TTRAP 1: Trying to Exempt Employees RAP 1: Trying to Exempt Employees Who Shouldn’t Be Exempt to Avoid Who Shouldn’t Be Exempt to Avoid

Paying Overtime.Paying Overtime.

FLSA BasicsFLSA Basics

Two categories of employeesTwo categories of employees– ExemptExempt– Non-exemptNon-exempt

Correctly distinguish between employees & independent Correctly distinguish between employees & independent contractorscontractors

Major Provisions of LawMajor Provisions of Law– Minimum WageMinimum Wage– Overtime PayOvertime Pay– Child LaborChild Labor– Record keepingRecord keeping

EXEMPTIONS DO NOT APPLY TO:(They can almost never be exempt)

Manual laborers/blue collar workers

production line

maintenance

construction, e.g. carpenters, electricians, plumbers

First responders/public safety workers

police officers & firefighters

paramedics

crime investigators

ExemptExempt EmployeesEmployees

The most common FLSA MW and OT exception is often The most common FLSA MW and OT exception is often called the “white collar” exemptions which apply to called the “white collar” exemptions which apply to certain:certain:

– ExecutivesExecutives– Administrative employeesAdministrative employees– Learned Professional employeesLearned Professional employees– Creative Professional employeesCreative Professional employees– Computer employeesComputer employees

EXEMPT EMPLOYEES MUST BE PAID ON A SALARY BASIS

GENERAL NEW RULE: must receive salary of not less than $455/week ($23,660/yr.)

EXCEPTIONS:administrative & professional: can get fee basis for job equal to $455/week

> agreed sum for single job regardless of hours/days

computer professional: $27.63/hour or more

academic administrative: or salary basis at least equal to teacher’s entry level

professionals engaged as teachers or lawyers and doctors, interns, or residents: no minimum salary requirement

highly compensated: $100,000/year total annual compensation

> includes non-discretionary payments & commissions, but not benefits

> final payment to meet compensation amount

> meets at least 1 duties requirement of any exemption

> performs only office or non-manual work

outside salespersons: no salary requirement

Who Can Be ExemptI. EXECUTIVE EXEMPTION

NEW TEST

GENERAL

– primary duty of managing enterprise, or recognized department or department subdivision

– customarily and regularly directs the work of at least 2 full-time employees or equivalent

– authority to hire/fire or whose suggestions/recommendations re: change of status are given particular weight

EXECUTIVE EXEMPTIONFurther Guidance

Management must be “primary duty” (no magic %). Includes:

Activities re: employees’ selection, training, pay, hours, appraisals, discipline, complaints, safetyMaintaining production/sales records for use in supervision/controlDetermining techniques, purchases, sales, work apportionmentControlling materials/suppliesPlanning the workPlanning and controlling budgetMonitoring legal compliance

EXECUTIVE EXEMPTIONSNuances

Primary Duty

based on all the facts in a particular casepercentage of time is only one factor

Hint: Include qualifying duties in job description with input from employees performing job.

“Concurrent duties” (Wal-Mart provision)

concurrent non-exempt work does not defeat management as primary dutysupervision can be shared with other exempt employee, but employee’s hours count only onceworking manager may be exempt

II. ADMINISTRATIVE EXEMPTION(Toughest and Broadest Category)

Most Often Attacked by DOL

primary duty is office or non-manual work directly related to the management or general business operations of employer or customers

> assisting with the running or servicing of the business - work in functional areas, e.g., finance, accounting, HR, PR - advisors or consultants to customers

> not production work or sales in retail service establishment

primary duty includes the exercise of discretion and independent judgment with respect to matters of significance

ADMINISTRATIVE EXEMPTIONFurther Guidance

“Exercise of discretion & independent judgment in matters of significance”

Generally involves comparing/evaluating possible courses of action and acting/deciding thereafter> more than use of skill in applying techniques, procedures or standards

Involves “matters of significance”: based on level of importance or consequences of the work

ADMINISTRATIVE EXEMPTION

Specific examples of those generally exempt

insurance claims adjustersfinancial services, including analyzing customer info, advising customers about products and promoting products- but not if primary duty is selling financial productsteam leaders for major projects even if no supervisory roleexecutive/admin. assistant to business owner or senior executivehuman resources managers !purchasing agents and buyers

Specific examples of those generally not exemptinspectors, examiners, graderspublic sector inspectors or investigators

III. PROFESSIONAL EXEMPTION

primary duty of> LEARNED PROFESSIONAL: work requiring advanced, specialized knowledge customarily acquired through specialized higher education

OR

> CREATIVE PROFESSIONAL: work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor

IV. LEARNED PROFESSIONAL EXEMPTION

1. Must perform work requiring advanced knowledge> mainly intellectual

AND> requires consistent exercise of discretion and judgment

2. Advanced knowledge must be in a field of science or learning> recognized professional status> not mechanical arts or skilled trades

3. Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual always instruction> college degree is not always required but is best evidence> high school is insufficient

Primary duty testPrimary duty test

LEARNED PROFESSIONAL EXEMPTION

Examples of generally exempt if courses and licenses Met

health care> registered or certified medical technologists> registered nurses but not licensed practical or vocational nurses> dental hygienists> physician assistantsaccountants> CPAs and other accountants who perform similar duties but not bookkeepers, accounting clerkschefs> executive and sous chefs but not cooksathletic trainersfuneral directors and embalmers

LEARNED PROFESSIONAL EXEMPTION

Special categories

practitioners of law or medicine> generally exempt as professionals> general duty test and salary test do not apply> degreed interns and residents exempt> paralegals generally not exempt unless other degree

V. COMPUTER PROFESSIONAL EXEMPTION

NEW TEST

primary duty of work requiring:(1) application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications, and/or

(2) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, and/or

(3) design, documentation, testing, creation or modification of computer programs related to machine operating systems

PROFESSIONAL - COMPUTER (CONT’D)

Examples of generally exempt if meet duties test> computer systems analysts> computer programmers> software engineers

Examples of generally not exempt> computer manufacturer> computer repair> computer or software users

Examples of generally exempt under another exemption> administrative: planning, scheduling, coordinating activities required to develop systems to solve complex problems of employer or customers> executive: senior or lead programmer who manages 2 or more other programmers and whose recommendations as to their employment status are given particular

VI. OUTSIDE SALES EXEMPTION

NEW TEST

No salary requirement

Test: (1) primary duty is making sales and obtaining orders/contracts, AND (2) customarily and regularly outside the office performing such duty

No % or time spent outside of office requirement

Primary duty includes incidental tasks, e.g.,> incidental deliveries and collections> updating catalogue> writing sales reports> attending conferences> planning itinerary

TRAP 2: Improper Deductions From Salary

DEDUCTIONS NOT ALLOWED

personal/sickness/disability/workers’ comp absences of less than a full day (if no sick leave, PTO, vacation available)

jury duty or witness attendance, but can offset fee paid to employee

military leave, but can offset fee

Reimbursement or payment out of pocketfor lost or damaged equipment ormerchandise, “penalties” for performancedeficiencies

EFFECT OF IMPROPER DEDUCTIONS

(They Can Kill You)

Exemption is lost for period of improper deduction if facts demonstrate employer did not intend to pay on salary basis (adopt a policy to protect yourself)No loss of exemption for isolated/inadvertent deduction if reimbursement made promptlyNo loss of exemption even after employee complaint if you have:(1) a clearly communicated policy prohibiting improper deductions including complaint mechanism, (2) reimbursed promptly, and (3) good faith commitment to comply in future, unless you willfully continue deductions> HINT: Hand out policy at hire, post, re-issue, do training on policyPotential loss of exemption to all in job categories under same manager

ARG !

Deductions From Salary That Won’t Kill You

(You Won’t Lose Exemption)Personal absences of full day (partial days must be PTO covered)

Sickness/disability/workers’ comp absences of full day if per plan to compensate for lost pay (can take paid partial days under sick leave plan)

> before, during & after benefits kick in

Unpaid FMLA leave

> can deduct for less than full day increments

New--violations of safety rules of major significance (if policy says this)

> can deduct any amount

New--disciplinary suspensions of full day for violations of workplace conduct rules (not performance or attendance rules)

> imposed in good faith

> per written policy applicable to all employees (WRITE YOUR POLICY)

First or last week - partial week

Public agency employees, less than full day--§541.710

Workweek: A workweek is a period of 168 hours during 7 Workweek: A workweek is a period of 168 hours during 7 consecutive 24-hour periods. (Not based on pay period.)consecutive 24-hour periods. (Not based on pay period.)

Hours Worked: Includes all the time an employee must Hours Worked: Includes all the time an employee must be on duty, or on the employer’s premises or at any other be on duty, or on the employer’s premises or at any other prescribed place of work, prescribed place of work, including time employee is including time employee is allowed to workallowed to work..

Recent DOL investigation here—Recent DOL investigation here—Includes travel time to Includes travel time to and from jobs; waiting time on premises (and on-call time and from jobs; waiting time on premises (and on-call time under some circumstances); time in company meetings, under some circumstances); time in company meetings, such as safety meetingssuch as safety meetings

Trap 3: Non-Exempt Workers—How Trap 3: Non-Exempt Workers—How and When to Pay Overtimeand When to Pay Overtime

Rest and Meal Periods. “Coffee breaks”, cigarette breaks, “rest Rest and Meal Periods. “Coffee breaks”, cigarette breaks, “rest periods”, or lunch periods of less than thirty minutes generally periods”, or lunch periods of less than thirty minutes generally are not deducted from hours worked—they must be paid.are not deducted from hours worked—they must be paid.

Even lunch periods of over thirty minutes are not deducted Even lunch periods of over thirty minutes are not deducted unless employee is generally free from work responsibilities. unless employee is generally free from work responsibilities. Watch out for employees eating lunch at desk, answering Watch out for employees eating lunch at desk, answering phone calls, or performing other duties during lunch. Have a phone calls, or performing other duties during lunch. Have a policy prohibiting work during lunch hour.policy prohibiting work during lunch hour.

Pay for “Breaks”Pay for “Breaks”

UnauthorizedUnauthorized OvertimeOvertime

An employee must be paid for hours worked over 40 per week, An employee must be paid for hours worked over 40 per week, even even if the employer has a policy against such work without advance if the employer has a policy against such work without advance approvalapproval, especially if it knows or has reason to know the work is , especially if it knows or has reason to know the work is being performed.being performed.

The remedy is to discipline or fire employees who ignore such a The remedy is to discipline or fire employees who ignore such a requirement.requirement.

Employers cannot ask employees to work “off-the-clock”, without Employers cannot ask employees to work “off-the-clock”, without pay. ( This should be obvious, but lots of Wal-mart cases on this pay. ( This should be obvious, but lots of Wal-mart cases on this issue)issue)

Additional rules for out of town travel, on-call, and out of office Additional rules for out of town travel, on-call, and out of office meeting timemeeting time

Must be paid for pre- and post- work “donning and doffing” of Must be paid for pre- and post- work “donning and doffing” of uniforms or work prep time. uniforms or work prep time.

Overtime Pay RateOvertime Pay Rate

Regular Rate (RR)Regular Rate (RR)– It is a rate per hourIt is a rate per hour– Is determined by dividing the total earnings for all hours worked Is determined by dividing the total earnings for all hours worked

in any work week by the total number of hours worked in the in any work week by the total number of hours worked in the weekweek

– It may not be less than the applicable MWIt may not be less than the applicable MW– If RR is higher than the MW, OT must be computed at the higher If RR is higher than the MW, OT must be computed at the higher

raterate

If a non-exempt employee is paid on a annual salary If a non-exempt employee is paid on a annual salary basis, an hourly (regular rate) must be calculatedbasis, an hourly (regular rate) must be calculated

OvertimeOvertime PayPay

Regular Rate (RR) includes:Regular Rate (RR) includes:– Bonuses that are defined or capable of calculation Bonuses that are defined or capable of calculation

such as for longevity, attendance, or job performancesuch as for longevity, attendance, or job performance– Increases in pay (retro pay, too)Increases in pay (retro pay, too)– Example: Aide @ $15,000 per yr, plus $500 longevity Example: Aide @ $15,000 per yr, plus $500 longevity

& $500 for college hours = $16,000 [8 hrs per day for & $500 for college hours = $16,000 [8 hrs per day for 187 days per year]187 days per year]Regular RR would be $10.70Regular RR would be $10.70OT rate would be $16.05OT rate would be $16.05

Overtime PayOvertime Pay

Regular rate does not include:Regular rate does not include:

– Gifts, such as Christmas or B-DayGifts, such as Christmas or B-Day– Payments for time not worked, such as holiday, sick or vacation Payments for time not worked, such as holiday, sick or vacation

paypay– Discretionary bonusesDiscretionary bonuses– Profit sharing plansProfit sharing plans– Talent feesTalent fees– Premium paymentsPremium payments– Stock optionsStock options

Missed lunch breaksMissed lunch breaks

An unpaid lunch break must be paid when the break is An unpaid lunch break must be paid when the break is not takennot taken– Example: Non-exempt employee works from 7:30 am to 4:00 Example: Non-exempt employee works from 7:30 am to 4:00

p.m., is scheduled for a 30 minute unpaid lunch break, but p.m., is scheduled for a 30 minute unpaid lunch break, but doesn’t take the break.doesn’t take the break.

– How many hours should be employee be paid for?How many hours should be employee be paid for?– If the employee is paid a pro-rated salary, how should that salary If the employee is paid a pro-rated salary, how should that salary

be adjusted?be adjusted?

If a lunch break is interrupted – the entire lunch break is If a lunch break is interrupted – the entire lunch break is compensablecompensable

MOST COMMON OVERTIME VIOLATIONSMOST COMMON OVERTIME VIOLATIONS

Failure to pay overtime pay—at all, or Failure to pay overtime pay—at all, or correctlycorrectlyFailure to maintain a record of hours Failure to maintain a record of hours worked on non-exempt employeesworked on non-exempt employeesFailure to consider untaken meal periods, Failure to consider untaken meal periods, travel time and meeting time as hours travel time and meeting time as hours workedworked

Another DOL Investigation Area-- Minimum Another DOL Investigation Area-- Minimum Wage (MW)Wage (MW)

Current federal minimum wage is $7.25Current federal minimum wage is $7.25

Covered non-exempt employees must be Covered non-exempt employees must be paid not less than the MW for paid not less than the MW for allall hours hours worked (remember definition)worked (remember definition)

Must be paid in cash or equivalent – free & Must be paid in cash or equivalent – free & clear (not subject to deductions)clear (not subject to deductions)

Each week stands by itself, although there is Each week stands by itself, although there is no requirement to pay weekly – define no requirement to pay weekly – define “workweek”“workweek”

Trap 4: Independent Contractors Trap 4: Independent Contractors Who Aren’tWho Aren’t

My favorite saying, “If it walks like a duck & My favorite saying, “If it walks like a duck & quacks, it’s a duck”. If worker acts like an quacks, it’s a duck”. If worker acts like an employee—he or she is an employee, not employee—he or she is an employee, not an independent contractor!an independent contractor!

This is a favorite area for DOL audits.This is a favorite area for DOL audits.

Tests for I.C. vs. EmployeeTests for I.C. vs. Employee

Handout with main factors DOL, IRS, & TWC Handout with main factors DOL, IRS, & TWC look at—Key often is whether worker is free to look at—Key often is whether worker is free to “take it or leave it” on your work assignments or “take it or leave it” on your work assignments or to do other jobs for other people or themselves to do other jobs for other people or themselves without repercussions.without repercussions.

Recent case example—Oilfield gate keepersRecent case example—Oilfield gate keepers

BOTTOM LINEBOTTOM LINECompliance and RemediesCompliance and Remedies

Although most investigations are initiated by an employee complaint, Although most investigations are initiated by an employee complaint, they may result from a decision by the Wage and Hour Division to they may result from a decision by the Wage and Hour Division to target a particular industry of which your establishment is a part. – target a particular industry of which your establishment is a part. – Health care, construction, restaurants recently.Health care, construction, restaurants recently.

An employee may bring a private lawsuit against you for FLSA An employee may bring a private lawsuit against you for FLSA violations.violations.

Successful employees can recover back overtime for up to three years. Successful employees can recover back overtime for up to three years. This amount is doubled if the court determines that the violation was This amount is doubled if the court determines that the violation was not in “good faith”. – (rarely met) Employers will also have to pay not in “good faith”. – (rarely met) Employers will also have to pay prejudgment interest and the employee’s attorney’s fees.prejudgment interest and the employee’s attorney’s fees.

““Collective” actions involving many similarly situated employees are Collective” actions involving many similarly situated employees are easy and commonly-pursued by plaintiff’s lawyers. Big bucks!easy and commonly-pursued by plaintiff’s lawyers. Big bucks!

FLSA ENFORCEMENTFLSA ENFORCEMENTREMEDIESREMEDIES

Recovery of back wagesRecovery of back wages– The Secretary of Labor may bring suit for The Secretary of Labor may bring suit for

back wages and an back wages and an equal amountequal amount for for liquidated damagesliquidated damages

– Employee may file a private lawsuit for back Employee may file a private lawsuit for back pay and an pay and an equal amountequal amount as liquidates as liquidates damages, plus attorney fees and court costsdamages, plus attorney fees and court costs

FLSAFLSA ENFORCEMENT—The Long Arm ENFORCEMENT—The Long Arm of the DOLof the DOL

Statute of Limitations: (Applied to Every Statute of Limitations: (Applied to Every Worker Similarly Situated!)Worker Similarly Situated!)– 2 years applies to recovery of back pay2 years applies to recovery of back pay– 3 years applies to recovery of back pay in 3 years applies to recovery of back pay in

cases of willful violationscases of willful violations

Additional InformationAdditional InformationWage & Hour homepage at:Wage & Hour homepage at:– www.dol.gov/dol/esa/public/whd_org.htm

Call the Wage & Hour at:Call the Wage & Hour at:– 1-866-487-9243 or 1-866-4US-WAGE1-866-487-9243 or 1-866-4US-WAGE

Call the Dept. of Labor at:Call the Dept. of Labor at:– 1-866-487-2365 or 1-866-4USA DOL1-866-487-2365 or 1-866-4USA DOL

Use the Dept. of Labor Interactive AdvisorUse the Dept. of Labor Interactive Advisor system – system – ELawsELaws– www.dol.gov/elaws

Call or visit the nearest Wage & Hour Division OfficeCall or visit the nearest Wage & Hour Division Office

Good Luck!Good Luck!

Adair BucknerAdair BucknerBuckner & Cross, L.L.P.Buckner & Cross, L.L.P.600 S. Tyler, Suite 1313600 S. Tyler, Suite 1313

Amarillo, TX 79101Amarillo, TX 79101(806) 322-7777(806) 322-7777

adair@bucknercross-law.comwww.bucknercross-law.com

Board Certified in Labor and Employment LawBoard Certified in Labor and Employment LawTexas Board of Legal SpecializationTexas Board of Legal Specialization