THE FAIR LABOR STANDARDS ACT: THE TIME BOMB OF OVERTIME

by W. Gary Fowler JACKSON WALKER, LLP 901 Main Street, Suite 6000 Dallas, Texas 75202 (214) 953-5922 [email protected]

July 17 and 18, 2002 Jackson Walker Labor and Employment Seminar

THE FAIR LABOR STANDARDS ACT: THE TIME BOMB OF OVERTIME W. Gary Fowler1 I.

Background.

The Fair Labor Standards Act (FLSA or “the Act”) establishes fair labor standards for employment affecting interstate commerce by regulating the hours and wages of employees. 1 Employers subject to the Act must pay their non-exempt employees certain minimum wages and overtime pay. Since the FLSA does not preempt local wage and hour laws,2 Texas employers must also comply with the state’s wage payment laws, including, for example, the Texas Payday Law.3 The FLSA imposes five duties on employers with respect to non-exempt employees: 1. 2. 3.

4. 5.

To pay at least the minimum wage to non-exempt employees; To pay an overtime premium (at least one and a half times the regular rate of pay) for all hours worked over 40 in a workweek; To pay men and women the same amount for equal work on jobs which require equal skill, effort and responsibility, and which are performed under similar working conditions; To maintain certain child labor standards; and To maintain specified payroll records.

This paper broadly discusses what and who is covered, exemptions from coverage, minimum wage, equal pay and overtime requirements, record keeping requirements, methods of enforcement, and damages available under the Act. II.

Coverage of the Act. A.

What Is Not Covered Under the FLSA.

While the Act generally regulates wages or pay, it does not regulate the following areas: 1. 2. 3. 4.

Overtime for weekend or holiday work; Vacation, holiday, severance, and sick pay; Rest periods, holidays off, and vacation time; or Pay raises and fringe benefits.

1

W. Gary Fowler is Board Certified, Labor and Employment Law, Texas Board of Legal Specialization. He received his Bachelor of Arts, summa cum laude, from Texas Christian University in 1981, and his Juris Doctor from Yale Law School in 1984. He is a partner in the Labor and Employment Section of Jackson Walker L.L.P. He represents employers in all areas of labor and employment law.

-1© 2002 Jackson Walker L.L.P. All rights reserved.

B.

Who Is Covered Under the FLSA. 1.

The Employment Relationship.

Before an individual may assert rights under the FLSA, a bona fide employment relationship must exist.4 For purposes of determining whether this relationship is present, the terms “employer” and “employee” are broadly defined. The Act defines an “employer” as any individual or entity directly or indirectly acting in the interest of an employer in relation to an employee.5 The term “employee” encompasses any individual employed by an employer.6 These definitions are not so broad, however, as to include persons who work for their own advantage such as independent contractors, trainees, or volunteers. The key to determining whether one is an employee or an independent contractor is the content or requirements of the activity, and not merely the job title. The determination of whether one is, in fact, an employee is made using the “economic realities test” where a number of factors, including the following, are considered:7 i)

ii)

iii)

iv)

v)

vi)

vii)

viii)

How much control does the worker have over the manner in which the work is to be performed? The more autonomy the worker has, the more likely the worker will be classified as an independent contractor. To what degree does the employer determine the worker’s opportunity for profit and loss? The more control the employer exercises, the more likely the worker will be classified as an employee. Is a high degree of skill, training and independent initiative required to perform the work? If so, the more likely the worker will be classified as an independent contractor. Is the working relationship unlimited or limited in duration? The longer the duration of the relationship, the more likely the worker will be classified as an employee. Is the working relationship exclusively for the employer? The less exclusive the relationship with the employer, the more likely the worker will be classified as an independent contractor. Is the work an intricate part of the employer’s business? If so, the more likely the worker will be classified as an employee. To what extent is the worker’s investment in equipment or materials required for the task? If the worker contributes in large part to these expenses, the more likely the worker will be classified as an independent contractor. To a lesser extent, the courts consider the parties’ intent and contractual designation of the relationship, but such -2-

factors do not carry the same weight as the other factors discussed above. 8 2.

The Interstate Commerce and Enterprise Standards.

After existence of an employment relationship is determined, one of the following general standards must also be met for there to be coverage under the FLSA: i) ii) iii)

III.

The employee must be engaged in work that involves interstate commerce; The employee must be engaged in the production of goods for interstate commerce; or The employee must be employed by an “enterprise” engaged in interstate commerce. The threshold definition of an “enterprise” engaged in interstate commerce recently has been changed to include any employer whose annual gross sales exceeds $500,000. 9

Overtime Requirements.

Generally, the FLSA requires that “non-exempt” employees be paid overtime compensation when they work more than 40 hours in a work-week. A “work-week” is defined under the FLSA as a seven consecutive day period (168 consecutive hours). The work-week may begin at any time on any day of the week. When a non-exempt employee works more than 40 hours in this 168 consecutive hour period, he or she must be compensated at a rate of 1 and ½ times his or her regular rate of pay. However, employers engaged in the operation of a hospital or similar institution which is an institution primarily engaged in the care of the sick, the aged, or the mentally ill or defective who reside on the premises may use a work period of 14 consecutive days in lieu of the workweek of 7 consecutive days for purposes of overtime computation. The 14 day work-week can be used where: 1.

Prior to the employee commencing work, the employee and the employer reached an agreement that a work period of 14 consecutive days in lieu of the work-week of 7 consecutive days would be used for purposes of overtime computation;

2.

The employee is paid overtime for each hour he or she works in excess of eight hours per day in any work day;

3.

The employee is paid overtime compensation at a rage of 1 ½ times the employee’s regular rate for each hour he or she works in excess of 80 hours in the 14 day work period. -3-

IV.

Exemptions from Minimum Wage and/or Overtime Requirements.

The FLSA exempts various “white collar” occupations and other categories of employees from the minimum wage and/or overtime requirements. It does not, however, specifically exempt “managers” and “supervisors”, nor does it exempt all salaried employees. The “white collar” exemption applies to those “employed in a bona fide executive, administrative, or professional capacity.”10 For executive, administrative and professional employees, there are two possible methods of qualifying for the exemption: the standard, or “long” test, and the short test. 11 Also, under the Small Business and Job Protection Act, certain computer professionals who are paid at least $27.63 per hour are exempt from the FLSA’s overtime requirements.12 The courts interpret the exemptions from the FLSA minimum wage and overtime requirements strictly in accordance with the technical definitions given for them in the Act.13 Because the employer bears the burden of proving the applicability of any exemption claimed under the Act, and the rules governing such exemptions are complex and subject to change, an employer should seek legal advice concerning the applicability of exemptions for which they have doubt. The following are among the more commonly used exemptions: A.

Executive Employees.

An employee qualifies for an executive exemption under the standard test if the employee receives a salary and the employee: 1. 2. 3. 4. 5.

Has a primary duty to manage; Directs the work of two or more other employees; Has the authority to hire or fire other employees; Customarily and regularly exercises discretionary powers; and Devotes at least 80% of his or her hours of work to activities described above (60% for employees in retail or service establishments).14

The “short” test can be used if the employee receives a salary of at least $250 per week. Such an employee will be deemed to qualify for an executive’s exemption if his or her primary duty consists of the management of the enterprise or a department thereof and includes the customary and regular direction of work of two or more employees.15 B.

Administrative Employees.

An employee qualifies for an administrative exemption under the standard test if the employee receives a salary and the employee: 1.

Performs office or non-manual work directly related to management policies or general business operations, or performs administrative functions in an educational setting; -4-

2. 3.

4.

Customarily and regularly exercises discretion and independent judgment; Regularly and directly assists a proprietor or one employed in an executive or administrative capacity, or performs technical work or special assignments under only general supervision; and Devotes at least 80% of his or her hours of work to activities described above (60% for employees in retail or service establishments).16

Under the short test an employee who is compensated on a salary or fee basis at a rate of not less than $250 per week and whose primary duty is performing office or non-manual work which is directly related to the management policies or general business operations of the employer or its customers qualifies for an administrative employee exemption.17 C.

Professional Employees.

An employee qualifies for a professional exemption under the standard test if the employee receives a salary and the employee: 1.

2. 3. 4.

Has a primary duty that consists of work that requires advanced scientific knowledge or learning acquired by a prolonged course of specialized intellectual instruction, or work that is original and creative in a field of artistic endeavor, or teaching, tutoring, instructing or lecturing; Engages in work requires that the consistent exercise of discretion and judgment; Engaged in work that is predominantly intellectual and varied in character; and Devotes at least 80% of his or her hours of work to activities that are an essential part of and necessarily incident to the work described above. 18

Under the short test, an employee who is compensated on a salary basis of $250 per week or more will be deemed an exempt professional employee if his primary duty consists of the performance of work requiring knowledge of an advanced type in a field of science or learning, including work requiring the consistent exercise of discretion and judgment or work requiring expertise in a recognized field of artistic endeavor. 19 D.

Outside Salesmen.

An outside salesman is exempt from the overtime requirements if he or she: 1.

2.

Is customarily and regularly engaged away from the employer’s place of business making sales or obtaining orders or contracts for services or for the use of facilities; and Does not spend more than 20% of his or her time performing work that could normally be performed by nonexempt employees.20

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E.

Certain Computer Professionals Exempt from Overtime Provisions.

As a departure from the other FLSA exemptions, certain computer professionals can be exempt even though they may be paid on an hourly basis. An employee engaged in the computer field may be exempt from the Act’s overtime provisions if the employee is paid not less than $27.63 per hour (or, if paid on a salary basis, $170 per week) and performs such duties as: 1. 2. 3.

The application of systems analysis techniques; or The design, development, documentation analysis, creation, testing or modification of computer systems or programs; or The design documentation, testing, creation, or modification of computer programs related to machine operating systems, etc.

This exemption normally is applied to Systems Analysts, Programmers, Software Engineers, and similarly skilled individuals provided they perform the above duties and are paid the requisite wage.21 F.

Student-Learners.

A student-learner is an employee who is at least sixteen years of age, or at least eighteen if employed in a hazardous occupation, who is receiving instruction in an accredited school, college, or university and who is employed on a part-time basis. An employer may pay studentlearners at wages below the applicable minimum wage if the employer obtains a certificate from the Wage and Hour Division’s Regional Office authorizing payment of sub-minimum wages. Before the Wage and Hour Division will issue the certificate, the employer must show the following conditions are met: 1. 2. 3. 4. G.

The training program is a bona fide vocational training program; The employment of the student-learner is necessary to prevent curtailment of opportunities for employment; The employment of the student-learner will not have the effect of displacing a worker employed in the establishment; and The number of student learners to be employed in one establishment is not more than a small proportion of its work force. 22

Other Exemptions.

There are many other exemptions from the FLSA minimum wage and/or overtime requirements. Some of these exemptions include certain: 1. 2. 3. 4.

Employees of amusement or recreational establishments; Fish processing and canning employees Agricultural workers; Employees of motor vehicle common carriers or of contract or private motor carriers; -6-

5. 6. 7. 8. V.

Rail and air carrier employees; Domestic servants; Employees of forestry and logging operations; and Newspaper deliverymen and employees of small circulation newspapers. 23

Losing the Exempt Status of an Employee.

You’ve seen it time and time again. An employee is placed on salary as a measure of the employer’s trust, respect and confidence. The relationship goes well for awhile, but then, for whatever reason, the employee becomes dissatisfied. He begins to miss work regularly, each time for illness or some other personal reason, but never for anything more serious than an upset stomach, a sore throat, headaches, a 24-hour bug, etc. The employee exhausts his sick and vacation leave, but still takes unscheduled time off and expects you to pay his full salary. This problem of leave abuse has become pervasive throughout the United States. A recent survey by CCH, Inc. revealed that less than half of unscheduled absences are actually due to personal illness, and fourteen percent of these absences are caused by those who feel the employer “owes” them additional time off. While some workers humorously refer to these as Mental Heath days, they certainly do nothing to improve the employer’s state of mind. Its tempting to address this problem by docking the pay of the problem employee. After all, by continuing to pay the full salary, employers are actually rewarding bad behavior. However, these deductions are tricky at best, and in some cases, forbidden by Texas or federal law. Before considering the details of these types of deduction, employers should be forewarned: it is far safer to discipline salaried employees for excessive absences through warnings and write-ups than it its to take pay deductions. Questionable deductions can lead to wage claims through TWC and audits by the U.S. Department of Labor (DOL). If your company takes deductions inappropriately, DOL can remove the exempt status of some employees, and both TWC and DOL can impose penalties. If you decide to take this path, please tread carefully. A.

Deductions Under the Fair Labor Standard Act.

The first step in evaluating the feasibility of docking a salaried worker’s pay is determining whether the employee is exempt from the overtime provision of the federal Fair Labor Standards Act (FLSA). A salary alone does not make an employee exempt, and many salaried employees must be paid overtime when they work more than forty hours in a workweek. For example, many secretaries, clerical workers and lead production workers are paid on a salary basis, but the FLSA will requires employers to pay these employees overtime. Exempt employees are generally white collar professionals, executives and top level administrators. 1.

Salaried Exempt Employees. -7-

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 workers may not have their pay reduced because of variations in the quantity or quality of the work performed. These 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 need not be paid for any workweek in which they perform no work at all. The federal regulations also set out a number of exceptions to the general rule. First, the general rule does not apply in the initial and terminal weeks of employment. In these cases, the employer may prorate the salary in full day increments to pay only for the days actually worked. Second, there is an exception when the employer has a bona fide plan, policy or practice of providing paid sick and disability leave to its employees, but the worker either has not worked long enough to qualify for the leave or has exhausted the leave available to him. In this case, the regulations allow the employer to take a deduction when the absence is for a day or more. The worker must be paid in full for any partial days he works. For any days in which he has enough sick leave to cover part of the day, the employer may utilize that sick leave, but must also pay for the remainder of that day. To further complicate the situation, the Family and Medical Leave Act (FMLA) creates an exception to the exception just described. Employers may make partial day deductions without endangering a worker’s exempt status when the leave is under an FMLA intermittent or reduced leave schedule. A third exception to the general rule is that an employee need not be paid for days when he is 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 not 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. The FLSA specifically prohibits deductions from the pay of salaried exempt workers for absences caused by jury duty, witness duty or temporary military leave. However, employers may offset against the salary any jury fees, witness fees, or military pay received by the worker. In addition, the general rule still applies: if an employee performs no services at all for the entire work week, the employer does not owe the salary for that week. 2.

Salaried Non-Exempt Employees.

Salaried non-exempts generally fall into two categories: those who work a set number of hours for a weekly salary, and those who receive a set salary regardless of how few or how any hours they work. In both cases, the employees must be paid an overtime premium when they work more than forty hours in a week.

-8-

Those who receive a set salary for a predetermined number of hours must receive time and a half for overtime hours. The workers are treated very much the same as hourly workers and federal law does not prohibit employers from making deductions when the worker does not work the full number of hours agreed to. Those who receive a fixed salary for a fluctuating workweek are effectively paid only a half time premium for overtime hours, and deductions for working fewer hours would be, by definition, prohibited. No deductions for time missed from work may be made from these workers’ salaries. B.

Deductions Under the Texas Pay Day Act.

The Texas Pay Day Act prohibits employers from making any deductions from an employee’s wages unless it is ordered by a court, authorized by state or federal law, or authorized by the employee in writing. Commission rules clearly explain that the term “federal law” includes regulations promulgated by a federal agency, and the federal regulations do refer to certain deductions employers may make from the salaries of exempt employees. Therefore, from a literal reading of the law, it would appear that Texas employers do not need the written permission of the employee to make those deductions. However, some argue that the federal regulations do not, in fact, authorize employers to make those deductions, but merely describe the deductions employers may make without jeopardizing the exempt status of those employees. In addition, federal law does not specifically authorize deductions from the wages of salaried non-exempt workers. In fact, the federal regulations are generally silent on the issue, and neither prohibit nor authorize them. Therefore, it is open to interpretation as to whether an employer must get this employee’s written authorization to deduct, and it may depend upon each particular salary agreement. Some argue that the term “salary” implies that the employer is guaranteeing a certain wage per week, and therefore the employee must authorize any deductions. Others contend that an agreement calling for a particular salary for a set number of hours implies that the worker will have his pay prorated when he works fewer than those hours. Prudent employers will ask all salaried employees to authorize the appropriate deductions as a standard part of the hiring process. The authorization form does not have to be complicated, but is must give the employee a reasonable expectation of how much will be withheld, it must clearly state that the employee authorizes the employer to deduct the amount from his wages, it must describe the purpose of the deduction, and it must be signed by the employee. Of course, it would not be advisable to take deductions from the pay of a non-exempt workers employed on a “fluctuating hours for a fixed salary” basis. To do so would run the risk that the worker would file a wage claim asserting that he is really an hourly workers and is therefore entitled to full time-and-a-half for overtime hours, as opposed to the smaller payments called for under his hiring agreement. VI.

Minimum Wage. -9-

A.

Basic Requirements and Exceptions.

Beginning September 1, 1997, an employee covered by the FLSA may not be paid less than $5.15 per hour.24 This requirement is subject to exceptions for certain categories of workers for whom sub-minimum wage provisions apply. Such categories include certain full-time students, apprentices and handicapped employees; however, employers must obtain a certificate of exemption from the Secretary of Labor before paying these workers a reduced rate.25 B.

Tipped Employees.

In order to pay “tipped employees” (those who receive more than $30 per month in tips), the minimum wage an employer may credit the employee’s tips for up to $3.02 per hour. This figure represents the difference between the minimum hourly wage of $5.15 per hour and the minimum amount employers are required to pay “tipped employees,” $2.13 per hour.26 C.

The Opportunity Wage.

An employer may pay an “Opportunity Wage” of not less than $4.25 per hour to employees under the age of 20 during the first 90 consecutive calendar days of their employment.27 An employer may not reap the benefits of this provision by displacing or partially displacing employees to hire youths at the Opportunity Wage. Specifically, an employer may not reduce an employee’s “hours, wages, or employment benefits” to enable the employer to hire another employee at the Opportunity Wage.28 D.

Limitation on Deductions from Wages.

An employer is prohibited from deducting from employee’s wages for the cost of certain items if imposing the cost of these items on the employee would cause the employee’s net pay to fall below the minimum wage in any workweek.29 Examples of such deductions include the cost and cleaning of uniforms when the nature of the business requires the employee to wear a uniform, as well as the costs of tools and other materials incidental to carrying on the employer’s business. An employer may deduct from wages the cost of providing meals to employees as long as meals are customarily furnished by the employer and the cost imposed is reasonable.30 The reasonable cost of board, lodging, or other facilities may be considered part of the wages, as long as the benefits are customarily furnished and the employee voluntarily accepts the benefits.31 VII.

Equal Pay.

In addition to the minimum wage requirement, an employer must comply with the equal pay provisions of the Act which require that male and female workers receive equal pay for work which is performed under similar working conditions and which requires equal skill, effort, and - 10 -

responsibility.32 Key to this determination is understanding what is meant by the “regular rate” and by “hours worked.” VIII. Overtime Requirements. The FLSA requires that non-exempt employees be paid overtime compensation, at a rate of one and one-half-times the “regular rate” of pay, for all “hours worked” in excess of 40 hours in any workweek.33 A.

Defining the Regular Rate.

The regular rate is defined as the hourly rate actually paid to the employee for the normal, non-overtime workweek for which the employee is employed. The FLSA does not require, however, that compensation be based on an hourly rate, and earnings may instead be determined on a piece rate, commission or salary basis.34 The Act only requires that earnings be converted to an hourly rate in order to determine overtime pay. Non-discretionary bonus payments, meals, and lodging generally should be added to the employee’s weekly pay for purposes of computing the regular rate.35 Conversely, employee benefits, vacation and sick leave payments, expense reimbursements, employer gifts, discretionary bonuses, premium payments, and talent fees are generally excluded when computing the regular rate.36 B.

Defining Hours Worked.

All time during which an employee is required to be on the employer’s premises, on duty, or at a prescribed workplace, constitutes compensable working time or “hours worked”. 37 Generally, an activity constitutes hours worked if it is controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and its business.38 1.

Suffer or Permit to Work.

Hours worked by an employee include all time the employee is suffered or permitted to work. While an employer is not liable for time worked by an employee without the employer’s permission, this permission can be express or implied. Accordingly, the employer may be liable if an employee works before or after the employee’s shift, works through lunch, or takes work home if the employer knows or has reason to believe that the employee is working and the work performed inures to the employer’s benefit.39 It is the duty of management to exercise its control and ensure that work is not performed if it does not want it to be performed.40 Employers cannot accept the benefits of work, even if not requested, without compensating for it. 2.

Rest and Meal Periods.

Rest periods must be counted as hours worked if they are of short duration (usually 5 to 20 minutes).41 Bona fide meal periods are not counted as hours worked if the employee is - 11 -

completely relieved from duty for the purpose of eating a regular meal. If the employee is required to perform duties, whether active or inactive, while eating, the meal period must be counted as hours worked.42 3.

Commuting Time.

The time spent walking, riding, or traveling to and from the place of performance of the principal activity (the activity that an employee is employed to perform) is not considered hours worked unless it is compensable by agreement, custom, or practice.43 Accordingly, the time spent by an employee traveling from home before his regular workday and returning home at the end of the workday is not included in determining the hours worked.44 However, time spent by an employee in travel as part of his work, such as travel from job site to job site during the workday or required travel to a meeting place, must be counted as hours worked.45 When an employee is required to take a trip by car, train or other public transportation that keeps him or her away from home overnight, all time spent traveling during the hours corresponding to his or her normal working hours must be counted as hours worked.46 4.

Preliminary and Finishing Activity.

Preliminary and postliminary (or finishing) activities are those activities engaged in by an employee before and after the completion of the employee’s principal activity. Such activities are not considered hours worked unless they are indispensable to the performance of the principal activity or are compensable by agreement, custom, or practice.47 5.

Lectures, Meetings and Training Programs.

Attendance at lectures, meetings, training programs, and similar activities need not be counted as hours worked if the following four criteria are met: i. ii. iii. iv.

Attendance is outside the employee’s regular hours; Attendance is voluntary; The course, lecture, or meeting is not directly related to the employee’s job; and The employee does not perform any productive work during such attendance.48

If, however, attendance is not voluntary and the employee is given to understand or led to believe that his or her present working conditions or the continuance of his/her employment would be adversely affected by non-attendance, then the time at the event would constitute hours worked.49 6.

Waiting Time.

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Waiting time or periods when an employee is “on call” may constitute hours worked depending upon whether the employee was “engaged to wait” or was “waiting to be engaged.” An employee who is required to remain on call at the employer’s premises or so close to the premises that the time cannot effectively be used for the employee’s own purposes is “engaged to wait” and such time is compensable.50 Conversely, an employee who comes to work early or an employee who is “on call” during periods when the time can still effectively be used for personal purposes is “waiting to be engaged” and such time does not constitute hours worked.51 If an employer asks an employee to delay clocking in until “it gets busy,” then the waiting time constitutes hours worked. As a general rule, periods of inactivity which occur during the work day are compensable as hours worked.52 C.

Child Labor.

The FLSA provides that an employer may not employ “oppressive child labor.” 53 Generally, an employer employs “oppressive child labor” when he engages any persons under 16 years of age in non-farm occupations, except for children employed by a parent or by a person standing in the lace of a parent.54 Moreover, children under the age of 18 may not be employed in any non-farm hazardous occupations such as explosives manufacturing or storage, logging, and coal mining.55 Children between 14 and 16 years of age may be employed in retail, food service and gasoline service occupations, and work experience and career exploration programs if certain conditions are met.56 Children under 16 years old may be employed in farm occupations outside of school hours as long as the occupation has not been declared hazardous by the Secretary of Labor.57 IX

Actions Required of Employers.

In addition to complying with the substantive provisions of the FLSA, employers are expected to comply with certain record keeping and posting requirements. A.

Record Keeping.

The FLSA requires employers to make, keep, and preserve certain records concerning employees covered by the Act.58 These records include: 1. Personal information, including the employee’s name, home address, occupation, sex, and birth date (if under 19 years of age); 2. Hour and day when the workweek begins; 3. Total hours worked each workday and each workweek; 4. Total daily or weekly straight-time earnings; 5. Regular hourly pay rate for any week when overtime is worked; 6. Total overtime pay for the workweek; 7. Deductions from or additions to wages; - 13 -

8. 9.

Total wages paid each pay period; and Date of payment and the pay period covered

In addition to keeping records on covered employees, employers must maintain records on exempt employees sufficient to show that the conditions for exemption are satisfied.59 B.

Posting.

All employers subject to the FLSA are required to post federally approved notices in conspicuous places explaining the minimum wage and overtime provisions.60 X

Enforcement and Damages.

The Wage and Hour Division of the Department of Labor is vested with the primary responsibility for ensuring that employers comply with the Act; however, an employee may sue in any state or federal court on his or her own behalf and on behalf of other similarly situated employees. If a willful violation is alleged, the statute of limitations is extended to three years. 61 A.

Non-Willful Violations. 1.

Injunctive Relief.

A district court has jurisdiction to grant injunctive relief upon suit by the Secretary of Labor. The primary goal of such an action is to restrain future unlawful activities.62 2.

Back Pay.

Either the Secretary of Labor, the Administrator of the Wage and Hour Division of the Department of Labor, or an affected employee may sue to recover unpaid minimum wages or overtime compensation under the Act.63 B.

Willful Violations. 1.

Liquidated Damages.

If an employer has willfully violated the Act, i.e., it either knew that its conduct was prohibited or exhibited a reckless disregard for the possibility that its conduct was prohibited, the employer may also be liable for liquidated damages in an amount up to or equal to the lost back wages.64 While back pay may be awarded in an action brought the Secretary of Labor for injunctive relief, liquidated damages may not be awarded in such an action.65 2.

Civil Penalties.

Any person who repeatedly or willfully violates the minimum wage or overtime provisions of the Act is subject to a civil penalty not to exceed $1,000 for each violation. The - 14 -

penalty is to be assessed by the Secretary of Labor, and is final unless excepted to within 15 days. Violations of the child labor provisions of the Act can result in a civil penalty of up to $10,000 for each employee who was the subject of such a violation. 66 3.

Criminal Penalties.

If the violations are deliberate, voluntary and intentional, the Act also authorizes the Department of Justice to bring criminal actions, subject to a five-year statute of limitations, which can result in fines up to $10,000, or, upon a second violation, imprisonment for up to six months. 67 XI.

Most Common Violations Of Overtime Rate Calculations. A.

Bonuses.

Discretionary bonuses, such as Christmas bonuses or end-of-year bonuses based upon profitability of the company are not included within an employee’s regular wage rate for determining the employee’s appropriate overtime wage rate. However, bonuses based on productivity must be included in the employee’s regular wage rate--a fact overlooked by many employers. If, for example, employees are paid a bonus for handling more than 10 projects per week, the bonus is not discretionary and must be included in calculating the employee’s regular rate of pay. Overtime will be 1-1/2 times that regular rate, which may change each week depending on how productive the employee is that week. An employer who does not include these amounts in calculating the amount of overtime due the employee violates the FSLA. Conversely, if each employee is given an extra week of pay at the end of the fiscal year because of the profitability of the employer, this amount is discretionary and need not be included in the regular rate of pay calculation. B.

Failure To Pay Overtime To Salaried Employees.

Many employers assume that if an individual is paid a set salary, then he or she need not be paid overtime. This assumption is incorrect and has led to many FSLA violations. Non-managerial employees should not be assumed to be exempted from overtime merely because they are compensated on a salary basis. ENDNOTES:

•

The Fair Labor Standards Act primarily regulates the calculation of overtime and the payment of minimum wage to “non-exempt” employees.

•

Employees exempt from the Fair Labor Standards Act include certain salaried executive, administrative and professional employees, as well as certain outside salesmen, and other specific categories of employees identified by the Act. The Department of Labor applies long and/or short form tests to determine which employees fit within these categories. - 15 -

•

In addition to the requirements noted above for exemption from the Act, an employee must be salaried. In order to be considered salaried, an employee’s compensation must be a predetermined sum which is not subject to reduction because of variations in quality or quantity of work performed. Accordingly, employers may not dock the pay of a salaried exempt employee for absences of less than a day or for routine disciplinary infractions.

•

The minimum wage for most employees is $5.15 per hour.

•

Employers may credit tips received by “tipped employees” for up to $3.02 per hour (the difference between the minimum wage of $5.15 per hour and the minimum amount employers are required to pay “tipped employees,” $2.13 per hour).

•

An “opportunity wage” provision allows employers to pay some employees under the age of 20 a wage as low as $4.25 per hour for up to 90 consecutive calendar days.

•

In addition to complying with the substantive provisions of the Fair Labor Standards Act, employers are expected to comply with certain record keeping and posting requirements.

•

The Act may be enforced administratively or through litigation brought by either an affected employee or the Department of Labor. Injunctive relief, back pay, and, in the case of willful violations, additional liquidated damages, are authorized under the Act. In limited circumstances, the Act provides for criminal penalties.

1 2 3 4 5 6 7 8 9 10 11 12 13

Fair Labor Standards Act, 29 U.S.C. §§201-219 (1938). 29 U.S.C. §218. Tex. Lab. Code §61.001 et seq. See Brennan v. Partida, 492 F.2d 707, 709 (5th Cir. 1974). 29 U.S.C. §203(d). 29 U.S.C. §203(e). See Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir. 1993). Usery v. Pilgrim Equipment Co., Inc., 527 F.2d 1308 (5th Cir.), cert. denied, 429 U.S. 826 (1976). 29 U.S.C. §203(r). 29 U.S.C. §213(a)(i). 29 C.F.R. §541. 29 U.S.C. §213(a)(17). Brennan v. Texas City Dike & Marina, Inc., 492 F.2d 1115 (5th Cir.), cert. denied, 419 U.S. 896 (1974).

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29 C.F.R. §§ 541.101-119. 29 C.F.R. §541.117. 16 29 C.F.R. §§201-215. 17 29 C.F.R. §541.21l. 18 29 C.F.R. §§ 301-315. 19 29 C.F.R. §311. 20 29 C.F.R. §541.500. 21 29 U.S.C. §213(a)(17). 22 29 C.F.R. §520.450 et seq. For regulations affecting learners (excluding student-learners) and apprentices, see 29 C.F.R. §520.400 et seq. 23 See 29 U.S.C. §213(a) and (b). 24 29 U.S.C. §206(a)(i). 25 29 U.S.C. §214. 26 29 U.S.C. §203(m); 29 C.F.R. §531.59. 27 29 U.S.C. §206(g)(1). 28 29 U.S.C. §206(g)(2). 29 29 U.S.C. §203(m). 30 29 C.F.R. §531.29. 31 29 C.F.R. §531.30. 32 29 U.S.C. §206(d). 33 29 C.F.R. §778.1. 34 29 C.F.R. 778.109. 35 29 C.F.R. §7(e). 36 29 C.F.R. §778.200. 37 29 C.F.R. §785.11. 38 Id. 39 29 C.F.R. §785.11. 40 29 C.F.R. §785.12. 41 29 C.F.R. §785.18. 42 29 C.F.R. 785.19. 43 29 C.F.R. §785.35. 44 29 U.S.C. §254. 45 29 C.F.R. 785.38. 46 29 C.F.R. §785.39. 47 29 C.F.R. §785.24. 48 29 C.F.R. §785.278. 49 29 C.F.R. §785.31. 50 29 C.F.R. §785.17. 51 Id. 52 29 C.F.R. 785.15. 53 29 U.S.C. §212(c). 54 29 C.F.R. §570.2. 55 29 C.F.R. §570.50. 56 29 C.F.R. §570.34. 57 29 C.F.R. §570.70. 58 29 C.F.R. §516.2. 59 29 C.F.R. §516.3. 60 29 C.F.R. §516.4. 61 29 U.S.C. §216(b). 62 29 U.S.C. §217. 63 29 U.S.C. §216(a). 15

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64 65 66 67

29 C.F.R. §578.3. 29 U.S.C. §216(b). 29 U.S.C. §216(e). 29 U.S.C. §216(a).

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