable work, employee remains on the clock until released from duties at the end of the shift or a bona-fide meal break. This was a key issue in the IBP case Once employees began compensable work (by putting on protective gear) they were on-the-clock. Effectively converted the walking time to their work station from commuting time to compensable work time. Travel with an Overnight Stay Driving is working. Travel as a passenger is working time during the employee s normal working hours regardless of the day of the week. BUT, other rules still apply: Actual work is compensable even if travelling at the time. Break rules apply during periods of travel Kansas SHRM 2017 4
Off-the-Clock Work Dangerous situation for employers because it calls the accuracy of timecards into question. DOL regulations require employer to maintain accurate time records. Gives plaintiffs in litigation a leg-up; they need only provide some evidence that uncompensated work was performed. Duty of Management [I]t is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. It cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so. 29 C.F.R. 785.13 Smart Device Issues What could cause an employee to be working away from the jobsite? Timekeeping policy should account for this. Employer-issued smart devices, or personal devices that are connected to employer s system. Need to balance legitimate business reasons why you want employees to have access against potential for work. Managers must recognize the impact of after-hours contact with non-exempt employees. Responding to text messages Kansas SHRM 2017 5
Kuebel v. Black & Decker, Inc., 643 F.3d 352 (2 nd Cir. 2011) Kuebel worked as product merchandiser for B&D. Worked from home and car, with daily assignments sent to personal electronic device. Job required an estimated 30 minutes of admin work from home each day. Kuebel could decide when to perform the admin work. Kuebel self-reported his working time each week. B&D policy was clear that all working time must be recorded. Overtime was not prohibited, but B&D s position was that job could be completed in 40 hours per week. Kuebel v. Black & Decker, Inc., 643 F.3d 352 (2 nd Cir. 2011) Kuebel sued for unpaid overtime based on the additional working time that he did not report. Claimed about one hour per day spent on admin tasks. Also claimed his manager directed him to limit reported hours to 40 per week. B&D defended that because Kuebel submitted his own time, the time records should control in the absence of specific evidence of additional working time. Kuebel v. Black & Decker, Inc., 643 F.3d 352 (2 nd Cir. 2011) This case also had a continuous workday component. Kuebel s commute was from home to his first store, which ranged from 10 minutes to 3 hours. Kuebel argued that his workday started when he performed admin tasks each morning before he left his home, so the commuting time to his first store was compensable. Court rejected this argument, largely because Kuebel had the discretion to decide when to perform the at-home admin tasks each day. Kansas SHRM 2017 6
De Minimis Defense Latin term that means: Too trivial or minor to merit consideration. De Minimis Defense Federal courts in Kansas have stated that there is no blanket minimum amount. Courts will consider three primary factors: 1. Practical administrative difficulty in tracking the time; 2. Aggregate amount of compensable time; 3. The regularity of the additional work. 8 mins per day x 5 days per week x 52 weeks = 2080 minutes or over 34 hours. Beat the Throw DETERMINING THE REGULAR RATE Kansas SHRM 2017 7
Regular Rate General premise (from 29 U.S.C. 207(e)): The regular rate at which overtime is calculated shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee..., Ground Rules The Math: Combine all includable wages and divide by the number of hours worked that week. Everything is included unless a specific exclusion applies. FLSA has eight provisions that define the permitted exclusions. Exclusion: Gifts Payment in the form of gifts, such as for Christmas or other special occasion may be excluded. To qualify, the payments cannot be measured by or dependent on hours worked, production, or efficiency. BUT, amounts can vary based on years of service or hourly rate. Payment cannot be so substantial that employees may assume it to be part of their wages. Kansas SHRM 2017 8
Exclusion: Pay Not Tied to Work Expense reimbursement Who derives the primary benefit of the expense? Make sure reimbursement is tied to the expense incurred. Pay for nonworking time Vacation, sick leave, and holidays Payment for idle time outside the employer s control Reporting pay in excess of work performed Distinguish on-call pay Exclusion: Pay Not Tied to Work Chavez v. City of Albuquerque, 630 F.3d 1300 (10 th Cir. 2011) City employees brought FLSA collective action brought to recover unpaid overtime claimed that various additional forms of pay should have been included in overtime calculations, including: Buyback of unused vacation Buyback of unused sick leave Exclusion: Discretionary Bonuses General rule is that all commissions and bonuses must be included in regular rate; the exclusion applies only to discretionary bonuses. DOL regulations state that employer must retain discretion as to (1) whether bonus will be awarded; and (2) amount of bonus, until time close to when bonus is paid. What about announcing the possibility of a bonus without any promise? Kansas SHRM 2017 9
Chao v. Port City Group, 2005 WL 3019779 (W.D. Mich. 2005) BONUS Eligibility If the company is able to give out any type of bonus, it will be solely at the discretion of the President. ANY AND ALL BONUSES are discretionary. This means you should not count on a bonus as part of your income. If a quarterly bonus is administered, you must meet the following eligibility requirements in order to receive a bonus. 1. Employed for full quarter 2. Employed when bonus is paid 3. Lost time percentage of 5% or less Chao v. Port City Group, 2005 WL 3019779 (W.D. Mich. 2005) DOL challenged that bonus was not discretionary and should have been included in regular rate. Cited the fact that company had awarded a bonus in 27 out of the last 28 quarters. DOL s position, in a nutshell, was that the employer cannot claim to reserve discretion and then send a mixed message by never meaningfully exercising it to withhold the bonus. In practice, the employer s actions were designed to induce employees to work more efficiently. How to Include Bonuses? Allocate bonus to the workweek when earned. If that isn t possible, then must allocate bonus in a manner that is reasonable and equitable. One option: Allocate bonus across workweeks and for each workweek in which overtime was worked, calculate the overtime due on the portion of the bonus for that week: - Bonus / Hours Worked = Bonus Rate - Add l OT = Bonus Rate x ½ x OT Hrs Worked A potential alternative: Allocate by hours worked (including overtime hours) in the period. Kansas SHRM 2017 10
Percentage of Earnings Bonuses that are calculated based on a percentage of an employee s total earnings (including overtime) will automatically include the overtime component in the bonus. For example, production bonus of 1.5% of total earnings over calculation period. Exclusion: Profit Sharing Plans Payments made pursuant to a bona fide profit sharing plan, or thrift or savings plan, may be excluded from regular rate. BUT, to be bona fide the plan must meet requirements set forth by the Department of Labor 29 C.F.R. Part 549 (profit sharing plans) 29 C.F.R. Part 547 (thrift or savings plans) Profit Sharing Plans: DOL Req ts Essential requirements: Written program with periodic, scheduled payments Contributions to program derived solely from profits of business or established subdivision calculated per GAAP All employees eligible (length of service or minimum schedule thresholds may be imposed) Amounts calculated pursuant to definite formula No set-offs based on other wages paid Disqualifying provisions: May not consider attendance, quality of work, or efficiency as to individual awards. No fixed payments, or guaranteed minimums. Kansas SHRM 2017 11
Exclusion: Benefit Plan Contributions May exclude contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old age, retirement, life, accident, or health insurance, or similar benefits for employees Key terms: Irrevocably made Trustee or third person Bona fide plan Health Reimbursement Account Gilbertson v. City of Sheboygan, 165 F. Supp. 2d 742 (E.D. Wis. 2016) In 2012 and 2013, City provided HRA program. City set aside fixed amount per employee to pay for uncovered medical expenses. Used third-party administrator to reimburse employees or direct pay covered medical bills. In 2013, City determined it had surplus in the HRA program and a shortfall in its workers compensation program so it transferred money from one to the other with no impact on payment of HRA benefits. Health Reimbursement Account City employees brought FLSA collective action, claiming that amounts paid from HRA should have been included in regular rate. Court took a literal view of statute these were not irrevocable contributions. Court also looked to DOL regulations, which required that the trustee must assume usual fiduciary responsibilities imposed by law. Here, the City maintained control over the funds. Kansas SHRM 2017 12
Exclusion: Premium Pay Certain voluntary premiums may be excluded from regular rate, and serve as credit towards overtime owed that week. Daily premium, in any amount, for working more than 8 hours, or in excess of normal working hours. Premium pay for working weekends, holidays, or regular days of rest as long as premium is at least 1.5 times hourly rate for like work on other days. Premium pay for work outside defined normal hours (per contract or CBA) as long as premium is at least 1.5 times rate for like work at other times. Don t Get Ejected PRACTICAL TIPS Policies Off-the-Clock Work Consider potential for work opportunities away from workplace. Direct employees to report any mgm t pressure to underreport working hours. Provide an avenue for complaints Timekeeping Consider employee certification. Consider supervisor review before submission. Smart Device Usage Be pro-active Kansas SHRM 2017 13
Self-Audit Bonus/Commission calculations for overtime? Review timecards Any periods of less than 20 minutes when employee was clocked-out? Are lunch breaks at least 30 minutes, and consistent with policy? Spot checks are okay, but dig deeper if you notice a problem. A Tradition for Legal Excellence Since 1919 Kansas SHRM 2017 14