Category: Fair Labor Standards Act (FLSA)
Every year at this time, the ThinkHRLive Hotline starts to get questions about hiring summer interns and determining what interns should be paid — or not paid. Internships offer students opportunities to gain real world experience and hands-on career development. The practical work experience derived from internships allows students to develop contacts, identify areas of interest, and gain an edge in an increasingly competitive job market. As an employer, hiring interns gives you access to highly motivated and educated young workers and allows your junior managers to gain more experience training and supervising. Some students might apply to work in your organization just for the experience, with no expectations of receiving a paycheck.
This seems like a perfect solution for both intern and employer, right? You can get some much-needed work done and provide students with real-life business experience. While internships can be a win/win situation for you and students, there are potential legal and administrative pitfalls that many employers overlook. By identifying and managing these risks, you and your company can avoid liability, employee relations issues, and administrative hassles.
More interns will be hired for pay, even as the issue is debated.
Enforcement efforts have increased regarding unpaid internships, and many experts advise that employers in for-profit businesses should pay interns at least the minimum wage to avoid potential scrutiny. While the recent headlines focus on the fashion, entertainment, and media industries that are being sued by their interns, all businesses could be under the microscope if the pay issue is not resolved.
According to the National Association of Colleges and Employers Class of 2013 Student Survey, only 38.1 percent of unpaid internships worked by 2013 graduating seniors were conducted in the for-profit, private sector, which is governed by the federal Fair Labor Standards Act (FLSA) regulations. The remaining unpaid internships (61.9 percent) were worked in nonprofit organizations (40.7 percent) and government agencies (21.2 percent), employers exempt from FLSA rules. The idea of giving interested students meaningful work assignments is not the issue. The real issue is about pay.
Even within higher education where programs are evaluated based upon the success rate of placing students with businesses, career-services professionals say students should be paid at least minimum wage. Part of their rationale is that when employers ask that students receive college credit for their work in order to avoid having to pay them, this demand puts students from low- or middle-income backgrounds at a disadvantage because students have to pay for that course credit — a cost that can add up to several thousand dollars.
Others suggest that not paying students for their labor is an ethics issue. After all, they are working alongside regular employees — often doing some of the same tasks — and not being compensated for that work. This may send the message to employees that their work, or time, is not valued. Further, customers or the community may see you as an employer taking advantage of these students, which is not the message you want to portray.
There are a number of issues surrounding internships, one of which is whether the FLSA even applies to interns. The FLSA does not define “intern,” nor does it provide an exemption from minimum wage or overtime for them. But this does not necessarily mean that student interns must be compensated. The FLSA acknowledges that not all persons who perform some duties for an employer subject to the FLSA are “employees,” and thus entitled to compensation in accordance with wage and hour laws. Most HR and legal practitioners, however, take the view that an intern, by definition, is a professional in training and employers using an intern’s services should adhere to the standards set forth under the FLSA.
The debate is not just a school issue, but is also political. The Department of Labor/Obama Administration is encouraging summer employment for our nation’s youth with their YouthRules! Program. For more information about that program and jobs, work, and safety restrictions, go to the Employer Resource section.
If you are struggling to decide whether or not to pay your interns, review the following FLSA requirements (generally considered the FLSA “six-factor test”) to determine whether the training you would provide meets the “learner/trainee” rules:
- The training must be comparable to that given at a vocational school. (For example, the intern could pay to receive the training somewhere else).
- The training must benefit the student.
- The student would not replace a regular employee. (The intern cannot fill in for someone on a short-term disability or out for the day.)
- The employer does not immediately benefit from the student’s activities. (This requirement is especially troublesome for employers because the company does expect to receive a benefit from the intern’s labors. Practically, this means the intern cannot deliver mail, sort files, file papers, organize a person’s calendar, conduct market research, write reports, schedule interviews, or any other job that assists the employer in any way in running their business).
- There is no promise of a job following the training.
- Both the employer and the student understand that no wages will be given for the training period.
Review the Department of Labor fact sheet regarding student interns for more detailed information.
Hiring interns can be a great business decision, both for the employer and the student. According to a 2013 survey by the National Association of Colleges and Employers (NACE), employers taking part in the survey and hoping to attract the best talent reported that nearly all expected to pay their interns and that internship hiring plans are up 8.5 percent over last year. In a separate survey conducted by NACE for students, 90 percent of students who had internships said that they would accept a full-time job offer from their internship employer upon graduation.
Our best advice is that if there is any doubt, pay the student. If the job training program primarily provides professional experience that furthers a student’s educational goals, a student may not be considered an employee entitled to compensation. However, if the students are doing work usually done by employees and are not receiving training and close mentoring, they should be paid wages.
What Should You Pay?
You have reviewed the FLSA six-factor test listed above and determined that your summer students are really employees entitled to some compensation. The next issue is FLSA compliance as to whether the intern is exempt or nonexempt. To be considered exempt, the intern must be paid a salary or guarantee of at least $455 per week and meet the “duties test” for at least one of the FLSA’s White Collar Exemptions. Practically speaking, in the vast majority of cases, interns will not be exempt, either because they do not meet the duties test for any of the White Collar exemptions or because they are paid less than the statutory minimum salary, or both.
Employers must comply with federal labor laws and with state laws that are more restrictive, so apply your state’s wage-hour requirements to the intern as you would to any other employee. Assuming your interns are nonexempt, they must be paid at least the minimum wage (federal or state, whichever is higher), receive overtime when they work more than eight hours in a day (California) or 40 hours in a workweek (federal), and be subject to your state’s meal and rest break rules.
If you are uncertain how much to pay interns, you can consult with your local high school or college placement center, where counselors may be able to give you some direction on what other employers in your area are paying. Pay levels for internships are typically determined by a student’s year in school and field of work, with the average wage for a college freshman at $15.05 an hour, up to $17.44 an hour for a senior, and higher pay for students in engineering or computer science fields. The 2014 NACE survey found that companies expect to pay bachelor’s degree-level interns an average of $16.35 per hour, up from the 2013 average of $16.26 per hour. Pay for high school teens is typically minimum wage.
Practical Tips for Hiring Interns
Before hiring an intern:
- Develop an intern policy and define the job carefully so that both parties are clear about job duties and expectations. This reduces misunderstandings that can lead to lawsuits. The policy should define the basic internship program, such as compensation structure (or spell out that interns will not be paid), eligibility requirements, and the intern’s at-will status. Make sure the policy does not establish what could be viewed as a legally binding contract. Never infer the promise of employment for a specified period.
- Define supervisory roles and supervisor/intern evaluations. Reliable supervision is the key to preventing problems, including injuries, discriminatory actions, and performance failings. Make sure all supervisors know who is overseeing the work of each intern.
- If possible, obtain formal documentation from the intern’s college or high school explaining the educational relevance of the internship if it will earn the student credits.
- Ask whether the school provides liability insurance to cover damage caused by a student. Many schools carry the coverage. In addition, if your company has employment practices liability insurance, check whether it extends to interns.
Once your intern is on board:
- Make sure you comply with child labor laws that may affect the age groups you plan to recruit.
- Limit teen interns’ hours. If your intern program reaches out to high schools, the FLSA’s child labor provisions may curb students’ hours and duties.
- In most cases, children age 13 and under are off limits to employers, except for certain odd jobs, like newspaper delivery or babysitting.
- Youths ages 14 and 15 can work outside of school hours in certain nonhazardous jobs, but their hours are limited to three on a school day, 18 in a school week, eight on a nonschool day and 40 in a nonschool week. Further, they can work only between 7 a.m. and 7 p.m.; the nighttime limit extends to 9 p.m. in summer.
- The FLSA says 16- and 17-year-olds can work unlimited hours, but not in certain hazardous jobs.
- Once workers reach age 18, they are free to work any job for unlimited hours.
For more details on child labor laws, visit the Department of Labor Youth Labor site. Check your state labor laws, which may require stricter child labor standards, and check for other requirements, such as whether your state requires work permits or proof-of-age certificates for minors.
Please remember to:
- Manage interns as closely as employees, if not more so. Your company can be held responsible for the actions of any workers, including unpaid interns, while they are performing work for you. Courts will view interns like employees, as “agents” of your company.
- To ensure interns are paid correctly, they must maintain time records. To avoid the possibility of FLSA violations, companies who find themselves in the position of “employer” should ensure their interns accurately capture and are paid for all of their hours of work.
- Apply your company’s workplace policies to interns, for both consistency and good positive employee relations reasons. Interns who are considered “employees” have the same legal protections as your regular employees, and even unpaid interns may be able to pursue claims under Title IX, which bans sex discrimination in “any education program,” or pursue common-law job-bias claims, such as infliction of emotional distress.
Hiring summer students is a great way to help our youth learn what it takes to be successful in business while helping us get special projects completed. We recommend that you plan ahead and structure your program so that your summer internship program is a great experience for everyone.
Article by Laura Kerekes, Chief Knowledge Officer for ThinkHR
Despite protest from employer groups, the EEOC intends to step up its litigation profile according to their annual report and budget request.
- The number one strategic objective of the EEOC is to combat employment discrimination through strategic law enforcement (meaning the filing of lawsuits).
- The EEOC is asking for $75 million to support their litigation efforts in 2014. They collected $372.1 million last year, the largest in history, not including the payment of legal fees.
- According to EEOC Commissioner Constance Barker: “Since we’ve got so much authority delegated to the agency’s general counsel, 2013 really became the year of litigation, and I think 2014 will continue that trend…. I think private companies ought to expect to see more aggressive use of the litigation process, more aggressive pursuit of systemic discrimination cases and more cases bypassing the commission’s review and vote.”
- In case you were wondering, the EEOC has jurisdiction over:
- Equal Pay Act of 1963 (included in the Fair Labor Standards Act), as amended, which prohibits sex discrimination in the payment of wages to men and women performing substantially equal work in the same establishment.
- Title VII of the Civil Rights Act of 1964, as amended, which prohibits employment discrimination on the basis of race, color, religion, sex, and national origin.
- Pregnancy Discrimination Act of 1978, which amended Title VII to clarify that discrimination on the basis of pregnancy, childbirth, or related medical conditions constitutes sex discrimination and requires employers to treat pregnancy and pregnancy-related medical conditions as any other medical disability with respect to terms and conditions of employment, including health benefits.
- Age Discrimination in Employment Act of 1967, as amended, which protects workers 40 and older from discrimination in hiring, discharge, pay, promotions, fringe benefits, and other aspects of employment. ADEA also prohibits the termination of pension contributions and accruals on account of age and governs early retirement incentive plans and other aspects of benefits planning and integration for older workers.
- Rehabilitation Act of 1973, as amended, which prohibits discrimination on the basis of disability in federal government programs.
- Americans with Disabilities Act of 1990, as amended, which prohibits employment discrimination by private sector respondents and state and local governments against qualified individuals on the basis of disability.
- Genetic Information Nondiscrimination Act of 2008, which prohibits employment discrimination on the basis of an applicant’s or employee’s genetic information, generally prohibits acquisition of genetic information from applicants and employees, and requires covered entities to keep such information confidential.
- Lilly Ledbetter Fair Pay Act of 2009, which codified the EEOC’s long-held position that each paycheck that contains discriminatory compensation is a separate violation regardless of when the discrimination began.
What’s an employer to do?
- Make sure you have your compliance act together! Consider taking the HRTW compliance audit.
- Train your managers so they don’t produce disgruntled, lawsuit filing employees. Plenty on the program to help you do that.
- Distribute the Employee Compliance Survey twice per year.
- Make sure you have insurance coverage under an EPLI policy. See the EPLI policy report and checklist.
- Call the hotline if you have a question.
The U.S. Department of Labor’s Wage and Hour Division announced a final rule extending the Fair Labor Standards Act’s minimum wage and overtime protections to most of the nation’s direct care workers who provide essential home care assistance to elderly people and people with illnesses, injuries, or disabilities. This change, effective January 1, 2015, ensures that nearly two million workers – such as home health aides, personal care aides, and certified nursing assistants will be treated as W-2 employees, not independent contractors. To learn more about the change in this law, click here. According to the FAQ, the Department’s Final Rule makes two significant changes: (1) the tasks that comprise exempt “companionship services” are more narrowly defined; and (2) the exemptions for companionship services and live-in domestic service employees may only be claimed by the individual, family, or household using the services rather than third party employers such as home health care agencies. The Final Rule also revises the recordkeeping requirements for employers of live-in domestic service employees.
On June 18, 2012 in a 5-4 ruling, the U.S. Supreme Court decided pharmaceutical representatives are “outside salesmen,” exempting them from the overtime requirements of the FLSA. Click here to read the article posted by Bill Pokorny of the Worklaw® Network firm Franczek Radelet. This ruling has implications for all employers that have exempt sales executives.
In this California case “consulting service managers” who were primarily engaged in selling recruitment services for Surrex, filed claims for overtime and missed meal periods. The court dismissed their case claiming the fit under the Sales exemption The most important language in the case is as follows:
“We conclude Labor Code section 204.1 sets up two requirements, both of which must be met before a compensation scheme is deemed to constitute ‘commission wages.’ First, the employees must be involved principally in selling a product or service, not making the product or rendering the service. Second, the amount of their compensation must be a percent of the price of the product or service.” http://www.courtinfo.ca.gov/opinions/documents/D057955.PDF
Note in the CarMax case the court ruled a flat fee commission satisfies the requirement.
The Federal standard for sales exemptions can be found here. There are exemptions for auto sales, retail sales and outside sales. Here’s an advisor on the Outside Sales
Outside Sales Employee section
This section helps you in determining whether a particular employee who is an outside sales person meets the tests for exemption from the minimum wage and overtime pay requirements of the FLSA.
– Review the Fact Sheet
– Start Outside Sales Employee section
Inc. Magazine did an excellent article on the history of the workplace you can read by clicking here.
Q. We have a number of non-exempt employees who are nevertheless paid a salary. How do we calculate overtime for these employees?
A. The question above is a positive sign, because if you find yourself asking it you’ve passed the first hurdle of realizing that not all “salaried” employees are exempt from the overtime requirements of the Fair Labor Standards Act.
Generally speaking, calculating overtime is a simple affair. Employees must be compensated for hours worked in excess of forty hours in a single workweek at a rate of one and one-half times the employee’s regular hourly rate of pay. The “regular rate” is calculated by dividing an employee’s total non-overtime compensation for the week by the total number of hours worked. For employees who are paid a simple hourly rate, this calculation is simple, as the regular rate is simply the employee’s normally hourly rate of pay.
However, things get trickier when a non-exempt employee is paid a salary. Suppose Chuck is paid a salary of $1000 per week. He works 50 hours in a certain week – 40 hours of straight time, and 10 hours of overtime. To calculate Chuck’s overtime pay, you need one more crucial piece of information: how many hours is the $1000 salary intended to cover?
According to the courts, this issue is a matter of the agreement between Chuck and his employer. Suppose the company has an employee handbook that says that the normal workweek consists of 35 hours. If, based upon that statement, there is a general understanding that the base salary is intended to cover 35 hours of straight-time work, Chuck’s pay would be (assuming I have my math right) as follows:
Regular rate = $1000 / 35 hours = $28.57/hr
Total pay = Regular salary + 5 hrs additional straight time + 10 hrs at time and-a-half
Total pay = $1000 + (5hrs x $28.57/hr) + (10 hrs x $28.57/hr x 1.5) = $1,571.40
On the other hand, suppose Chuck and the company have an understanding that the $1,000 salary is intended to cover up to 50 hours of work per week. In that case, no additional straight-time pay would be due if Chuck works 50 hours. Chuck would still be entitled to an overtime premium for the 10 hours of overtime worked. However, because his salary covers straight-time for those hours, the additional overtime premium due is only one half of the regular rate of pay:
Regular rate = $1000 / 50 hours = $20/hr
Total pay = Regular salary + 10 hours at 1/2 the regular rate
Total pay = $1000 + (10hrs x $20/hr / 2) = $1,100
Now, a smart employer looking at the above calculation might say to itself, “Ah, let’s agree that the employee’s salary will cover up to 100 hours of work.” That would make the regular rate just $10 per hour, and save the company $50 in overtime expenses, right? If this looks too good to be true, it is. First, if Chuck is never actually scheduled to work 100 hours in a week, that agreement will likely be viewed as a sham by the Department of Labor. Second, the regulations say that if Chuck works less than agreed number of hours, then his regular rate is calculated by dividing his total non-overtime compensation by the total number of hours worked. In other words, regardless of how many hours the salary is meant to cover, if he only works 50 hours, his regular rate will still be $20 per hour.
Now, one last wrinkle: suppose it’s understood by all concerned that Chuck’s salary is intended to cover his straight-time compensation not for a specified number of hours, but for all hours that he happens to work in any given week, regardless of how many or how few. While paying a fixed salary for a fluctuating workweek is permissible and can in some cases reduce your overtime liability, there are also some strict limitations on this method, and some new uncertainty introduced by some regulations recently published by the Department of Labor.
Article courtesy of Worklaw® Network firm Franczek Radelet (www.franczek.com).
Two La Nopalera restaurants in Jacksonville, Florida, and their owners have been ordered to pay 30 employees $934,425 in back wages and liquidated damages under the terms of consent judgments issued by the U.S. District Court for the Middle District of Florida. The agreements resolve a lawsuit based on an investigation by the Wage and Hour Division that alleged violations of the Fair Labor Standards Act. “All workers deserve to be paid fairly, and the Labor Department will hold accountable employers that take advantage of their employees,” said Secretary Solis. “We want workers to know we will defend their rights to compensation for all hours worked, and we want companies that play by the rules to know we will take action against those that use illegal tactics to gain a competitive advantage.” Read the News Release
Employers must get their wage and hour act together, including time keeping protocols, because the pressure form the DOL, state agencies and profit seeking attorneys is not going away any time soon. In a DOL release I received today the game just got kicked up one more notch:
The U.S. Department of Labor announced the launch of its first application for smartphones, a timesheet to help employees independently track the hours they work and determine the wages they are owed. Available in English and Spanish, users conveniently can track regular work hours, break time and any overtime hours for one or more employers. This new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records. This information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.
The free app is currently compatible with the iPhone and iPod Touch. The Labor Department will explore updates that could enable similar versions for other smartphone platforms, such as Android and BlackBerry, and other pay features not currently provided for, such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest.
For workers without a smartphone, the Wage and Hour Division has a printable work hours calendar in English and Spanish to track rate of pay, work start and stop times, and arrival and departure times. The calendar also includes easy-to-understand information about workers’ rights and how to file a wage violation complaint.
Of course this doesn’t mean the employee has accurately tracked hours, only that they can. One more reason to use the Timesheet Certification Form on HR That Works.