The Fair Labor Standards Act (FLSA) is a federal law governing minimum wage, overtime, and other wage and hour issues. It applies to nearly every employer and the Department of Labor (DOL) and other government agencies are increasingly focused on FLSA enforcement.
The provisions of the FLSA are not without complexity. Given the many requirements under the Act, we have identified some common FLSA mistakes and what employers can do to help avoid them:
1. Improperly applying an exemption. The FLSA provides certain exemptions from its minimum wage and overtime requirements. These exemptions are narrowly defined and apply only to certain executive, administrative, and professional employees, outside sales personnel, and employees in certain computer-related occupations. These employees must meet very specific requirements; one's job title alone is not enough to make an exemption determination. Rather, the employee's actual job duties as well as his or her salary must be considered.
2. Misclassifying an employee as an independent contractor. There are very specific requirements that must be met in order for an individual to be classified as an independent contractor. One test that can be used to make this determination is the Internal Revenue Service's common law test. This test examines the amount of behavioral control (e.g., who has control over how work is done), financial control (e.g., whether the individual has unreimbursed expenses or realizes a profit or loss from the working relationship), and the type of relationship between the employer and the individual (e.g., whether there are written contracts or employee-type benefits, such as health care or paid time off). Employers must carefully examine the employment relationship before classifying an individual as an independent contractor and may obtain an official determination from the IRS by submitting Form SS-8: Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
3. Misclassifying individuals as unpaid interns. The FLSA acknowledges that not all persons who perform duties for an employer are considered "employees" and thus entitled to compensation. Interns, graduate assistants, and apprentices may be exempt from wage and hour laws so long as they meet specific criteria and can be considered "trainees" and not employees. In order to be classified as such, all of the following 6-factors must be met: (1) the internship is similar to training which would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern does not displace regular employees, but works under close supervision of existing staff;( 4) the employer derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded; (5) the intern is not necessarily entitled to a job at the conclusion of the internship; and (6) the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
4. Failing to adhere to state requirements. Many states have their own wage and hour laws that may differ from the FLSA. Generally, where federal and state law conflict, the law that more generously benefits the employee must be followed. Be sure to check your state law before classifying employees as exempt, determining hours worked, calculating overtime, making a deduction, classifying an individual as an independent contractor, or taking any other pay-related action.
5. Failing to pay for all time spent working. Nonexempt employees must be paid for all hours worked. Hours worked includes, but is not limited to, traditional work time, short rest breaks (5 to 20 minutes) if offered, and in some circumstances, time spent travelling on business. Time spent donning and doffing required work gear on company premises must also be paid. In addition, an employee who is on-call and is required to remain on the employer's premises or so close he or she cannot use the time effectively for his or her own purposes must also be paid. Training time must be compensated unless the training is outside normal hours, is voluntary, is not job related, and no other work is performed. Employers should also keep in mind that time spent working while away from the office, such as checking and responding to email while at home, is also considered hours worked for nonexempt employees, and must be paid.
6. Permitting "off the clock" work. Employers are not permitted to ask or require a nonexempt employee to work "off the clock". If an employee starts early or stays late, the time must be paid - even if an employee works overtime without prior authorization. Supervisors should be trained on the FLSA's requirements and be instructed that they are prohibited from requiring or allowing nonexempt employees to work off the clock.
7. Failing to properly calculate "regular rate of pay". To calculate overtime, employers must determine an employee's regular rate of pay, which includes all remuneration related to their employment with the company, except certain payments that are expressly excluded by the FLSA. In determining the regular rate of pay, generally you must take into consideration the following: salary; hourly rate of pay; reasonable cost of employer provided room and board; tips; commissions; piece rate; nondiscretionary bonuses; on-call pay; and shift differentials.
8. Making improper deductions (nonexempt employees). Employers are not permitted to make certain deductions if it brings a nonexempt employee's pay below the minimum wage. Deductions that may not reduce a nonexempt employee's pay below the required minimum wage include those made for required uniforms, shortages in cash registers, tools used in the employee's work, or damages or theft to company property. This is an area that is often governed by state law. In addition to taking federal law into consideration, employers must be familiar with and adhere to their state requirements before making any form of deduction.
9. Making improper deductions (exempt employees). In general, exempt employees must receive their full salary for any workweek in which they perform any work. Generally, the only instances in which employers may deduct from an exempt employee's pay include: (1) absences of one or more full work day for personal reasons other than sickness or disability; (2) to offset any amount of pay an employee receives for jury or witness fees, or for temporary military duty pay; (3) for penalties imposed in good faith for infractions of safety rules of major significance; (4) for unpaid disciplinary suspensions of one day or more imposed in good faith for serious workplace misconduct; or (5) in the employee's first or last week of employment if the employee does not work the full week.
10. Neglecting recordkeeping requirements. The FLSA requires that certain records relating to hours worked and wages earned for nonexempt employees be retained for at least three years. This includes: total hours worked each work day and each workweek; total daily or weekly straight-time earnings; total overtime pay for the workweek; deductions from or additions to wages; total wages paid each pay period; and the date of payment and pay period covered. In addition, records that explain the basis for wage calculations (e.g., time cards, piece work tickets, and work schedules) must be retained for two years.
Employers must exercise great care in order to comply with the FLSA. While the above referenced mistakes are common, they can be avoided by ensuring all employees are classified appropriately, nonexempt employees are paid for all hours worked, and adhering to your state wage and hour requirements.
Trish Dougherty has greater than 25 years of successful leadership experience and is Senior Vice President & Principal for The Weston Group located in Sioux Falls, SD. Dougherty has a background in executive human resource management and is also a licensed Registered Nurse. Dougherty also served as an Officer in the United States Army Nurse Corps for 10 years. Dougherty travels and speaks nationally to assist small to medium size organizations with organizational effectiveness involving their most important asset – their employees. Trish can be reached at Trish@TheWestonGroup.com or 605-275-4747. www.TheWestonGroup.com
