The FLSA & Overtime Rules

James K. Cowan, Jr.

Eric D. Chapman

540.443.2850 (office)

[email protected]

[email protected]

The FLSA & Overtime Rules

mailto:[email protected]

mailto:[email protected]

In spring of 2016 the Department of Labor ("DOL") released its final regulations making changes to Part 541 governing overtime exemptions under the Fair Labor Standards Act ("FLSA") and specifically to the application of the FLSA's "White-Collar" exemption rules.

• Under the new regulations, employees who are currently exempt from overtime will lose that exemption unless their salary is above the new $47,476.00 threshold.

• These new regulations, which go into effect on December 1, 2016, also contain a few otherimportant changes.

The New FLSA Salary Threshold

CURRENT REGULATIONS

(EFFECTIVE UNTIL NOVEMBER

30, 2016)

NEW REGULATIONS

(EFFECTIVE DECEMBER 1, 2016)

WHITE COLLAR EXEMPTION

SALARY BASIS TEST $23,660 per year ($455 per week) $47,476 per year ($913 per week)

WHITE COLLAR EXEMPTION

DUTIES TEST

Employee is required to meet the

duties test in order to be exempt.

No change.

COMMISSIONS AND

BONUSES

No current provision to count

non-discretionary bonuses or

commissions towards salary.

Up to 10% of salary can come from

non-discretionary bonuses, incentive

payments, and/or commissions, if

paid at least quarterly.

HIGHLY COMPENSATED

EMPLOYEE EXEMPTION $100,000 per year

(total annual compensation)

$134,004 per year

(total annual compensation)

So What Has Changed?

• The new regulations also include a provision for automatically adjusting this salary threshold for the White Collar Exemption.

• The salary threshold will be adjusted every 3 years to maintain the salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region.

DISCUSSION POINT: Does bumping “on the bubble” salaries result in automatic raises and putting the employee on an escalator?

Indexed to Wage Inflation

One of the most frequent requests we are getting at the moment is to assist with an audit and review of all of the currently exempt jobs with employees in the classification making less than $50,000.00. The basic steps involve:

• Create a list of jobs to be reviewed;• Evaluate whether each actually meets one of the

white-collar exemptions;• Of those that do, evaluate from a budgetary/breakpoint,

consistency, operational impact (including frequency of overtime, off hour communications, etc.), and perception standpoint;

• Recommendations, including changes to roles and job descriptions, changes from salaried to hourly;

• Communication Plan to affected employees; and• Implementation

Time for a Self Audit?

White Collar Exemption TreeDoes the position have as its primary duty work consisting

of the management of the enterprise in which it is located or

of a recognized department or subdivision?

NO

Does the position customarily

and regularly direct the work of

two or more employees in the

enterprise, department, or

subdivision?

YES

NO YES

Administrative Exemption

Executive

Exemption

Does the position have as its primary duty

office or non-manual work directly related to

the management policies or general business

operation of the employer?

NO YES Does the position customarily

and regularly exercise discretion

and independent judgment in

performance of duties?

ProfessionalExemption

Non-Exempt

Does the position have as its primary duty the

performance of work requiring knowledge of an

advanced type in a field of science or learning and

the consistent exercise of discretion and judgment?NO YES

Does the position have as its primary duty

the performance of work requiring

invention, imagination, or talent in a

recognized field of artistic endeavor?

NO YES

YES

NO

Computer Professionals Exemption Decision Tree

Does the position have as its primary duty the application of systems

analysis techniques and procedures including consulting with users to

determine hardware, software or system functional specifications?

ComputerProfessionals

Exemption


Exemption


Exemption

Does the position have as its primary responsibility the design,

development, documentation, analysis, creation, testing, or modification of

computer systems or programs including prototypes based on related to

user or design system specifications?

NO YES

NO YES

Does the position have as its primary responsibility the

design, documentation, testing, creation or modification

of computer programs related to machine operation

systems?

Non-Exempt

NO YES

The Salary Basis Test

• Most of the exemptions require that employees be paid on a “salary basis”

• Payment of a salary has always been required for the “white collar” exemptions

• The new regulations increase the salary threshold, but the DOL has made clear they will also apply scrutiny to whether the exemptions apply

The Salary Test Defined • Regularly receives a predetermined amount of

compensation each pay period (on a weekly or less frequent basis)

• The compensation cannot be reduced because of variations in the quality or quantity of the work performed

• Must be paid the full salary for any week in

which the employee performs any work

• Need not be paid for any workweek when no

work is performed

The Salary Test Defined

• An employee is not paid on a salary basis if deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the businesses

• If the employee is ready, willing and able to work, deductions may not be made for time when work in not available

• These rules are subject to only a few carve-outs

Permitted Salary Deductions

Seven exceptions from the “no pay-docking” rule:

1. Absence from work for one or more full days for personal reasons, other than sickness or disability

2. Absence from work for one or more full days due to sickness or disability if deductions are made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences

Exceptions from“No Pay-Docking” Rule

3. To offset any amounts received as payment for jury fees, witness fees, or military pay

4. Penalties imposed in good faith for violating safety rules of “major significance”

5. Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules

Exceptions from“No Pay-Docking” Rule

6. Unpaid leave taken pursuant to the Family and Medical Leave Act

7. Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment

Improper Deductions – Examples

• Deduction for a partial-day absence to attend a parent-teacher conference

• Deduction of a day of pay because the employer was closed due to inclement weather

• Deduction of three days of pay because the employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for the jury duty

• Deduction for a two day absence due to a minor illness when the employer does not provide wage replacement benefits for such absences

Effects of Improper Deductions

• An “actual practice” of making improper deductions from salary will result in the loss of the exemption only:

– During the time period in which improper deductions were made

– For employees in the same job classifications

– Working for the same managers responsible for the actual improper deductions

• Isolated or inadvertent improper deductions, however, will not result in the loss of exempt

status if the employer reimburses

the employee

Safe Harbor

• The exemption will not be lost if the employer:

– Has a clearly communicated policy prohibiting improper deductions and including a complaint mechanism;

– Reimburses employees for any improper deductions; and

– Makes a good faith commitment to comply in the future

• Unless the employer willfully violates the policy

by continuing to make improper deductions

after receiving employee complaints

Clearly Communicated Policy

• The best evidence of a clearly communicated policy is a written policy distributed to employees prior to the improper pay deductions by, for example:

– Providing a copy to the policy to employees at the time of hire

– Publishing the policy in an employee handbook

– Publishing the policy on the employer’s Intranet

Payroll Practices That Do NotViolate the Salary Basis Test

• Taking deductions from exempt employees accrued leave accounts

• Requiring exempt employees to keep track of and record their hours worked

• Requiring exempt employees to work a specified schedule

• Implementing bona fide, across-the-board schedule changes

Additional Compensation

• An employer may provide compensation in addition to the guaranteed weekly salary, such as:

– Commissions

– Bonuses

– Additional pay based on hours worked beyond the normal workweek, so called voluntary overtime payments

So with that background, let’s review the basic rules affecting pay and overtime obligations under the FLSA.

You will see that these nuances may affect your decision making or require changes in your current processes.

Back to the Basics….

A. Single Workweek Snapshot

1. Workweek Concept. The FLSA requires that wages be calculated on a workweek-by-workweek basis. Work schedules, which may not be on a seven-day basis, must be translated into workweeks to determine FLSA wages due.

Overtime Rules

1. Workweek Concept. The FLSA requires that wages be calculated on a workweek-by-workweek basis. Work schedules, which may not be on a seven-day basis, must be translated into workweeks to determine FLSA wages due.

1. Determining the Work Week. An employee’s workweek is a fixed and regularly recurring period of 168 hours—seven consecutive 24-hour periods. 29 C.F.R. § 778.105. It need not coincide with the calendar week but may begin on any day and at any hour of the day. A single workweek may be established for a plant or other establishment as a whole, or different workweeks may be established for different employees or groups of employees. Once beginning time of an employee’s workweek is established, it remains fixed. However, it may be changed if the change is intended to be permanent and is not designed to evade the overtime requirements of the FLSA. id.; 29 C.F.R. § 778.301.

Practice Point: Should you change your workweek to start on the weekend so that you can allow comp. time off the following week for salaried and newly nonexempt employees?

Overtime Rules

A. Single Workweek Snapshot cont.

3. Determining the Workweek. Work time may not be “averaged” from workweek to workweek. 29 C.F.R. §§ 778.103, 778.104. So, for example, an employee who is paid every two weeks and works 47 hours in week one, followed by 33 hours in week two, is entitled to 7 hours of overtime pay for the first week, even though the average hours for the pay period are 40 per week.

a. Exception. Some medical care employees and government police officers and firefighters are permitted to be paid on special “alternative work periods.”

Overtime Rules cont.

A. Single Workweek Snapshot cont.

4. Time of Overtime Payment. Overtime compensation does not have to be paid weekly. 29 C.F.R. § 778.106. Rather, the general rule is that overtime pay earned in a particular workweek must be paid on the regular payday for the period in which the workweek ends. If the correct amount of overtime pay cannot be determined until some time after the regular pay period, the employer must pay the overtime compensation as soon after the regular pay period as practicable. Payment cannot be delayed for a period longer than is reasonably necessary for the employer to compute and arrange for payment. Overtime payment may never be delayed beyond the next payday after such computation can be made.

Overtime Rules cont.A. Single Workweek Snapshot cont.

B. Computing Regular Rate

Overtime is one and one-half times the regular rate of pay. Therefore, before overtime can be computed, the employer must first determine the employee’s regular rate of pay.

1. Regular Rate of Pay. Regular rate of pay include all remuneration for employment, except for certain payments excluded by law, and cannot be less than the minimum wage. 29 U.S.C. § The regular rate of pay is calculated as a rate per hour, although the FLSA does not require an employer to pay an employee an hourly rate. Therefore, no matter how an employee is paid—whether by the hour, by the piece, by commission, or by salary— the employee’s compensation must be converted to an equivalent hourly rate from which overtime can be calculated. 207(e)(1)-(7). 29 C.F.R. § 778.109.


The regular rate is “the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed.” 29 C.F.R. §778.108. The hourly rate of pay of an employee is determined by dividing the total remuneration from employment (except the statutory exclusions) in any workweek, by the total number of hours actually worked in the workweek. 29 C.F.R. § 778.109.

a. Items Included in Regular Rate of Pay

(1) Bonuses. Employers who pay nondiscretionary bonuses to employees in addition to base pay must include these bonuses in the regular rate of pay for computing overtime rate. 29 C.F.R. § 778.209.


B. Computing Regular Rate cont.

If a bonus is paid on a weekly basis, the bonus is simply added to the straight-time pay for hours an employee has already worked. For example, if an employer pays $5.50 per hour and the employee works 46 hours in a week, the overtime rate is $8.25 per hour and the employee is entitled to receive $269.50 for that week (40 times $5.50 plus 6 hours times $8.25—time and one-half).

But if the employee receives in addition to his hourly rate a bonus of $25.00, the regular rate of pay would actually be $6.04 an hour (46 hours at $5.50 equals $253.00 plus the $25.00 bonus, making a total of $278.00; this total divided by 46 hours yields a regular rate of pay of $6.04). The additional six hours would be paid at one-half the times the hourly rate, or $9.06.

The devil is in the details…


a. Items Included in Regular Rate of Pay cont.

(1) Bonuses cont.

In such a case, the bonus must be allocated over the workweeks corresponding to the bonus period. If any of those workweeks had overtime hours, extra overtime pay would have to be paid corresponding to the increase in the regular rate due to the bonus.

The simplest method—assuming that the bonus is given to cover an entire quarter, or one-half-year, or year—is to allocate the bonus equally over each workweek in that period.

For a workweek with overtime hours, the extra overtime pay would be equal to one-half of the increase in the regular rate due to the bonus, multiplied by the number of overtime hours that week. The regular rate increase only needs to be multiplied by one-half because the bonus allocation itself represents the straight-time payment.

Where the bonus is paid for a longer period of time, the calculation is even more complicated…



(1) Bonuses cont.

For those workweeks in the bonus period where they were no overtime hours, the bonus allocation for that week would haveno effect with regard to overtime pay.

(2) Shift Differentials. Extra pay per hour for working graveyard or weekends or other undesirable times must be added to the regular rate of pay for computing overtime.

(3) Non-Overtime Premium. Lump sum payments that are paid without regard to the number of hours worked are not overtime premiums and must be included in the regular rate. For example, where an employer gives 8 hours pay for a particular job, whether it is performed in 8 hours or in less time, the extra premium of 2 hours pay received by an employee who complete the job in 6 hours must be included in the regular rate.




(1) Bonuses cont.

Similarly, where an employer pays a flat sum such as $20 for a job performed during the overtime hours, regardless of the time spent on the job, no part of the premium paid qualifies as true overtime.

(4) Commissions. Commissions are included in the total compensation paid to the employee for purposes ofcalculating the regular rate. Commissions must be included in the calculation of total wages paid, regardless of whether the commissions are computed as a percentage of total sales, sales in excess of a quota, or some other method




Since commission payments often vary from week to week, it is common for employees paid on a commission basis to have aregular rate that also varies from week to week. 29 C.F.R. § 778.117.

Since the commission payments and other forms of pay represent the straight-time earnings for that week, any overtime would be compensated by paying one-half of the regular rate times the number of overtime hours on top of the straight-time earnings, thus bringing the employee up to time and one-half. 29 C.F.R. § 778.118.

Commission payments are often made on a deferred basis. If commissions are paid on a deferred or delayed basis, then commission payments are excluded from the regular rate until they can be determined. 29 C.F.R. § 778.119. When the commissioncan be ascertained, the additional overtime compensation must be paid.




To compute the past-due overtime compensation owed, the commission is apportioned back over the workweeks of the period during which it was earned. The employee must then receive additional overtime pay for each week during the period in which overtime was worked. If it is not possible to allocate the commission on the basis of the amount of commission actually earned each week, some other reasonable and equitable method must be adopted.

One such method is to allocate an equal amount of commission earnings to each workweek in the period in which the commission was earned. Another is to allocate equal amounts to each hour worked in that period. 29 C.F.R. § 778.120. If the commission computation period is one month, the employer would multiply the commission payment by 12 and divide that sum by 52 to get the amount of commission allocable to a single week.




Example: Employee is paid $10.00 an hour works 40 hours and is paid $25 for being on-call over the weekend. If called back for 4 hours of work, the pay is $400 (40 hours x $10.00) plus $25 on call pay plus $40 straight time pay for 4 overtime hours, or $465.

Dividing the total earnings of $465 by 44 hours worked yields a regular rate of $10.57 an hour. One half the regular rate times 4 overtime hours equals $21.14 overtime pay, making the total pay $486.14 for the week.

The commission for each week would then be divided by the total number of hours worked in that week, to get the increase in the hourly rate. Additional overtime due is computed by multiplying one-half of this figure by the number of overtime hours worked in the week.




(5) On-Call Pay. If employees who are on-call are not confined to their homes or any particular place, but are required only to leave word where they be reached, the hours spent on-call are not regarded as working time. However, any payment for such on-call time, while not attributable to any particular hours of work, is paid for performing a duty connected with the job and must be included in the employee’s regular rate. If an on-call employee is called out for a job assignment, the time spent on the assignment is hours worked and must be counted and paid for.

b. Items Not Included in Regular Rate of Pay

(1) Time Off Pay. Payments made for occasional periods when no work is performed due to vacation, holiday, illness, or jury duty are excluded from an employee’s regular rate of pay. However, no such payments may be credited toward overtime compensation due under the FLSA. 29 U.S.C. § 207(e)(2).



b. Items Not Included in Regular Rate of Pay cont.

(2) Pay for Foregoing Holidays and Vacations. If an employee is entitled to holiday or vacation pay but foregoes the holiday or vacation and works on that day or period and receives his or her customary rate (or higher), the additional sum given as holiday or vacation pay is excluded from the regular rate of pay. 29 U.S.C. § 778.219(a).

(3) Discretionary Bonuses. A discretionary bonus is a payment made to the employee under circumstances and conditions completely under the employer’s control. But these cannot be included in determining if an employee meets the new salary threshold.



(4) Percentage of Earnings Bonuses. A bonus based on a percentage of the employee’s total earnings is excluded when calculating the employee’s regular rate of pay. This type of bonus must be based on a percentage of the employee’s total earnings for the bonus period. An employer is not required to retain discretion when awarding a percentage of total earnings bonus.In other words, employees can be aware of the employer’s intention to provide a bonus before the end of the bonus period.

A bonus is not included in the regular rate if the employer retains discretion both (1) that a bonus will be paid and (2) that the amount is not determined until the end, or near the end, of thebonus period. For example, if an employer paid a bonus without a prior contract or promise and the decision as to the fact and amount rests with employer, the bonus would be excluded from the regular rate. On the other hand, if the employer announced in January that a bonuswill be paid in June, discretion regarding the fact of the payment does not exist. Such a bonus would be included in the regular rate. 29 U.S.C. § 207(e)(3)(a).

Tip: A % bonus can be one of the cleanest incentive bonus systems for nonexempt employees.


(5) Gifts, Christmas and Special Occasion Bonuses. Sums paid as gifts, such as bonuses paid at Christmas or on other special occasions, are excluded when calculating the employee’s regular rate of pay. To fall within this gift exclusion, the bonus must not be determined by the total number of hours worked, production, or efficiency. Nor may the bonus be so substantial that the employee considers it a component of his yearly income. In addition, a gift bonus cannot be excluded if it is made pursuant to an agreement or contract. 29 U.S.C. § 207(e)(1).

(6) Premium Pay. Extra compensation provided by a premium rate of at least time and one-half which is paid for work on Saturdays, Sundays, holidays or regular days of rest or on the sixth or seventh day of the workweek may be treated as overtime pay. If the premium rate is less than time and one-half, the extra compensation must be included in determining the regular rate of pay and cannot be credited toward statutory overtime. 29 U.S.C. § 207(e)(6). Premium pay for hours worked in excess of a contractually established eight-hour work day or of the maximum workweek is also excludable. 29 U.S.C. § 207(e)(5).


(7) Profit-Sharing or Thrift of Savings Plans. Payments made by an employer on behalf of an employee to a bona fide profit-sharing plan or trust, or a bona fide thrift or savings plan, which meet the requirements of regulations issued by the Department of Labor, may be excluded from the regular rate of pay. 29 U.S.C. §207(e)(3)(b).

(8) Travel Expenses. Travel expenses for business trips taken by the employee for the employer’s benefit and at the employer’s expense are excludable from the employee’s regular rate of pay. This includes a per diem earned by an employee that is not part of his regular pay. 29 U.S.C. § 207(e)(2).

(9) Show-Up and Call-Back Pay. Some employment agreements provide for a stated number of hours pay if the employee isnot provided with the expected amount of work. For example, an employee might be guaranteed at least 4 hours’ pay for reporting for work, or if called back to work after the scheduled hours have been ended.


b. Items Not Included in Regular Rate of Pay cont.If the employee works only 2 hours but is paid for 4 hours, the pay for the 2 hours not worked is not regarded as compensation for working time and may be excluded from the employee’s regular rate of pay. However it may not be credited towards statutory overtime. 29 C.F.R. § 778.220, 778.221.

(10) Welfare Plan Benefits. Contributions irrevocably made by an employer to a trustee or a third person pursuant to a bona fide plan for old-age, retirement, life, accident or health insurance or similar benefits may be excluded from the regular rate of pay. 29 U.S.C. § 207(e)(4).

(11) Payment In Lieu of Comp Time. Payments made to an employee for periods of absence due to use of accrued compensatory time (applicable only to the public sector).



C. Compensatory Time

1. The FLSA Generally Allows Only Public Entities To Use Compensatory Time in Lieu of Overtime for Nonexempt Employees

a. Rule. Unless an employer is the state or a political subdivision ofthe state (city, county, special district), it cannot allow nonexemptemployees to accumulate compensatory time (comp time) in lieu of receiving overtime pay.

b. Restrictions on Public Entities’ Use of Comp Time.While the FLSA permits state and government employers to allow compensatory time in lieu of monetary compensation for their employees, there are restrictions on the use of comp time.

(1) Comp Time Is Accrued At A 1.5 Hour Rate. Comp time must be granted at a rate of not less than one and one-half hours of compensatory time for each hour of overtime worked.


(2) Limits on Banked Comp Time. Public sector employees may accrue (or bank) up to 240 of comp time. Additional hours are available for employees who work in public safety, emergency response and/or seasonal activity. In these capacities, the maximum accrual is 480 hours of comp time.

(3) Use of Comp Time. Employees must be allowed to use their accrued comp time within a reasonable period. 29 U.S.C. § 207(o)(5). While a public employer cannot prohibit the useof comp time when an employee request to do so, the employer may dictate the timing of the employee’s use of accrued comp time. Christensen v. Harris County, 529 U.S. 526 (2000). If an employee is unable to use all accrued compensatory time at the time of termination, the public employer must pay the employee for accrued but unused compensatory time upon the employee’s termination of employment.


C. Compensatory Time

2. Comp Time and Private Sector

a. Time-Off Plans. The regulations to the FLSA are clear that employees must be paid time and one-half for all hours worked over 40 in oneweek. However, on a de minimus basis, the Department of Labor permits private sector employees to use time-off plans. These time-off plans, in which overtime hours are offset by a proportionate number of time-of hours, must meet the following requirements:

• Employees must be either hourly or salaried;

• The plan must provide a fixed number of working hours per week;

• The pay period must be bi-weekly, semi-monthly, or monthly;

• Time off is credited at one and one-half the amount of overtime; and

• The time off must be taken within the same pay period.G

Example:An employee works 44 hours in the’ first week of a two-week pay period, the employer must pay the employee overtime for the four additional hours worked and then lay the employee off for six hours in the second week of the pay period in order that the employee’s bi-weekly salary remains the same. DOL Wage and Hour Opinion Letter, 5/5/94.

C. Compensatory Time cont.


2. Comp Time and Private Sector cont.

b. Flexible Workweek Plans. Private sector employees may control payment of overtime by granting time off in a week to ensure thatan employee does not work in excess of 40 hours. For example, suppose an employee’s regularly scheduled work week is 9:00 a.m.to 5:00 p.m., Mondays through Fridays. If the employee works until 6:00 on Wednesday, nothing prohibits the employer from allowing the employee to take an hour off on Thursday or Friday of the same week to “compensate” the employee for the extra hour worked on that Wednesday. No overtime is owed to the employee for the extra hour worked on Wednesday, because the employee has not exceeded 40 hours of work for that week. However, to be effective, the time off granted must be taken in the same week that the extra hours are worked by the employee. Employees may not take time off in other workweeks to compensate them for overtime worked in an earlier workweek.

C. Compensatory Time cont.


Recordkeeping Requirements of the FLSA

The FLSA requires that employers maintain certain records for all employers within the coverage of the Act, including those employees who are exempt from minimum wage and overtime compensation provisions. These requirements are set forth in detail in 29 C.F.R. § 516.2 et seq.

The basic recordkeeping requirements of the employer include, for each employee: (1) full name; (2) home address, including zip code; (3) date of birth, if the employee is under age 19; (4) sex and occupation in which the employee is employed; (5) time of day and day of week on which the employee’s workweek begins; (6) the regular hourly rate of pay for any workweek for which overtime compensation is due; (7) the hours worked each workday and total hours worked each workweek; (8) total daily or weekly straight time earnings or wages due; (9) total premium pay for overtime hours; (10) total additions to or deductions from wages paid each pay period; and (11) total wagespaid each pay period


Recordkeeping Requirements of the FLSA cont.

In addition, with respect to each employee who is employed in a bona fide executive, administrative, or professional capacity, or an employee employed in outside sales (as discussed later in these materials), the employer is not required to maintain records of items (6) through (10) of the preceding paragraph, but must preserve records with information as to the “basis on which wages are paid in sufficient detail to permit calculation for each pay period of the employee’s total remuneration for employment including fringe benefits and prerequisites.” 29 C.F.R. § 516.3.

The FLSA also requires employers to keep posted a notice explaining the provisions of the FLSA, as prescribed by the Wage and Hour Division.

All payroll records and employee information outlined above, collective bargaining agreements, sales and purchase records showing total dollar volume of sales or business must be preserved for at least three years. 29 C.F.R. § 516.5. All basic employment and earnings records must be kept at least two years. 29 C.F.R. § 5b6.6.


Recordkeeping Requirements of the FLSA cont.

These records must be kept in a “safe and accessible” place for inspection on 72 hours notice by the Wage and Hour Division, unless an exception is granted by the Administrator of the Wage and Hour Division. 29 C.F.R. § 516.7 and 516.9.

DOL Wage and Hour Investigations

The FLSA authorizes the DOL to investigate and gather information concerning wages, hours and other employment practices. As stated above, the DOL has the authority to enter and inspect the employer’s premises and records without a subpoena and to question employees directly about possible FLSA violations. Investigations are initiated by an employee complaint and the employer willnot know customarily the reasons for the investigation as the DOL will treat the complaint confidentially.

Wage Hour Investigations

DOL Wage and Hour Investigations cont.

It is usual and normal for the DOL investigator to inform the employer of the date and time the investigation is to occur and to ask for production of the records to be reviewed. During the first interview, the DOL representative will outline for the employer the scope of the investigation, including document review and employee interviews. After documents are reviewed, various employee interviews may be conducted in order to test the accuracy of the employer’s records and to discover whether there is corroborating evidence of any alleged violation of the Act.

After the fact-finding investigation occurs, the DOL representative will sit down with the employer and inform the employer of the results of the investigation. If violations are found, the DOL representative will tell the employer what is necessary from DOL’s standpoint to correct those violations. These discussions may result in negotiations with DOL to resolve any alleged violation. If resolution of the dispute does not occur, the employer needs to weigh the potential of a lawsuit either by DOL or the employees affected.

Wage Hour Investigations cont.

DOL Wage and Hour Investigations cont.An employer can do much to minimize the disruption of a DOL investigation by cooperating with DOL regarding the information requested and making available employees for interviews. A cooperative attitude will, most likely, expedite the investigation: The FLSA prohibits retaliation against employees or complain about alleged violations of the Act or participate in an investigation or litigation. Therefore, the employer should let all employees who are to be interviewed know that they are to give truthful information to the DOL and in no way pressure the employees to provide certain information.

Remedies For Violations of Provisions of the FLSABack Pay, Liquidated Damages and Attorneys’ Fees

Employees can bring civil actions against their employer for violations of the minimum wage or overtime compensation provisions of the FLSA for back pay, so-called “liquidated damages” and attorneys’ fees. In addition, the Secretary of Labor can bring civil actions against the employer, on the employee’s behalf, for recovery of back pay and liquidated damages, or recovery of back pay and an injunction prohibiting future violations of the FLSA. Attorneys’ fees are not awardable to the Secretary of Labor if he or she commences the civil action.

Wage Hour Investigations cont.

Back Pay, Liquidated Damages and Attorneys’ Fees cont.

THE BURDEN OF PROOF IS ON THE EMPLOYER TO ESTABLISH THAT AN EMPLOYEE IS “EXEMPT” FROM THE FLSA OVERTIME REQUIREMENT. If the employee is not paid overtime after 40 hours in a workweek, the employer must prove, if challenged, that the employee is exempt from the FLSA.

1. Presumption. The legal presumption is that overtime must be paid. This means that an employee who is not paid overtime will win a claim Against the employer for the unpaid overtime compensation without proving anything other than the number of overtime hours worked per workweek, unless the employer can prove that the employee was exempt when the work was performed.

2. The Exemptions are Narrowly Construed. An employee must clearly fall within an exemption or he is likely to be deemed nonexempt and entitled to overtime.

Remedies for Violations of Provisions of the FLSA


3. Evidence of Exempt Status. Job titles, job descriptions and written contracts identifying the employee as exempt are some evidence of exempt status, but these are not controlling. The duties the employee actually performs on the job and how he is actually compensated are controlling. These facts are often established by testimony from the employee, his co-workers and supervisors.

4. The Dreaded Challenge to Exempt Status. When overtime is not paid, a disgruntled employee or the Wage and Hour Division of the U.S. Department of Labor may challenge the employer’s practice. Unfortunately, the process of proving that an exemption applies can be more costly than paying the overtime.

a. The Wage and Hour Division of the U.S. Department of Labor will investigate charges filed by employees for overtime compensation.

Remedies for Violations of Provisions of the FLSA cont.

f


b. Wage and Hour investigations are time consuming, and disruptive to the workplace and morale.

c. Wage and Hour investigations often encompass all aspects of compliance for all job categories, even though the charge was

filed by only one employee. If Wage and Hour looks hard enough,

it can almost always find something the employer is doing wrong

under the FLSA or the other laws that the Department is

responsible for enforcing

(e.g., I-9, Family Medical Leave Act, Polygraph Protection Act).

d. Wage and Hour generally determines that overtime must be

paid when the exempt status is in a “grey area.” If an

employer disagrees with the determination, Wage and

Hour must file suit to enforce this determination.



d. Cont. The trial court (judge or jury) makes its determination, then either party may appeal to the Court of Appeals. The final tribunal is the Supreme Court. Frequently, each level of appeal will have a different opinion regarding the applicability of an exemption.

e. During a Wage and Hour investigation the Department can find the employer liable for the last three years of unpaid overtime and up to a 100% penalty, plus interest.

f. Even if Wage and Hour does not pursue the claim, employees

can file suit against the employer in state or federal court. If successful, the employees will recover their attorney’s fees

and costs of litigation. The employer is not compensated for

its attorney’s fees and costs of defense even if it wins,

unless the suit was frivolous and groundless.



g. Penalties of up to 100% of the amount of the unpaid wages will be awarded by the Court unless the employer proves it acted in “good faith.”

Claims cover two years from the date of filing of the civil action, but may go back three years if a “willful” violation of the FLSA is alleged and proved.

Liquidated damages are awarded in an amount equal to the amount of compensation found to be wrongfully withheld. 29 U.S.C. §216(b). The court has the discretion to reduce or eliminate the award of liquidated damages if the employer proves that its act or omission giving rise to the failure to pay overtime was in good faith and that it had reasonable grounds for believing that the failure to pay minimum wage or overtime compensation was not in violation of the FLSA. Advice of counsel is which can be used to support the “good faith/reasonable grounds” defense. 29 U.S.C. §260; See, Dalheim, v., KDFW TV, 712 F.Supp. 533, 539 (N.D.Tex. 1989.

This is part of the value of involving your counsel in any audit or review of exempt status.


The “good faith” defense contains two distinct components. The first is: did the employer demonstrate “that it had an honest intention to ascertain what the FLSA required and to act in accordance with it.” Put another way, did the employer act in “good faith”. The second component is: was the employer’s failure to pay overtime “objectively reasonable” i.e., would a reasonable person in the employer’s position believe that the employer was not in violation of the ELSA.dAlthough early cases applied an “objective test” to determine the first component of thegood faith defense, more recent case law appears to lean toward a “subjective” analysis. Thus, the inquiry is whether the employer demonstrated “an honest intention to ascertain what the Fair Labor Standards Act requires and to act in accordance with it.” Addison v. Huron Stevedoring Corp., 204 F.2d 88, 93 (2d Cir.1953), cert. denied, 346 U.S. 877 (1953).

The second component of “reasonable grounds” is, indeed an objective standard. Many ofthe cases discussing this component recognize advice of counsel, among other factors, as satisfying this component. Hill v. J.C. Penney Co., 688 F.2d 370 (5th Cir. 1982). Further, where the case involves an unsettled area of the law, some courts have exercised their discretion and disallowed an award of liquidated damages. See, e.g., General Elec. Co. v. Porter, 208 F.2d 805 (9th Cir. 1954), cert. denied, 347 U.S. 951 (1954).


I. Virginia Wage Payment Statute:

A. General.

Payment of wages or salaries must be in lawful money of the United States or by check payable at face value upon demand in lawful money of the United States (Sec. 40.1-29). Employers must establish regular pay periods and rates of pay for employees except executive personnel. Employers must pay salaried employees at least once each month and employees paid on an hourly rate at least once every two weeks or twice in each month, except that a student who is currently enrolled in a work-study program or its equivalent administered by any secondary school, institution of higher education or trade school may be paid once each month if the institution so chooses (Sec. 40.1-29).

Virginia Wage Payment Statute

I. Virginia Wage Payment Statute cont.:

A. General cont.

With the employee’s agreement wages or salaries may be paid by electronic automated fund into an account in the name of the employee at a financial institution designated by the employee. No employer may withhold any part of the wages or salaries of any employee except for payroll, wage or withholding taxes or in accordance withlaw, without the written and signed authorization of the employee (Sec. 40.1-29).

An employer, upon request of his or her employee, must furnish a written statement of the gross wages earned during any pay period and the amount andpurpose of any deductions therefrom. No employer may require any employee,except executive personnel, to sign any contract or agreement that provides forthe forfeiture of the employee's wages for time worked as a condition of

employment or the continuance, except as otherwise provided by law (Sec. 40.1-29).

B. Termination.

Upon termination of employment, an employee must be paid all wages or salaries due him or her for work performed prior thereto; payment must be made on or before the date on which he or she would have been paid for work had the employment not been terminated(Sec. 40.1-29).

Virginia Wage Payment Statute cont.

To qualify for the outside sales employee exemption, all of the following tests must be met:

d

(a) The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

dg

(b) The employee must be customarily and regularly engaged away from the employer’s place or places of business.

d

(c) The salary requirements of the regulation do not apply to the outside sales exemption.

s

(d) The employee must be customarily and regularly engaged away from the employer’s place or places of business.

d

(e) The phrase “customarily and regularly” means greater than occasional

but less than constant; it includes work normally done every

workweek, but does not include isolated or one-time tasks

Outside Sales Exemption

To qualify for the outside sales employee exemption,

all of the following tests must be met:

(f) “Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. D

(g) It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.

d

(h) Obtaining orders for “the use of facilities” includes the selling of time on

radio or television, the solicitation of advertising for newspapers and

other periodicals, and the solicitation of freight for railroads and other

transportation agencies.

s

(i) Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one

of the employer’s places of business, even though the employer is

not in any formal sense the owner or tenant of the property.


To qualify for the outside sales employee exemption,

all of the following tests must be met:

(j) An outside sales employee makes sales at the customer’s place of business, or, if selling door-to-door, at the customer’s home.

(k) Obtaining orders for “the use of facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, the solicitation of freight for railroads and other

transportation agencies.

(l) Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of

the employer’s places of business, even though the employer is not in

any formal sense the owner or tenant of the property.

(m) Promotion work may or may not be exempt outside sales work,

depending upon the circumstances under which it is performed.


202 South Main Street, Suite 202

Blacksburg, VA 24060

p: 540.443.2850

317 Washington Avenue, S.W.

Roanoke, VA 24016

p: 540.777.3450

www.cowanperry.com

James K. Cowan, [email protected]

Eric D. [email protected]

540-443-2850 main

888-755-1450 fax

www.cowanperry.com

250 South Main St., Suite 226Blacksburg, Va. 24060P: 540.443.2850

1328 3rd St, SWRoanoke, VA 24016p. 540-777-3450

The FLSA & Overtime Rules

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