Navigating FLSA Compliance

Presented by: Deanna Bretado, SPHRG&A Partners HR Client Advisor

Before we get started….

• I am not an attorney.• This material is not legal advice.• This presentation is not a substitute for

experienced legal counsel.

Agenda

• Define FLSA• Address the major provisions• Discuss who enforces FLSA• Penalties for violating FLSA• Common employer mistakes• How to avoid claims• How to be prepared for audits

The FLSA

• Fair Labor Standards Act• Major Provisions

• Minimum Wage• Overtime Pay• Recordkeeping• Youth Employment

What the FLSA Requires

• Payment of the minimum wage• Overtime pay for time worked over 40 hours

in a workweek• Restrictions on the employment of children• Recordkeeping

What the FLSA Does Not Require

• Vacation, holiday, severance or sick pay• Meal or rest periods, holidays off or

vacations• Premium pay for weekend or holiday work• Pay raises or fringe benefits

Coverage

• More than 130 million workers in more than 7 million workplaces are protected or “covered” by the FLSA, which is enforced by the Wage and Hour Division of the U.S. Department of Labor

Coverage

• Enterprise Coverage• At least two (2) employees• At least $500,000 a year in business

• Individual coverage• Workers who are engaged in interstate commerce

or in the production of goods for commerce• Domestic service workers such as housekeepers

and full time babysitters are covered by the act

Minimum Wage & Overtime

• Non-exempt employees must be paid no less than the federal minimum wage for all hours worked• $7.25 per hour effective July 24th, 2009• States may have higher minimum wage

• Hours worked refers to all time employees are “suffered and/or permitted” to work

Minimum Wage & Overtime (cont)

• All employees are considered non-exempt (not exempt from coverage), unless:• The employee’s position meets specific

exemption criteria• The regulations specifically allow an exemption

and the employer has opted to use this exemption

Minimum Wage & Overtime (cont)

• Non-exempt employees must receive one and one-half times the regular rate of pay for all hours worked over 40 in a workweek

• Workweek: defined as a fixed and regularly recurring period of 168 hours, or 7 consecutive 24-hour periods

Poll Question

• If an employee works unauthorized overtime, are you required to pay them for that time?

Exempt vs. Non-Exempt

• Who is exempt?• How do you determine exemptions?

Exempt vs. Non-Exempt

Exempt Employees

Non-exempt Employees

Paid on a fixed salary basis Paid an hourly rate for all hours worked

Paid at least $455 per week Paid overtime for hours worked above 40

Job duties meet one of the FLSA exemption tests

Job duties do not meet any of the exemption tests

Three Tests for Exemptions

• Salary Level

• Salary Basis

• Job Duties

Three Tests for Exemptions

• Salary level (at least $455 per week)

• Salary basis (paid a fixed weekly amount, no reductions based on number of hours worked)

• Job duties (must perform certain executive, administrative, professional, outside sales or computer professional duties set forth in the regulation)

“White Collar” Exemptions

• The most common FLSA minimum wage and overtime exemption -- often called “white collar” exemptions -- applies to certain:• Executive Employees• Administrative Employees• Professional Employees• Outside Sales Employees• Computer Employees

Executive Exemption

• Salary of at least $455 per week ($23,660 annually)

• Primary Duty – management of the enterprise or of a customarily recognized department or subdivision

• Customarily and regularly directs work of 2 or more other employees

• Authority to hire and fire other employees or make recommendations as to the hiring, firing, advancement, promotion or other change of status

Administrative Exemption

• Salary level - $455 per week

• Primary duty – performance of office or other non-manual work

• Also includes the exercise of discretion and independent judgment regarding matters of significance

Administrative Exemption

• Discretion and independent judgment with respect to matters of significance:• Whether the employee has authority to formulate,

affect, interpret or implement management policies or operating practices

• Whether the employee carries out major assignments in conducting the operations of the business

• Whether the employee has authority to commit the employer in matters that have significant financial impact

• Whether the employee has authority to waive or deviate from established policies and procedures without prior approval

Professional Exemption

• Learned and creative exemptions• Salary level - $455 per week for both• Learned primary duty – the performance of

work requiring knowledge of an advanced type in a field of science or learning

• Creative primary duty – performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor

Computer Exemption

• Salary level – guaranteed salary or fee of at least $455 per week, or an hourly rate of not less than $27.63 per hour

• Must be employed as a computer system analyst, computer programmer, or other similarly skilled position working in the computer field

Outside Sales

• Does NOT have to be paid on a salary basis

• Contracts for services or for the use of facilities for which consideration is paid by a client or customer

• Customarily and regularly is engaged away from the employer’s place of business

Other Exemptions

• Highly compensated employees• Retail commissioned sales employees• Business owners• Some transportation positions

Poll Question

• What should you do if you find out you have misclassified an employee as exempt when they should be classified as non-exempt?

Youth Employment

• Federal youth employment rules set both hours and occupational standards for youth

Youth EmploymentAge Requirement

16-17 Sixteen- and 17-year-olds may be employed for unlimited hours in any occupation other than those declared hazardous by the Secretary of Labor

14-15 Fourteen-and 15-year-olds may be employed outside school hours in a variety of non-manufacturing and non-hazardous jobs for limited periods of time and under specified conditions

<14 Children under 14 years of age may not be employed in non-agricultural occupations covered by the FLSA

Youth Employment – Hours of Work

• Children aged 14 and 15 may work only:• Outside of school hours• For 18 hours during any week when school is in session• For 40 hours during a week when school is not in

session• For 3 hours during any day when school is in session

(including Fridays)• For 8 hours on a day when school is not is session• From 7 a.m. to 7 p.m. on any day, except from June 1

through Labor Day when the child may work from 7 a.m. to 9 p.m.

Recordkeeping

• Employers must keep certain records for each non-exempt employee

• No particular form for the records is required, but certain identifying information about the employee, the hours worked and the wages earned is required to be maintained

Recordkeeping

• Payroll records must be kept for 3 years• Time worked records, such as time cards,

work & time schedules, record of deductions from wages, etc. must be kept for 2 years

• It is the employer’s responsibility to keep accurate records and make them available for inspection by the division’s representatives

Common Employer FLSA Mistakes

• Assuming that all employees paid a salary are not due overtime

• Improperly applying an exemption• Failing to pay for all hours an employee is

“suffered or permitted” to work• Paying incorrectly for travel time

Common Employer FLSA Mistakes

• Making improper deductions from wages that cut into the required minimum wage or overtime

• Treating an employee as an independent contractor

• Making automatic pay deductions for meal breaks

• Not paying for “unauthorized” overtime

Enforcement

• FLSA enforcement is carried out by Wage and Hour staff throughout the U.S.

• Two-year statute of limitations generally applies to the recovery of back pay

• Three-year statute of limitations may apply in the case of a willful violation

Enforcement

• In the event there is not a voluntary agreement to comply and/or pay back wages, the Wage & Hour Division may:

• Bring suit to obtain injunction to restrain the employer from violating the FLSA

• Bring suit for back wages and an equal amount as liquidated damages

Enforcement

• National public awareness campaigns inform employees of their rights and how to seek assistance

• Smartphone app to help employees identify wage and hour compliance violations available at www.dol.gov/whd/

Employee Has Private Rights

• An employee may file a private suit for• Back pay• Equal amount as liquidated damages• Attorney’s fees and court costs

Penalties

• Employers who willfully violate the Act may be prosecuted criminally and fined up to $11,000

• Employers who violate the youth employment provisions are subject to a civil money penalty of up to $11,000 for each employee who was the subject of a violation

• Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,100 for each such violation

Examples

• Rite Aid – January 2013, $20.9 million• Agreed to pay out a class of around 6,100 assistant

store managers who had been classified as exempt for overtime.

• Bank of America – December of 2013, $73 million• Settled multijurisdictional lawsuits from

approximately 185,000 of its former and current call center employees for allegations that it required them work when they were technically off the clock.

Examples

• LinkedIn – August 2014• Agreed to pay about $6 million dollars in back

overtime and damages to 359 current and former employees for failing to record and compensate workers for all hours worked.

How To Avoid a Claim

• Correctly classifying employees• Creating job descriptions• Keeping accurate records• Creating and communicating clear policies• Conducting internal wage and hour audits• Addressing problems immediately• Staying up-to-date

What To Do If You Are Audited

• Request time to gather records• Contact auditor to find out specific information

about the audit• Gather the records in accordance with guidance

provided by the auditor• Designate one or two company representatives

to work with the auditor• Be courteous and cooperative• Ask for a summary of the results at the end of

the investigation

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