FEDERAL LABOR STANDARDS ACT (FLSA)

Presented by: Kathy Norwood, CPA Audit Manager Curtis Blakely & Co., P.C. P. O. Box 5486 Longview, TX 75608 (903) 758-0734 October 26, 2001 [email protected] www.cbandco.com

Table of Contents I. II. III. IV. V. VI. VII. VIII. IX. X. XI.

INTRODUCTION BASIC WAGE STANDARDS WHO IS COVERED EXEMPTIONS CHILD LABOR COMPUTING OVERTIME SALARY DEDUCTIONS COMPENSABLE VS NONCOMPENSABLE TIME RECORDKEEPING SUMMARY OF TEXAS PAYDAY LAW CONTACTS FOR ASSISTANCE

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INTRODUCTION The Fair Labor Standards Act (FLSA): ƒ ƒ ƒ ƒ

was passed in 1938 after the Depression is one of the most complex laws of the workplace has been amended many times is full of exceptions and exemptions – some of which seem to contradict one another.

Most of the revisions and interpretations have expanded the law’s coverage; for example: ª Requiring that male and female workers receive equal pay for work that requires equal skill, effort, and responsibility, ª Including in its protection state and local hospitals and educational institutions, ª Covering most federal employees and employees of states, political subdivisions and interstate agencies, and ª Setting out strict standards for determining, paying and accruing compensatory or comp time - time given off work instead of cash payment. When Congress enacted the FLSA, their primary objective was: Eliminating labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.... without substantially curtailing employment or earning power.

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BASIC WAGE STANDARDS What is required and not required by the FLSA? The basic requirements under the FLSA are: ª Payments of the minimum wage (currently $5.15 per hour), ª Overtime pay for time worked over 40 hours in a workweek at a rate of at least one and one-half time their regular rate, ª Restrictions on the employment of children, and ª Recordkeeping. Various minimum wage exceptions apply under specific circumstances to: ª ª ª ª ª

disabled workers full-time students youth under age 20 in their first 90 days of employment tipped employees, and student learners.

Employers are required to keep records on wages, hours, and other items that are generally maintained as an ordinary business practice. The FLSA child labor provisions are designed to protect the educational opportunities of youth and protect them from conditions detrimental to their health or safety. The child labor provisions include some restrictions on hours and occupations too dangerous for young worker to perform. Wages required by the FLSA are due on the regular payday for the pay period covered. Deductions made from wages for such items as cash or merchandise shortages, employer-required uniforms, and tools of the trade, are not legal if they reduce the wages of employees below the minimum wage.

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BASIC WAGE STANDARDS There are a number of employment practices that the FLSA does not regulate. For example, the FLSA does not require: ª ª ª ª ª

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; A discharge notice, reason for discharge, or immediate payment of final wages to terminated employees, and ª Pay stubs or “W-2”s.

The limit the number of hours in a day, or days in a week, an employee may be required or scheduled to work, including overtime hours, if the employee is at least 16 years old. However, some states do have laws covering some of these issues, such as meal or rest periods, or discharge notices. The above matters, which are not covered by the FLSA, are generally for agreement between the employer and the employees or their authorized representatives.

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BASIC WAGE STANDARDS QUESTIONS & ANSWERS

™ When was the federal minimum wage last increased? How often does it increase? 9 In 1989 a law was passed raising the minimum wage, in two steps, from $3.35 to $4.25. That increase was fully implemented on April 1, 1991. The minimum wage was still $4.25 when, last August, Congress and the President authorized another two-step increase to $5.15. The minimum wage does not increase automatically -- Congress must pass a bill which the President signs into law in order for the minimum wage to go up.

™ Who makes sure workers are paid the minimum wage? 9 The Wage and Hour Division of the U.S. Department of Labor is responsible for enforcing the minimum wage. Using both enforcement and public education efforts, Wage and Hour strives to ensure that workers are paid the minimum wage. The Wage and Hour Division has offices throughout the country. The phone numbers and addresses for these offices can be found in the federal government “blue pages” section of the telephone book under “Labor Department.”

™ What happens if state law requires a different minimum wage than federal law? 9 Where state law requires a higher minimum wage, that higher standard applies.

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WHO IS COVERED The FLSA applies to enterprises that: ª have employees who are engaged in interstate commerce ª produce goods for interstate commerce, or ª handle, sell or work on goods or materials that have been moved in or produced for interstate commerce. For most firms, an annual dollar volume of business test of $500,000 applies. An enterprise that was covered by the Act on March 31, 1990 (annual dollar volume for the business test was $250,000), and that ceased to be covered because of the increase in the annual dollar volume test to $500,000, as required under the 1989 amendment to the Act, continues to be subject to the overtime pay, child labor, and recordkeeping requirements of the Act. Employees are covered under the FLSA and may be subject to its minimum wage, overtime pay, and child labor provisions if they are individually engaged in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production. Such employees include those who:

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WHO IS COVERED ª Work in communications or transportation; ª Regularly use the mails, telephones, or telegraphs for interstate communication; ª Keep records of interstate transactions; ª Handle, ship, or receive goods moving in interstate commerce; ª Regularly cross state lines in the course of employment; ª Work for independent employers who contract to do interstate commerce. Domestic service workers such as day worker, housekeepers, chauffeurs, cooks, or full-time babysitters are covered if: ª Their cash wages from one employer are at least $1,000 in a calendar year or ª They work a total of more than 8 hours a week for one or more employers. The following are some of the types of employees who are not covered by both the minimum wage and overtime requirements of the FLSA: ª Executive, administrative and professional employees such as managers-supervisors, lawyers, doctors, engineers, CPA’s, etc.; ª Outside salesmen; ª Computer Specialist; ª Apprentices with written agreements and are not performing their regular or any productive work; ª Independent contract labor;

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WHO IS COVERED ª Employees working for seasonal amusement / recreational establishments; ª Employees of small newspapers having a circulation of less than 4,000; ª Employees who deliver newspapers; ª Switchboard operators of small telephone companies that have no more than 750 stations; ª Employees working on small farms; and ª Personal companions and casual babysitters. The following are examples of employees exempt from the Act’s overtime pay requirements only: ª Certain commissioned employees of retail or service establishments; ª Auto, truck, trailer, farm implement, boat or aircraft sales workers, or parts-clerks and mechanics serving autos, trucks, or farm implements, who are employed by non-manufacturing establishments selling to ultimate consumer; ª Railroad and air carrier employees, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans; ª Announcers, news editors, and chief engineers of certain nonmetropolitan broadcasting stations; ª Domestic service workers who reside in their employer’s residence; ª Employees of motion picture theaters; and ª Farm workers.

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WHO IS COVERED Certain employees may be partially exempt from the Act’s overtime pay requirement: ª Employees engaged in certain operations on agricultural conditions and employees of certain bulk petroleum distributors; ª Employees of hospitals and residential care establishments which have agreements with the employees to work 14 day work periods in lieu of a 7 day workweek; ª Employees who lack a high school diploma or who have or completed the 8th grade may be required to take remedial reading or other basic training that are not job specific. As long as they are paid normal wages for work & job training, the employee does not have to pay premium overtime pay for the remedial training hours. Note: There are many unique situations not discussed in the material that are not covered by the FLSA. If employers believe they have a unique situation or have questions regarding exceptions, they should contact the nearest U.S. Department of Labor (DOL) office or a local attorney.

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EXEMPTIONS WHITE COLLAR EXEMPTION There is a common misconception that an employee who is paid a salary (as opposed to hourly wages) or has an impressive title is automatically exempt from the Fair Labor Standards Act and is not eligible for overtime. EXECUTIVE All the following tests must be met: Primarily manages an operation or subdivision; Routinely supervises 2 or more employees; Has hiring, firing and promoting authority; Routinely exercises discretion; Spends at least 80% of workday in above Must be paid on a salary basis at a rate of at least $155 a week, not including board, lodging, or other facilities. An executive that is paid at least $250 a week on a salary basis is exempt if routinely supervises at least 2 or more other employees and primarily manages an operation or subdivision. The exemption is applicable to employees employed in a bona fide executive capacity and does not include employees training to become executives and not actually performing the duties of an executive. Examples of occupations typically exempted as executive employees: b b b b

President of the company Head of a major division of an enterprise General manager with hiring and firing authority Department heads who have hiring and firing authority 11

EXEMPTIONS ADMINISTRATIVE All the following tests must be met: Routinely exercises discretion and independent judgment in performance of job duties. Duties consist mainly of office or nonmanual work directly related to management policies or general business operations or duties involving administrative work in a school which provides academic instruction; or Duties involving the direct and routine assistance of an administrative employee in the performance of specialized or technical work requiring special training, experience, or knowledge. Performs duties under general supervision only Spends 80% of work day in above listed activities. The employee must be paid on a salary or fee basis at a rate of not less than $155 a week, exclusive of board, lodging, and other facilities. The percentage limitations on nonexempt work do not apply to an administrative employee that is paid on a salary or fee basis at least $250 a week. Examples of occupations typically exempted as executive employees: b b b b b

Vice-President of operations General managers Department heads Personnel directors Payroll directors

bChief financial officer bComptroller bHead buyer bHead dispatcher

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EXEMPTIONS PROFESSIONAL All the following tests must be met: The primary duty must be either: Work requiring knowledge of an advanced type customarily obtained by a prolonged course of specialized instruction and study; or Original and creative work which depends primarily on the employee’s invention, imagination, or talent, or Work as a teacher certified or recognized as such in the school system or educational institution by which employed; Work must consistently exercise discretion and independent judgment; Work must be intellectual and varied in character; Work does not lend itself to standardization by time (i.e., how much time any part of the overall task should take cannot be determined); At least 80% of the employee’s work day must be devoted to the type of work described above. Must be paid on a salary or fee basis at a rate of not less than $170 a week exclusive of board, lodging, or other facilities. The 20% percentage test on nonexempt work does not apply to a professional employee that is paid on a salary or fee basis at least $250 a week.

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EXEMPTIONS Examples of occupations typically exempted as professional employees: b b b b b b b

Physician b Attorney CPA b Engineer Architect b Registered nurse Pharmacist b Dentist Teachers b Artists Writers and other creative professionals Scientist (includes chemist, physicist, astronomer, geologist, etc.)

In Boykin v. Boeing Co., 128 F.3d 1279 (9th Cir. 1997), a group of salaried exempt employees who received premium pay under a collective bargaining agreement claimed that their exempt FLSA status was defeated by the payment of premium pay in addition to their predetermined salary. The appeals court rejected their argument citing a 1995 DOL opinion letter which clarified that "additional compensation besides the required minimum weekly salary guarantee may be paid to exempt employees for hours worked beyond their standard workweek without affecting the salary basis of pay." The Eighth Circuit reached a similar conclusion in Fife v. Harmon, 171 F.3d 1173 (8th Cir. 1999). In Rutlin v. Prime Succession, Inc., 220 F.3d 737 (2000), the Sixth Circuit, by a 2-1 margin, held that, despite not being required to obtain an academic degree in order to become licensed, a funeral director was a professional employee and thus exempt from the requirement that he receive overtime compensation under the FLSA. Despite the fact that the Secretary's regulations say that "the best prima facie evidence" of professional training is "the appropriate academic degree," 29 C.F.R. 541.301(e)(1), the majority concluded that the regulations themselves do not "require" a bachelor's degree in order to be deemed a professional. The majority further held that the funeral director exercised the requisite discretion and independent judgment to be considered a professional.

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EXEMPTIONS OUTSIDE SALESMEN The employee is exempt from if: Regularly works away from the employer’s place of business while making sales or taking orders, and Spends no more than 20% of worktime doing work other than selling. Typically, an exempt salesperson will be paid primarily through commissions and will require little or no direct supervision in doing the job.

COMPUTER SPECIALIST This exemption applies to computer system analyst and programmers who receive a salary of at least $170 a week or who, if paid by the hour, receive at least $27.60 an hour. You will likely be exempt from the wage and hour laws as a computer specialist if your primary duties consist of such things as: Determining functional specifications for hardware and software, Designing computer systems to meet user specs, and Creating or modifying computer programs. The Tenth Circuit addressed whether a computer employee was exempt under the FLSA in Bohn v. Park City Group, Inc., 94 F.3d 1457 (10th Cir. 1996). In that case, the plaintiff's job description indicated he was responsible for documenting software applications, including writing, reviewing, and editing the documentation. On the other hand, the plaintiff stated that he spent a majority of his time on clerical tasks and did very little technical writing. Because the court was unable to decide whether the plaintiff actually utilized the computer skills described in his job description, the summary judgment for the employer was reversed.

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EXEMPTIONS APPRENTICES An apprentice is a worker who is at least 16 years old and who has signed an agreement to learn a skilled trade. They are exempt from the requirements of the FLSA to pay overtime pay and at least the minimum wage. Overtime must be paid for training time if there is no written agreement, if they do regular or productive work, or if an agreement classifies time spent on related supplemental training as hours worked. Overtime must be paid to apprentices on the basis of their total weekly working time if they produce goods intended for interstate commerce. The employer must obtain a special certificate authorizing such employment from the Wage-Hour Administrator. State laws may limit the number of hours you can work as an apprentice or require that they be paid a certain percentage of the minimum wage.

INDEPENDENT CONTRACT LABOR FLSA covers only employees, not those who work as independent contractors. However, whether a person is an employee for purposes of the FLSA generally turns on whether that worker is employed by a single employer, not on the IRS definition of an independent contractor. The FLSA was passed to clamp down on employers that cheated workers of their fair wages. As a result, employee status is broadly interpreted so that as many workers as possible come within the protection of the law. If nearly all of your income comes from one company, a court would probably rule that you are an employee of that company for purposes of the FLSA regardless of whether other details of your work life would appear to make you an independent contractor.

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EXEMPTIONS ™ Can we pay exempt employees overtime voluntarily? 9 You can do anything, the question is whether it's in your best interests to do so. I understand why a company would want to reward its exempt employees for work that is far in excess of a 40-hour workweek. However, when you start treating an exempt employee as you would a nonexempt employee, you run the risk of losing the exemption for not only that individual, but the whole class of individuals. I would suggest that you reward the exempt employee in other ways, but first I would suggest that you study your own compensation program. Are you paying exempt employees sufficiently? If so, why the concern over the length of the workweek and the energies expended by exempt employees. A salary used to presuppose longer hours than those worked by nonexempt employees. I don't know what happened to that concept, and I welcome any input which can "set me straight" on why exempt employees should be paid in addition to salary. I would suggest that you move toward a compensatory time off policy more so than looking at ways to monetarily reward exempt employees. Monetary rewards in addition to salary are well established from bonuses to profit sharing, and the one thing that I like about those rewards is that, as they should, they reward achievements and results rather than effort. To reward effort, i.e., long, hard hours and workweeks, comp time seems much more practical and rational.

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EXEMPTIONS ™ Is it possible to be exempt and nonexempt at the same time? I know that probably sounds like a peculiar question, but aren’t there times when, even though I’m a manager, I could be doing nothing but non-managerial jobs? 9 There’s nothing really peculiar about your question at all. Many companies unwittingly break federal and state laws by having managers work in nonexempt jobs for more than twenty percent of the week. That’s the key: if an employee spends more than twenty percent of any work week in nonexempt work, then he is nonexempt for that week or work period. For example, I know of several companies that have their managers spend a full week every quarter or every six months taking stock. These are definitely nonexempt responsibilities and, if the managers wanted to be technical about it, they could ask for overtime (if any is incurred) for that week. Most managers don’t want to “rock the corporate boat” or make waves or jeopardize their positions, so they say nothing. Then again, most managers and companies rarely know and never think about this provision of overtime laws.

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CHILD LABOR Minimum Age: The FLSA set the minimum age for most non-agricultural work at 14. Exceptions: Delivering newspapers Performing in radio, television, movie, or theatrical productions Work in business owned by their parents (except hazardous jobs listed below) Babysitting or minor jobs around a private home Gathering and making of wreaths composed principally of natural holly, pine, cedar, or other evergreens.

Hazardous Occupations: Children under the age of 18 cannot be employed in the occupations involving the following: In or about plants manufacturing or storing explosives; Motor-vehicle drivers and helpers; Mining; Logging; Power-driven woodworking, bakery, or paper-product machines; Involving exposure to radioactive substances; In or about slaughtering and meat packing establishments; Manufacture of bricks, tile, and similar products; Work of wrecking and demolition of buildings and in shipbreaking; Operation and maintenance of circular and band saws and guillotine shears;

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CHILD LABOR Application of weatherproofing materials and substances to roofs of buildings and other structures; Excavation work. Note: There are a limited exceptions such as 16 or 17 year olds can operate motor vehicles under 6,000 pounds in certain circumstances.

Additional Hazardous Occupations for 14-15 year olds: Manufacturing, mining, or processing of goods: Operation or tending of power driven machinery; Public messenger service; Work in connection with maintenance or repair of the establishment, machines, or equipment including window washing and all work involving ladders, scaffolds or their substitutes; Cooking and baking (except at soda fountains, lunch counters, snack bars, or cafeteria serving counters); Working in freezers and meat coolers; Loading and unloading goods to and from trucks, railroad cars, or conveyors; Connected with the following (except office or sales work): ¾ Transportation of persons or property; ¾ Warehousing and storage; ¾ Communications and public utilities; and ¾ Construction, including demolition and repair.

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CHILD LABOR Hours - Time Standards: 14 and 15 year old may not work: 1. During school hours 2. Between 7 a.m. or after 7 p.m. (9 p.m. - from June 1 through Labor Day) 3. More than 3 hours a day - on school days 4. More than 18 hours a week - in school weeks 5. More than 8 hours a day - on non-school days 6. More than 40 hours a week - on non-school weeks Those 14 to 15 years olds enrolled in an approved Work Experience and Career Exploration Program (WECEP) may be employed up to 23 hours in school weeks and 3 hours on school days (inc. during school hours). FLSA does not limit the number of hours or times of day for workers 16 years and older. Many states have enacted child labor laws as well. In situations where both the FLSA child labor provisions and state child labor laws apply, the higher minimum standard must be obeyed. A special minimum wage of $4.25 per hour applies to young workers under the age of 20 during their first 90 consecutive calendar days of employment with an employer. Employers are prohibited from taking any action to displace employees in order to hire employees at the youth minimum wage. AGE CERTIFICATES: Employers may protect themselves from unintentional violation of the child labor provisions by keeping on file an employment or age certificate for each minor. 21

COMPUTING OF OVERTIME How is Overtime Calculated: Hourly employees - overtime is calculated by multiplying the hourly wage by 1 ½ for every overtime hour. Example: An employee paid $4.00 an hour works 46 hours in a workweek. Pay for the week would be $196 ($4.00 x 46 hours plus $2.00 x 6 hours). $184.00 ($4.00 x 46 hours) 12.00 ($4.00 x 1/2 x 6 hours) $196.00

Hourly employees plus Bonus Example: If the employee in hourly example above received in addition to the hourly rate, a bonus of $9.20. The regular rate would be $4.20 per hour ($4.00 plus $.20 ($9.20 / 46 hours)). The employee would be entitled to $205.80 ($4.20 x 46 hours plus $2.10 x 6 hours). $193.20 ($4.20 x 46 hours) 12.60 ($4.20 x 1/2 x 6 hours) $205.80

Day rates and job rates - An employee may be paid a flat sum for a day’s work or for doing a particular job, without regard to the number of hours worked in the day or at the job, and receive no other form of compensation. In such case the employee’s regular rate is found by totaling all the sums received at such day rates or job rates in the workweek and dividing by the total hours actually worked. The employee is then entitled to extra half-time pay at this rate for all hours worked over 40 in the workweek.

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COMPUTING OF OVERTIME Weekly - Salaried employees - the hourly wage rate is calculated by dividing 40 hours into the regular weekly salary. This hourly rate is multiplied by 1 ½ for every overtime hour. Example: An employee is hired at a salary of $164.00 / week and if it is understood that this salary is compensation for a regular workweek of 35 hours, or $4.685 an hour. If he worked 44 hours, the employee is entitled to receive $4.685 for each of the first 40 hours and $7.03 ($4.685 x 1 ½) for each hour thereafter for a total of $215.51. $187.40 ($4.685 x 40 hours) 28.11 ($4.685 x 1 1/2 x 4 hours) $215.51

If it is understood that the $164.00 is compensation for a regular workweek of 40 hours, the regular rate is $4.10 ($164.00 / 40). $164.00 ($4.10 x 40 hours) 24.60 ($4.10 x 1 1/2 x 4 hours) $188.60

Salaried for Periods Other Than Workweek - When a salary covers a period longer than a workweek, such as a month, it may be reduced to its workweek equivalent. A monthly salary can be converted to its equivalent weekly wage by annualizing (multiplying by 12) and dividing by 52. A semi-monthly salary would be multiplied by 24 and divided by 52.

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COMPUTING OF OVERTIME Fixed Salary for Fluctuating Hours - the regular rate of an employee whose hours of work fluctuate from week to week, who is paid a stipulated salary with the clear understanding that it constitutes straight time pay for all hours worked, whatever their number and whether few or many, will vary from week to week. The regular rate is obtained for each week by dividing the salary by the number of hours worked in the week. It cannot, of course, be less than the applicable minimum wage in any week. Since straighttime compensation has already been paid, the employee must receive additional overtime pay for each overtime hour worked in the week at not less than ½ this regular rate. Example: An employee works no more than 50 hours and is compensated $300.00 per week. If during the course of a month, he worked 40 hrs – week 1, 44 hrs – week 2, 50 hrs – week 3, and 48 hrs – week 4. Regular Pay Rate / Hour: Wk 1 (40 hrs) $300 / 40 =

$7.50

Wk 2 (44 hrs) $300 / 44 =

$6.82

Wk 3 (50 hrs) $300 / 50 =

$6.00

Wk 4 (48 hrs) $300 / 48 =

$6.25

Overtime Pay: Wk 1 (40 hrs)

Wk 2 (44 hrs)

Wk 3 (50 hrs)

Wk 4 (48 hrs)

$300.00 (Reg. Pay) $300.00 $300.00 $300.00 (Reg. Pay) (Reg. Pay) (Reg. Pay) 0 13.64 ($6.82 x 1/2 x 4) 30.00 ($6.00 x 1/2 x 10) 25.00 ($6.25 x 1/2 x 8) $300.00 $313.64 $330.00 $325.00

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COMPUTING OF OVERTIME Employees Working at Two or More Rates - when an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. That is, the earnings from all such rates are added together and this total is then divided by the total number of hours worked at all jobs. Payments Other Than Cash - where payments are made to employees in the form of goods and facilities that are regarded as part of wages, the reasonable cost to the employer or the fair value of such goods or facilities must be included in the regular rate. Where, for example, an employer furnishes lodging to employees in addition to cash wages, the reasonable cost of the fair value of the lodging (per week) must be added to the cash wages before the regular rate is determined. Commission Payments - commissions (whether based on a percentage of total sales or of sales in excess of a specified amount or on some other formula) are payments for hours worked and must be included in the regular rate. This is so regardless of whether the commission is the sole source of the employee’s compensation or is paid in addition to a salary or hourly rate. It does not matter whether the commission earnings are computed daily, weekly, monthly, or some other interval.

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COMPUTING OF OVERTIME Example: An employee receives a monthly commission payment of $41.60 and worked 48 hours in a workweek. He would receive overtime pay for that week of $.80. $9.60 ($41.60 x 12 / 52 hours) / 48 hours $0.20 reg. rate $

$

0.20 x 1/2 x 8 overtime hrs 0.80

Deferred Commission Payments - if the calculation and payment of the commission cannot be completed until some time after the regular pay for the workweek, the employer may disregard it until the amount of commission can be determined. When the commission can be computed and paid, the additional overtime compensation must be paid. To compute this additional overtime compensation, 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 or practicable 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 commissions earned to each workweek in the period in which the commission was earned; another is to allocate equal amounts to each hour worked in the period.

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COMPUTING OF OVERTIME Workweek: A fixed and regularly recurring period of 168 hours during 7 consecutive 24-hour periods. 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 as a whole or different workweeks may be established for different employees or group of employees. Once beginning time of an employee’s workweek is established it remains fixed, but may be changed if the change is intended to be permanent and is not designed to evade the overtime requirement of the Act.

Time of Payment: There is no requirement that overtime compensation be paid weekly. 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 period as practicable. Payment may not be delayed for a period longer than is reasonably necessary for the employer to compute and arrange for payment. In no event may payment be delayed beyond the next pay date after such computation can be made.

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COMPUTING OF OVERTIME ™ If a nonexempt employee works a full 40-hour workweek and also takes a day of paid vacation or holiday, is the employee entitled to overtime pay? 9

Not unless the employee actually works more than 40 hours in the workweek. According to the Fair Labor Standards Act, nonexempt employees must be paid overtime at time and one-half their regular rate of pay for all hours actually worked over 40 in a single workweek. Thus, in calculating how many hours a nonexempt employee actually works in a week, the employer does not have to count the paid vacation or holiday time towards the 40-hour workweek. For example, an employee normally works Monday through Friday, eight hours a day, and receives a paid holiday and does not work on the Monday. The employee then works Tuesday through Friday, eight hours a day, and is asked to work four additional hours on Saturday. The employee’s pay for the week would reflect a total of 44 paid hours, however since the employee actually worked only 36 hours, he would not receive any overtime pay.

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COMPUTING OF OVERTIME Exclusion of Payments from the Regular Rate of Pay: Overtime Pay for Hours in Excess of a Daily or Weekly Standard - Many employment contracts provide overtime pay for hours worked over 8 per day or 40 per week. Such extra compensation paid for the excess hours whether or not at time and one-half is excludable from the regular rate and may be credited toward statutory overtime payments. Premium Pay for Work on Saturdays, Sundays, and Other Special Days - 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 6 or 7th day of the workweek as such, may be treated as overtime pay. If the premium rate is less than time and one-half, the extra compensation paid must be included in determining the regular rate of pay and cannot be credited toward statutory overtime due. Discretionary Bonuses - A bonus need not be included in the regular rate if the employer retains discretion both: That a bonus will be paid, and That the amount is not determined until the end or near the end of the bonus period. Thus, for example, if an employer paid a bonus without prior contract, promise, or announcement and the decision as to the fact and amount of payment lay in the employer’s sole discretion, the bonus would be properly excluded from the regular rate. On the other hand, if an employer announces in January that a bonus will be paid in June, discretion regarding the fact of payment has been abandoned. Such a bonus would not be excluded from the regular rate under the Act. 29

COMPUTING OF OVERTIME Gifts, Christmas and Special Occasion Bonuses - A bonus aimed at increasing employees’ efforts must be treated as a part of their weekly earnings because the employees are working for the bonus they look upon it as a part of their wages. However, if an employer decides to give his employees a bonus after they have already rendered meritorious services, the bonus is then a gift - the employees have not expended additional efforts in reliance upon the bonus and, of course, in the absence of any knowledge of the bonus, could not have viewed it as wages. The following examples emphasize these distinctions. Which bonuses must be included in overtime calculations? The following bonuses are includible in overtime pay calculations: ¾ Attendance bonuses ¾ Production bonuses, both individual and group ¾ Bonuses for quality and accuracy of work ¾ Efficiency bonuses ¾ Bonuses for the highest number of overtime hours worked ¾ Length-of-service bonuses ¾ Bonuses promised to employees at the time of hiring ¾ Bonuses provided for in union contracts

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COMPUTING OF OVERTIME Which bonuses are not included in overtime calculations? The following bonuses are excludable from overtime pay calculations: ¾ Christmas bonuses ¾ Gift bonuses ¾ Bonuses wholly within the employer’s discretion ¾ Profit-sharing bonuses paid pursuant to profit-sharing plans and trusts ¾ Bonuses based on a percentage of an employee’s total wages Bonuses up to $.50 weekly are excludable from established basic rates. Profit-sharing plan payments could not be excluded from an employee’s regular rate of pay in calculating overtime pay as a bonus because the plan provisions led employees to expect to receive such payments. Reimbursement for Expenses - when an employee incurs expenses on the employer’s behalf or where the employee is required to spend sums solely for the convenience of the employer, payments to cover such expenses are not included in the employee’s regular rate of pay. Examples of such expenses are: Supplies expense for the employer, Travel expenses on employer’s business, and Supper money when an employee works past the normal quitting time.

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COMPUTING OF OVERTIME Pay for Certain Idle Hours - payments which are made for occasional periods when the employee is not at work due to vacation, holiday, illness, failure of the employer to provide sufficient work (for example, because of machinery breakdown or material shortage), or other similar causes, where the payments are in amounts approximately equivalent to the employee’s normal earnings for a similar period of time, are not made as compensation for the hours of employment and may be excluded from the regular rate of pay. However, no part of such payments may be credited toward overtime compensation due under the Act. Pay for Foregoing Holidays and Vacations - in some instances employees are entitled to holiday or vacation pay but forego the holiday or vacation and work on that day or period. If they receive their customary rate (or higher) for their work on the holiday or vacation day, the additional sum given as holiday or vacation pay is excluded from the regular rate of pay. “Show-Up” and “Call-Back” Pay - some employment agreements provide for a stated number of hours pay if the employee is not 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. 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, but cannot be credited toward statutory overtime pay due.

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COMPUTING OF OVERTIME “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 may 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.

Example: An employee paid $6.00 an hour works 40 hours and is paid $22.00 for being on-call over the weekend. If is called back for 4 hours of work. $240.00 ($6.00 x 40 hours) 22.00 (on-call pay) 24.00 ($6.00 x 4 hours) $286.00 $

6.50 Regular rate: $286.00 / 44

$286.00 Regular pay 13.00 Overtime pay ($6.50 x 1/2 x 4) $ 299.00 Total pay

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COMPUTING OF OVERTIME Exclusion of Minor Additions to Pay in Cash or in Kind - under Reg. Part 548, minor additions to pay in the form of cash or in kind, such as a single meal per day, may be excluded from the regular rate in computing overtime pay due. The value of the additional payment may not increase the total pay of the employee by more than 50 cents a week on the average for all overtime weeks in the period for which additional payments are made. Benefit Plans - contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits, such as Supplemental Unemployment Benefits, may be excluded from the regular rate of pay for purposes of computing overtime pay. Section 778.215 of Interpretative Bulletin, Part 778 sets forth the conditions for exclusion. If the conditions are satisfied, prior approval of the plan by the Dept. of Labor is not required.

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SALARY DEDUCTION Allowable Deductions from Wages of Non-Exempt Wages: Reasonable cost of meals, lodging, and other facilities may be deducted from the employee’s wages even if they reduce an employee’s cash wage below the minimum wage provided that the employer does not profit thereby. Voluntary wage assignments provided that the employer does not profit thereby (includes such things as health or retirement plans). Reasonable costs of uniforms and associated cleaning costs - it must be clear that the uniforms are furnished as a convenience to the employee and that those particular uniforms are not a condition of employment or otherwise required for the job. Union dues Court-ordered garnishments or other wage attachments by the law such as court-ordered child support and guaranteed student loans plus an administrative fee. The administrative fee is not an exemption from the minimum wage requirement.

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SALARY DEDUCTION In the case of misappropriated or theft of employer’s money the employer bears the burden of proof. Ordinary cash register shortages, losses of money due to negligence, and losses due to damage, destruction, or loss of equipment may be deducted from the wages of employees to the extent that the deduction would take the employee below minimum wage. Mayhue’s Super Liquor Stores decision in the Fifth Circuit illustrates how a court can signal that common sense should prevail in certain situation. The Court ruled upon an employer’s policy of making employees, as a condition of continued employment, sign agreements to make “voluntary” repayments of cash register shortages. The Court held that such agreements were not voluntary and that such deductions are illegal to the extent that they reduce an employee’s wages below minimum wage for the pay period in question. The Court had the following observation; however, regarding the difference between making deductions to cover cash register shortages, which violates the FLSA if the wage goes below the minimum wage, and deductions to cover money wrongfully taken by the employee himself or herself:

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SALARY DEDUCTION “… If the agreement required only repayment of money that the employee himself took or misappropriated, it obviously would not collide with the Act. As a matter of law, the employee would owe such amounts to the employer, and as a matter of fact, the repayment of moneys taken in excess of the money paid to the employee in wages would not reduce the amount of wages…In such a case, there would be no violation of the Act because the employee has taken more than the amount of his wage and the return could in no way reduce his wage below the minimum… “ The Fifth Court ruling has never been questioned in a published court opinion; on the contrary, a number of cases around the country have expressly supported it (see Brennan v. Veterans Cleaning Service Inc., 482 F.2d 1362, 1369 (5th Cir. 1973); Conklin v. Joseph C, Hofgesang Sand Co., Inc. 407F. Supp. 1090, 1093 (W.D. Kentucky 1975); and Marshall v. Hendersonville Bowling Center, 483 F.Suppl 510, 516 (M.D. Tennessee 1980). Of course, the employer’s ability to require payment of misappropriated money would depend directly upon its ability to prove that the employee was, in fact, guilty of taking the money. A further cautionary note would be that this rule would apply only in the case of misappropriated money; no court has suggested it would apply to misappropriated materials, supplies, equipment, or other similar assets that might belong to a company.

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SALARY DEDUCTION Miscellaneous FLSA Deduction Problems Common types of deduction made by employers that violate the FLSA by when they take an employee’s pay below minimum wage: Deduction to cover the cost of tools and safety equipment; Uniforms that are furnished as a convenience to the employer and are a condition of employment and required for the job; Disciplinary deductions (such as fines for tardiness, rule violations, or poor work; Deductions to cover the cost of items lost or damaged by the employee; and Deductions to cover ordinary cash register shortages not caused by some type of misappropriation. Deductions from Salaries of Salaried Exempt Employees- If you determine that the employee is exempt, the FLSA severely restricts your ability to make deductions for absenteeism. The general rule under the FLSA is that salaried exempt employees must be paid their full salary for any week in which they perform any work, regardless of the number of hours actually worked, but they need not be paid for any workweek in which they perform no work at all. Human resource professionals should be certain that their company has absolutely no policies or practices which authorize the imposition of disciplinary deductions of less than one week in the pay of exempt employees.

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SALARY DEDUCTION Exceptions general rule: Does not apply in the initial and terminal week of employment. Employer may prorate the salary in full days for the days actually worked. When the employer has a bona fide paid sick and disability leave plan for employees, but the salaried exempt employee has not worked long enough to qualify for the leave or has exhausted the leave available. In these cases, an employer can take a deduction when the deduction is for a day or more. The worker must be paid for the entire day for any partial days worked. The employee need not be paid for days when he his absent due to personal reasons unrelated to sickness or accident. Once again, the worker must be paid in full for any partial days he works, but in this case, the law does not require the employer to have a paid leave plan in place before making the deduction. For example, if company policy does provide vacation leave but requires prior management approval for its use, the employer can dock the employee’s pay for a whole day’s absence even when sufficient vacation pay is available to cover that day.

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SALARY DEDUCTION In Klein v. Rush-Presbyterian, 990 F.2d 279 (7th Cir. 1993), a salaried professional registered nurse who would have otherwise been exempt under the FLSA, was found to be a non-exempt employee because of the employer's compensation plan. The plan included a comp time policy and disciplinary procedures which imposed unpaid suspensions. The employer's policy included a provision that for every hour an employee was late or left early, they were required to use an hour from their comp time bank or go into negative comp time. The plaintiff was docked for disciplinary suspensions related to the quantity and quality of work, not for reasons related to safety issues. The court held that negative comp time is similar to docking an employee's pay. Another significant factor in the court's decision was that, as a matter of law, she was in reality an hourly employee because she was subject to unpaid disciplinary suspensions for minor infractions.

The FLSA specifically prohibits deductions from the pay of salaried exempt workers for: Jury duty Witness duty Temporary military leave

However, employers may offset against the salary any jury duty fees, witness fees, or military pay received by the worker. Also, the general rule applies that if no work is performed all week, no salary is due to the employee for the week.

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COMPENSABLE VS NONCOMPENSABLE TIME Time Worked Chart: DURING REGULAR WORKING HOURS: COMPENSABLE: Coffee and snack breaks of 20 minutes or less Fire drills Meal periods if employee is not relieved of duties, if not free to leave post or if too short to be useful (less then 30 minutes) Meal periods of 24-hour on-call employees Medical attention on plant premise or if employer directs outside treatment Meetings to discuss daily operations Principal duties Rest periods of 20 minutes or less Retail sales product meetings sponsored by employer Show-up time if employees are required to remain on premise before being sent home Stand by time-remaining at post during lunch period or temporary shut down Travel: (Rule of thumb – employee’s day stars when he gets to work) From job site to job site From work site to outlying job All away from home overnight travel Special one-day assignments in another city for the benefit of the employer (exclude travel time to airport, bus terminal, etc., and meal time) From preliminary instructional meeting to work site 41

COMPENSABLE VS NONCOMPENSABLE TIME Waiting: By homeworker to deliver or obtain work By truck driver standing guard while loading For work after reporting at a required time While on duty NONCOMPENSABLE: Absence for illness, holiday or vacation (several exceptions) Apprentices doing nonregular or nonproductive work under formal agreement Meal periods of 30 minutes or longer if relieved of all duties and free to leave post (but can be confined to plant premises) Shutdown for regular maintenance Union meetings concerning solely internal union affairs Voting time (unless required by state law) Waiting time relieved of duty for a specified period of time that allows employee to engage in personal activity BEFORE, AFTER OR BETWEEN REGULAR WORKING HOURS: COMPENSABLE: Arranging or putting merchandise away Bank employees waiting for audit to finish Changing clothes, showering, or washing if required by the nature of the work (such as job with chemicals requiring bathing for worker’s health)

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COMPENSABLE VS NONCOMPENSABLE TIME Civic or charitable work if requested by employer or controlled by employer or if required to be performed on employer’s premises Clearing cash register or totaling receipts Discussing work problems at shift changes Equipment maintenance before or after shift Getting steam up in plant Homework under contract with employer Make-ready work, preparatory work necessary for principal activity On-call time if employee must stay on or near premise so as to have liberty restricted or not use time as pleases Photography and fingerprinting for identification purposes Travel time to customer on after-hour emergency NONCOMPENSABLE: Changing clothes, washing or showering for employee’s convenience Homework of which the employer has no knowledge Meal periods while on out-of-town business Medical attention by company doctor even if injury was at work (Note: not during work hours) Obtaining equipment from locker where lockers not recommended or required On-call time when only telephone number to be reached or other similar contact device is required so that the employee can come and go as pleases

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COMPENSABLE VS NONCOMPENSABLE TIME Opening plant and turning on lights and heat Pre-employment tests Retain sales meeting sponsored by manufacturer if attendance is voluntary Reporting early to promptly relieve prior shift Time between whistle and start of work Trade school attendance Training programs sponsored by employer if outside regular hours, attendance is voluntary, employee does no productive work while attending and program is not directly related to employee’s present job (as distinguished from teaching another job or additional skill) Travel time: Ordinary home-to-work site and return (even if employer provides transportation) From plant entrance to work site To and from dressing room From outlying job to home Unauthorized overtime if prohibited and without employer’s knowledge Voluntary attendance at government –sponsored safety meetings Voluntary attendance at industry meeting to keep abreast of technological change Waiting For paycheck At time clock To start work at designated time after arriving early

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COMPENSABLE VS NONCOMPENSABLE TIME In Reich v. Monfort, Inc., 144 F.3d 1329 (1998), the Tenth Circuit held that 10 minutes per day of pre-shift and post-shift work that was regularly performed by all of the employees over the entire relevant period of time was not insignificant, and was therefore not de minimis. In Herman v. Rich Kramer Construction, Inc., No. 97-4308 (Sept. 21, 1998), the Eighth Circuit held that employees were entitled to overtime compensation for time spent traveling to and from their construction job sites, as well as for time spent at the shop before and after traveling, on the grounds that driving to the job site was a principal activity because there could have been no building construction without the tools, supplies, and employees that the foremen transported. As an alternative ground for concluding that the travel time was compensable, the court, relying on the Secretary's regulation, stated that the work day began when the employees reported to the shop, which they were required to do. In Herman v. Tradesmen International, Inc., No. 1:99 CV 2973 (N.D. Ohio 2000), the district court held that the ten-hour OSHA safety course that employees were required to attend after regular working hours was compensable as working time, in accordance with the Secretary's regulation at 29 C.F.R. 785.27(b), because it was involuntary. In Reich v. Southern New England Telecommunications Corp., 121 F.3d 58, (2nd Cir. 1997), the Department of Labor sought to recover back overtime pay and liquidated damages on behalf of the company's outside craft or "lunch carrying" employees. These employees are not paid by the company for time spent on lunch hours and the company does not record this time as hours worked, even though the company requires them to bring their lunch to work and remain at open outdoor sites during lunch, in order to secure the area, equipment and prevent public harm. The district court found that the company's restrictions on these workers resulted in their performing substantial duties predominantly for the employer's benefit and held the company liable for FLSA overtime violations during periods where they worked more than forty hours.

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COMPENSABLE VS NONCOMPENSABLE TIME On appeal, the employer argued that its restrictions imposed on these outside craft employees were insufficient to transform noncompensable meal time into compensable meal time. The appeals court reiterated that meal periods are compensable when employees perform duties predominately for the benefit of the employer. The appeals court noted that the workers were restricted to the site for the purpose of performing valuable security service for the company. The importance, indeed indispensability of these services is evidenced by the mandatory nature of the restrictions that surround the workers' lunch break. To be sure, the workers perform different services during meal breaks than throughout the rest of the day, but the workers' on-site presence is solely for the benefit of the employer, and in their absence, the company would have to pay others to perform those same services. The liability as a result of this holding was approximately $14,500,000. Daily Labor Report, August 4, 1997. The Fifth Circuit upheld a jury finding that the lunch time of maintenance workers at a meat-packing plant was predominantly for the benefit of the employer and thus must be compensated. The maintenance workers testified that they were required to wear their radios and tools during lunch, could not leave the premises during their breaks, and often had their lunches interrupted by maintenance problems requiring their immediate attention. Bernard v. IBP, Inc. of Nebraska, 154 F.3d 259 (5th Cir. 1998). In Paniagua v. City of Galveston, 995 F.2d 1310 (5th Cir. 1993), plaintiff was a Plant Mechanic Supervisor for the City of Galveston. This position required him to be on continuous standby. He was required to carry an electronic pager and be available to answer emergency calls. Except for vacation, he was on standby 24 hours a day. The City paid plaintiff five and one-half hours pay at time and one-half for this inconvenience. The plaintiff sued for all of his standby time at time and one-half.

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COMPENSABLE VS NONCOMPENSABLE TIME The Fifth Circuit Court of Appeals affirmed the magistrate's decision that the plaintiff's standby time was not compensable under the FLSA, even though the City agreed to pay five and one-half hours at time and one-half. The Fifth Circuit held that the key issue was whether the employee could use the on-call time effectively for his own purposes. The Fifth Circuit affirmed the magistrate's finding that the plaintiff was able to effectively use his standby time for his own purposes. Moreover, the fact that he was interrupted several times a week did not change the fact that he was able to attend movies, go to dinner and otherwise travel within a 30-mile radius. In Imada v. City of Hercules, 138 F.3d 1294 (9th Cir. 1998), police officers (who are required by state and local policy to regularly participate in training and instruction courses as part of their regular duties) sought compensation for travel which occurred prior to or after training conducted during the regular work shift. When they are required to report to the Department before attending a training exercise outside of the city, they are compensated for travel time to and from the Department. They are not compensated for travel time when they commute directly from their homes to training locations outside of the city. The issue is whether the FLSA requires compensation for direct home-to-training travel time for training located outside of the City of Hercules. The Ninth Circuit Court of Appeals affirmed the trial court which found that the training was an essential component of the employee's duties and noted that DOL regulations require compensation for training which is integral to the officer's employment. The court however, found no exception to the Portal-toPortal Act would apply under these circumstances because the parties never reached any agreement regarding payment for commuting to training, and there was no evidence of any prior custom or practice for compensating employees for home-to-training travel time. The court also found that the employees were given notice of the need to periodically travel to outside training sites and that they would do so in the "normal" course of their employment. The court held that the employees' home-to-training travel time is "normal" commute time as conceived under the Portal-to-Portal Act and not compensable under the FLSA.

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COMPUTING OF OVERTIME ™ Do sick leave, vacation, holidays, or other such absences count towards the number of hours worked? 9 No. Overtime need only be paid for all hours actually worked in excess of 40 in a week. This is the case even if the sick day (vacation, holiday, snow emergency day, etc.) is paid. However, some collective bargaining agreements do call for calculating sick days as compensable working time, and the employer must follow the terms of such an agreement.

™ We have an employee who is on jury duty. While we have agreed to pay for the first five days of such duty, she was out for three weeks. When she found out that she would be gone that long, she reported to the judge that this would be a “hardship.” The judge replied that the company “had to pay for all of the time she spent of jury duty” and that if we (the company) “gives you a hard time, report them to me and I’ll take care of it.” That is neither right nor fair, is it? What could he do to us? 9 It is neither right, lawful, or fair and he can do nothing to you. An employer in all states except Massachusetts, Alabama, Colorado, Connecticut, Nebraska, and New York (which require payment of regular wages for the first three, five or ten days) has but one obligation to an employee on jury duty and that is to hold the job open for as long as the jury duty lasts. Parenthetically, the same principles apply to witness duty. Most judges are quite fair, but they are increasingly under the gun to manage the unmanageable, their court calendars. With so many claiming hardship, it is becoming difficult to find a sufficient number of jurors. Because of this, there are some courts which will not even accept sole ownership of a business as a hardship!

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COMPUTING OF OVERTIME ™ How are vacation pay, sick pay, holiday pay computed and when are they due? 9 The FLSA does not require payment for time not worked, such as vacations, sick leave or holidays (Federal or otherwise). These benefits are matters of agreement between an employer and an employee (or the employee's representative).

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SUMMARY OF TEXAS PAYDAY LAW HISTORY Effective January 1, 1990, the Texas Employment Commission (now part of the Texas Workforce Commission) was given a mandate to receive and adjudicate wage claims. The current provisions of the Texas Payday Law are found in Chapter 61 of the Texas Labor Code; those provisions differ greatly from an earlier statute which contained virtually no enforcement procedures. Both employees and employers should be aware of the law so they will know the rights and responsibilities which are conferred on them by the law.

PROCEDURE Except for public employers, all Texas business entities, regardless of size, are covered by the Texas Payday Law. Other than close relatives and independent contractors, all persons who perform a service for compensation are considered employees. An employee who feels that he or she has not been paid all wages earned may file a complaint with the Texas Workforce Commission (TWC). Complaint forms may be obtained from local TWC offices, or upon request through the mail, through our agency website, or by calling 1-800-832-9243 /TDD 1-800-735-2989. The completed form, along with any information necessary to support the claim, must be mailed to TWC at the address shown on the complaint form. The complaint must be signed, and the signature of the claimant must be verified by a Notary Public or by any employee of TWC. A wage claim must be filed no later than 180 days after the date the claimed wages originally became due for payment.

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SUMMARY OF TEXAS PAYDAY LAW PROCEDURE (continued) Upon receipt of a wage claim, TWC notifies the employer of the claim by sending the employer a copy of the wage claim and a form on which to furnish the employer's response. An investigator from TWC's Labor Law Department, using the information furnished by the employee and the employer, along with any additional information that the investigator feels to be essential, issues a written decision [Preliminary Wage Determination Order (PWDO)] as to whether wages are due, and if so, the amount due. Either party dissatisfied with the PWDO may appeal that ruling to the Special Hearings Department. Requests for hearing must be made in writing no later than the 21st day after the PWDO is mailed to the parties by the Commission. This time limit is mandatory. Appeal hearings are usually held by telephone conference call; any party may present witness testimony and submit documentary evidence. The testimony in an appeal hearing is taken under oath, and the entire proceedings are recorded on audio tape. After testimony is concluded, the hearing officer renders a written order for the payment of wages, or a finding that no wages are due. This decision states the amount of wages due, if any, any penalty that has been assessed, and advises the parties of their right to judicial review. Either party dissatisfied with the results of the hearing may file a written motion for rehearing. This motion must be filed within fourteen days after the date on which the decision was mailed. Again, compliance with this time limit is critical, because unless a motion for rehearing is filed or the Commission reopens the hearing, the order becomes final after fourteen days.

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SUMMARY OF TEXAS PAYDAY LAW PROCEDURE (continued) Within thirty days after a final order of the Commission is mailed, either party may file for judicial review in a court of competent jurisdiction. In the petition for judicial review, the Commission and all parties to the proceedings before the Commission must be made parties to the suit. Again, note that the 30-day time limit is critical. If the appeal for judicial review is filed late, the court will have no jurisdiction to hear the case. This action must be brought in the county of the claimant's residence; if the claimant is not a resident of Texas, the action must be brought in the county in Texas where the employer has its principal place of business. If the final order of the Commission requires the payment of wages or a penalty, the party must either deposit into a TWC escrow account the total amount ordered to be paid, or file with the court a timely affidavit of inability to pay. The money deposited is placed in an interest-bearing escrow account to be disbursed at the conclusion of the judicial process, with the interest being paid to the prevailing party.

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SUMMARY OF TEXAS PAYDAY LAW RIGHTS, DUTIES AND OBLIGATIONS Each employee who is exempt from the overtime provisions of the federal Fair Labor Standards Act (FLSA) must be paid at least once a month. Other non-exempt employees must be paid at least twice a month. Semi-monthly pay periods must consist as nearly as possible of an equal number of days. Within those limitations, an employer may designate any paydays he/she chooses. Notices indicating the paydays must be posted in conspicuous places in the workplace. If an employer does not designate paydays, the employer’s paydays are the first and 15th of each month. If an employee quits, she/he must be paid in full at the next regular payday. If an employee is terminated, he/she must be paid in full within six days. If an employee is not paid on a payday for any reason, including the employee’s absence, the employer shall pay those wages on another business day as requested by the employee.

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SUMMARY OF TEXAS PAYDAY LAW PAYMENT OF WAGES The kinds of payments subject to the Texas Payday Law include: compensation for services rendered regardless of how the are computed, commissions and bonuses according to the agreement between the parties, and certain fringe benefits due under a written agreement with or policy of the employer. Expense reimbursements, gratuities, gifts and the like are not considered wages and are not covered by the Texas Payday Law. Unless an employee agrees in writing to accept part or all of his/her wages in kind, or in another form, wages must be paid in the United States currency, a written instrument negotiable on demand at full face value for United States currency, or by electronic transfer of funds. Wages must be delivered to the employee at her/his regular place of work during working hours, mailed by registered mail to be received by the employee not later than payday, or by any reasonable means, or to any person authorized in writing by the employee.

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SUMMARY OF TEXAS PAYDAY LAW DEDUCTIONS FROM WAGES The employer may not make deductions unless ordered to do so by: a court of competent jurisdiction (as in court-ordered child support payments), authorized to do so by state or federal law (as in IRS withholding), or authorized in writing by the employee, and then only for a lawful purpose. The latter category is one that causes many problems. Authorizations that are too general or too broad may not be given effect. Deductions for out-of-pocket loans to an employee, even though there is an oral agreement to repay, or even to repay out of a particular wage payment, will not be allowed, unless the deduction is authorized in writing. Employers must be care to get a proper written authorization before making a payroll deduction.

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SUMMARY OF TEXAS PAYDAY LAW BOND TO SECURE WAGE PAYMENTS The Commission may require an employer to deposit a bond if the employer is convicted of two violations of the act or if a final order of the Commission remains unpaid after the 10th day after the order has become final and no appeal is pending. The bond must be in an amount set by the Commission; it must guarantee the payment of any sum recovered against the employer under this act, and that the employer, for a period of up to three years, will pay the employees in accordance with the Texas Payday Law. Because of the high cost of such surety bonds, the requirement that an employer furnish such security could well cause the failure of a business. Additionally, failure to deposit the bond required could result in an order from a court that the employer cease doing business until the bond is furnished.

COLLECTIONS When an order for an employer to pay money to the Commission for the use and benefit of an employee has become final, the law allows for administrative liens and bank levies. The Commission may assign the administrative lien to the claimant at the claimant's request. The Commission may enforce, by any of these collection methods, an order against a party who has filed for judicial review without depositing the ordered amount into escrow or filing an affidavit of inability to pay.

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SUMMARY OF TEXAS PAYDAY LAW PENALTIES If the Commission determines that an employer acted in bad faith in not paying wages as required by the statute, the Commission may assess an administrative penalty against the employer in the amount of the wages claimed or $1,000, whichever is lesser. Penalties in the same amount may be assessed against an employee who files a wage claim in bad faith. An employer commits an offense that is a third degree felony if the employer hires or intends to continue to employ an employee with the intent to avoid payment of wages owed to the employee and if the employer fails after demand to pay those wages. Be Aware of What Might Trigger a Payday Law Wage Claim The Texas Payday Law has strict guidelines for wage payments. An employee may have a valid payday claim against an employer who: Refuses to pay employees any fringe benefits (vacation pay, severance pay, etc.) promised in writing Withholds or deducts from a paycheck any amount of money without specific, written authorization from the employee Makes payroll deductions to compensate for a mistake in pay without the employee’s written authorization Makes salary cuts without first notifying employees Withholds promised commissions or charges employees for unearned commissions without employee’s written authorization Refuses to pay non-exempt employees time and one-half for overtime Pays non-exempt employees a salary that equals less than the minimum wage because of the number of hours worked.

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SUMMARY OF TEXAS PAYDAY LAW Be Aware of What Might Trigger a Payday Law Wage Claim (continued) Fails to pay a fired employee within six calendar days after dismissal Fails to pay an employee who quits by the next regularly scheduled payday Fails to pay exempt employees at least once a month, and nonexempt employees at least twice a month Gives a paycheck to a person other than the employee without prior written authorization from the employee Requires wages payment by electronic funds transfer (EFT) even if the employee objects The Message is Clear Get it in writing. Without an employee’s written permission for payroll deductions, employers face potential payday law wage claims. These mistakes can cost a company time and back wages owed, and if it is determined an employer acted in bad faith in not paying wages, a penalty of up to $1,000 can be assessed. If TWC finds the employee filed a wage claim in bad faith, he or she may also be assessed a penalty. So what if you everything right, but you still receive a wage claim notice? Read this guide again, then call this number if you have any questions: 1-800-832-WAGE Read and Reread a Wage Claim Notice If you receive a wage claim notice, don’t panic. Read it closely to find out exactly what the employee is alleging. Check the “date mailed” on the form. The law gives you 14 days from this date to respond. This is critical. Do not miss this deadline.

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RECORDKEEPING POSTING: Employers must display an official poster outlining the provisions of the Act in “conspicuous places” where the affected employees can readily observe it in their way to and from work. The poster is available at no charge at local offices of the Wage and Hour Division, by calling the tollfree number (1-866-4USWAGE) 1-866-487-9243, or downloaded at http://www.dol.gov/dol/osbp/public/sbrefa/ poster/main.htm.

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RECORDKEEPING

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RECORDKEEPING

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RECORDKEEPING REQUIRED RECORDS: Every covered employer must keep certain records for each non-exempt worker. The Act required no particular form for the records, but does require that the records include certain identifying information about the employee, data about the hours worked, and the wages earned. The basic records required are: Employee’s full name and social security number Address, including zip code Birth date, if younger than 19 Sex and occupation Time and day of week when employee’s workweek begins Hours worked each day Total hours worked each workweek Basis on which employee’s wages are paid (ex. $6 an hour, $220 a week, piecework, etc.) Regularly hourly pay rate Total daily or weekly straight time pay Total overtime earnings for the workweek All additions to or deductions from the employee’s wages Total wages paid each pay period Date of payment and the pay period covered by the payment

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RECORDKEEPING TIMEKEEPING: Employers may use any timekeeping method they choose. For example, they may use a time clock, have a timekeeper keep track of employee’s work hours, or tell their workers to write their own time on the records. Any timekeeping plan is acceptable as long as it is complete and accurate. If your employee is on fixed schedules that seldom vary, you may record the time schedule that is followed and indicate that the employee did follow the schedule. Only exceptions would have to be maintained.

RECORD RETENTION: Payroll records - at least 3 years Collective bargaining agreements – at least 3 years Sales and purchase records - at least 3 years Supplemental basic records (time cards, piece work tickets, wage rate tables, work & time schedules, and records of additions & deductions from wages – 2 years These records must be open for inspection by the Wage and Hour Division’s representatives and kept at the place of employment or in a central records office. Records maintained at a central records office must be made available to the representative within 72 hours following notice.

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CONTACTS FOR ASSISTANCE Helpful material Office of Small Business Programs (OSBP) (202) 219-9144 or 1-888-9-SBREFA (This is the central contact point for the DOL to make available pamphlets, handbooks, & other compliance material.) Local DOL Offices (see attached list of district office locations by region incl. addresses, phone number and contact person) Internet – http:/www/dol.gov/ Small Business Administration (SBA) – call (800) 827-5722 for the office near you (offers compliance guides for new regulations) Compliance Advise Local or Regional DOL Offices OSBP @ 1-888-9-SBREFA Registering a Complaint about DOL Enforcement SBA Ombudsman and SBA Regional Small Business Regulatory Fairness Board - Mail complaints to: Ombudsman, 500 W. Madison Street, Suite 1240, Chicago, IL 60661. (This board was established by the SBA to address written, signed complaints about DOL enforcement actions. Note: any obligation you might have to comply with the enforcement or compliance actions by the DOL is not affected by the filing of your comments and this filing is not a substitute for any legal option you believe are in your best interest.

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CONTACTS FOR ASSISTANCE Recovering Legal Fees and Expenses SBREFA expands the ability of small businesses to recover legal costs under the Equal Access to Justice Act (EAJA) by allowing small businesses to recoup legal expenses when the government seeks unreasonably high penalties in certain types of cases. Finding Out What New DOL Regulations Are Being Considered DOL publishes a Semi-annual Regulatory Agenda of regulations what will significantly affect a substantial number of small businesses that are scheduled for review or development. For a copy, call the Superintendent of Documents, U.S. Government Printing Office at (202) 5121800 or download it from their website at http://www.dol.gov/dol/public/regs/agenda.htm Contact List for the U.S. Department of Labor (DOL) For information about minimum wage laws, overtime, child labor law, and for questions about wages or hours, call the nearest U.S. Department of Labor Regional Wage/Hour Office Albuquerque (El Paso, Midland) Dallas (includes Panhandle, East Texas, Fort Worth) Houston (includes Beaumont, Southeast Texas) San Antonio (includes Austin and Central and South Texas)

(505) 248-5115 (214) 767-6294 (713) 339-5500 (210) 308-4515

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CONTACTS FOR ASSISTANCE Discrimination cases and Equal Employment Opportunity laws, contact the Texas Commission on Human Rights Regional EEOC offices • Dallas • El Paso • Houston • San Antonio • Americans with Disabilities Act Hotline – EEOC

(800) 669-3362 (800) 669-4000 (214) 655-3355 (915) 534-6550 (713) 209-3320 (210) 281-7600 (800) 949-4232

For Workers’ Compensation Insurance rates, contact Deputy Commissioner of Workers’ Compensation or Texas Department of Insurance

(800) 578-4677 (512) 322-2386

For Workers’ Compensation Claims, laws and responsibilities, call

(800) 372-7713 (512) 804-4000 (512) 804-4636 (512) 804-4700

Workers’ Compensation Commission or for specific employer information Workers’ Compensation Fraud

Small Business: Department of Economic Development, Office of Small Business Assistance TDD or

Plant closing law: Texas Workforce Commission

(800) 888-0511 (512) 936-0555 (800) 735-2989 (512) 936-0399

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CONTACTS FOR ASSISTANCE For information about your TWC tax account Rates Section Quarterly Reports New Employer Section Chargeback Unit TWC Posters

(512) 463-2887 / (512) 463-2756 (512) 463-2749 (512) 463-2731 (512) 463-2999 (512) 463-2747

Tax information online: http://www.twc.state.tx.us/ui/tax/emtaxinfo.html

Other helpful TWC numbers Economic Research & Analysis (Labor Market Information) Alien Labor Certification Ombudsman Public Information Office

(512) 491-4922 (800) 252-9924 (512) 463-2236 (512) 463-8942

Locating a specific federal governmental agency Referral Service for Federal Governmental Agencies

(800) 688-9889

The Governor’s Office Ombudsman (800) 252-9600 Governor’s Commission on People with Disabilities (ADA Questions) (512) 463-5739 TDD (512) 463-5746

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CONTACTS FOR ASSISTANCE US DEPARTMENT OF LABOR – EMPLOYMENT STANDARDS ADMINISTRATION, WAGE & HOUR DIVISION Federal Law requires: Fair Labor Standards Act Employee Polygraph Protection Act Family & Medical Leave Act of 1993 (all three are available on the World Wide Web at http://www.dol.gov/dol/osbp/public/sbrefa/poster/main.htm)

US DEPARTMENT OF LABOR – OCCUPATIONAL SAFETY & HEALTH ADMINISTRATION (OSHA) Federal Law requires: Job Safety & Health Protection (available online at http://www.osha.gov) OSHA area office in Texas:

City Austin Corpus Christi Dallas El Paso Fort Worth Houston (North) Houston (South)

Phone (512) 916-5783 (361) 888-3420 (214) 320-2400 (915) 534-6251 (817) 428-2470 (281) 591-2438 (281) 286-0584

Fax (512) 916-5793 (361) 888-3424 (214) 320-2598 (915) 534-6259 (817) 581-7723 (281) 591-1058 (281) 286-6352

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CONTACTS FOR ASSISTANCE U.S. EMPLOYMENT OPPORTUNITY COMMISSION Discrimination Act and Civil Rights Act requires: Equal Employment Opportunity is the Law

(800) 669-4000

American with Disabilities Act of 1990

TEXAS WORKERS COMPENSATION COMMISSION State Law requires: (512) 804-4000 (512) 804-4636 Do or Do not Carry Worker’s Comp Insurance How Employees can Report Workplace Safety Violations

TEXAS WORKFORCE COMMISSION

(512) 463-2747

State Law requires: Texas Unemployment Compensation Texas Payday Law New business only: “Employer Information Packet”

(800) 832-9394 (512) 463-2731

TEXAS COMMISSION ON HUMAN RIGHTS

(512) 437-3450

Optional state poster: The Law in Texas Required poster for Governmental Employers ATTORNEY GENERAL’S WHISLE BLOWER ACT

(800) 337-3928

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The End