LAS VEGAS — To comply with the Fair Labor Standards Act (FLSA), HR professionals must work with managers to ensure that employees are properly paid for all the hours they work and determine which employees can be classified as exempt from the FLSA’s overtime rules.
The FLSA requires most businesses to pay employees 1 1/2 times their regular rate of pay for all hours worked beyond 40 in a workweek unless they fall under an exemption. The most commonly used exemptions are the administrative, executive and professional, which are collectively called white-collar exemptions.
Misclassifying employees or miscounting their hours and pay rates can result in costly lawsuits for employers. According to law firm Seyfarth Shaw, the top 10 wage and hour settlements in 2020 cost a combined $295 million. And the COVID-19 pandemic has created more wage and hour issues, since many employees shifted to remote work.
How can employers limit their liability risks? Robert Boonin, an attorney with Dykema in Detroit (photo above), shared compliance tips with attendees at the SHRM Annual Conference & Expo 2021 on Sept. 11.
Here are four common mistakes employers should avoid making.
1. Misclassifying Employees as Exempt
Employees who fall under the white-collar exemptions must:
- Be paid on a salary basis. Employees must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
- Be paid at least a certain salary level. Employees must be paid at least $684 a week ($35,568 annualized).
- Perform certain duties. Employees’ job duties must primarily involve executive, administrative or professional duties as defined by FLSA regulations.
Employers have the most trouble with the administrative exemption, Boonin said. Under the administrative exemption, the employee’s primary duty must be performing office or non-manual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
“This is a fairly high-level person,” according to Boonin. This employee makes decisions for the company. For example, he said, an employee who falls under the administrative exemption might not be a hiring manager but might be responsible for narrowing down the job candidates to the top five and making recommendations on who to hire.
The administrative exemption doesn’t apply to someone who does routine work with a set number of options to choose from, he noted. Jobs that may be problematic under this exemption (depending on the person’s actual job duties and decision-making authority) include mortgage loan originators, help desk employees, paralegals, customer service representatives, administrative assistants and insurance adjusters.
2. Violating the ‘Salary Basis’ Rule
Under the white-collar exemptions, employees must be paid a predetermined fixed amount each workweek without regard to the quantity or quality of work performed in the week, Boonin noted. Even an employee who works one minute must be paid for the week, he explained. But there are some exceptions. He said permissible deductions under the FLSA include:
- Personal days of one day or more.
- Sick days of one day or more, if pursuant to a bona fide time-off plan.
- Setoffs for jury, witness or military duty.
- Suspensions for violating “safety rules of major significance.”
- Suspensions of one day or more for violating written workplace conduct rules.
- Prorations for initial or final weeks of employment.
- Time missed due to leave under the Family and Medical Leave Act.
- Partial days missed by public employees (in certain circumstances).
He noted that the FLSA allows an employer to dock exempt workers’ paid-time-off bank (but not their actual pay) for a partial-day absence, but some state laws do not allow this practice.
3. Allowing Off-the-Clock Work
Nonexempt employees must be paid for all hours worked. Under the FLSA, employees must be paid for time spent before “clocking in” or after “clocking out” on activities that are necessary to perform their jobs. The U.S. Department of Labor (DOL) focuses on whether the activity is integral to performing the “principal activities” of the job.
When does the workday start? Boonin said the answer depends. Putting on safety glasses and a hard hat are not likely to be considered integral activities. Time spent putting on protective boots and coveralls, however, is likely an indispensable part of the job. Work performed during meal breaks and rest periods also must be recorded and paid.
What if an employee checks e-mails or logs in to the employer’s network from home? Under the FLSA, this counts as work time unless it is “de minimis”—trivial intervals that are difficult for employers to track. But employers should note that state laws may have different rules about de minimis time.
4. Miscalculating the Regular Rate of Pay
Overtime pay for nonexempt employees is calculated based on their regular rate of pay. The regular rate is determined by dividing the total pay for employment in any workweek by the total number of hours an employee actually worked.
Under the FLSA, an employee’s regular rate includes hourly wages and salaries, most bonuses, shift differentials, on-call pay, and commissions. However, it excludes health insurance, paid leave, holiday and other discretionary bonuses, and certain gifts.
When it comes to bonuses, Boonin noted, only discretionary ones can be excluded. Nondiscretionary bonuses, such as those tied to production or other performance measures, must be included in the regular-rate calculation.
Boonin suggested that employers perform an audit of their pay practices to promptly correct errors and reduce the risk of facing additional liability for “willful” violations.
“Don’t wait for the DOL to knock on your door,” he said.