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.

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.

On April 5, 2011, the U.S. Department of Labor issued final regulations intended to address a number of amendments to the FLSA over the years and to update the regulations to reflect current conditions. The end result, which becomes effective May 5, 2011, will impact employers in a number of industries (such as restaurants that use the tip credit to calculate the minimum wage of tipped employees, and municipal employers that have comp time systems). The final regulations continue in place a regulation that declares that service advisers employed by automobile dealerships should be treated not as exempt but as non-exempt employees. The DOL reconfirmed this interpretation even though it has been rejected previously by several U.S. Courts of Appeals, including the Fourth Circuit (which covers Maryland, Virginia, West Virginia and the Carolinas).

Employees Paid on the Fluctuating Workweek Method

The final regulations address bonus and non-overtime premium payments for employees paid by the fluctuating workweek method. By way of background, if a non-exempt employee works fluctuating hours from week to week, the employer and employee may mutually agree to a fixed salary as “straight time” compensation “apart from overtime premiums” for whatever hours the employee is required to work in a given workweek. The fixed salary amount must be sufficient to provide compensation at not less than the minimum wage. If these conditions are met, the employer satisfies the obligation to pay overtime if it compensates the employee, in addition to the straight time pay, at least one-half of the regular rate of pay for all hours worked in excess of 40 in the workweek (rather than one-and-one half times the rate, since the straight time salary is agreed to cover all hours worked in a workweek). Because the employee’s hours fluctuate from week to week, the regular rate of pay must be determined each workweek depending on the hours worked.

The proposed regulations would have permitted employees compensated by this method to receive bonuses and other non-overtime premium payments without invalidating the pay method. However, the DOL reconsidered this position in the final regulations, siding with unions and employee-advocacy groups that argued that such payments are inconsistent with the purpose of the method: a fixed salary that does not vary from workweek to workweek. If bonuses and premium payments were permitted to supplement this pay, the DOL concluded, it “could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a larger portion of employees’ compensation into bonus and premium payments potentially resulting in wide disparities in employees’ weekly pay depending on the particular hours worked.”

As a result of the final regulations, employers should ensure that employees paid by the fluctuating workweek method do not receive bonuses or incentive compensation other than premium payments for overtime. Although the rule seems punitive and perverse, failing to observe it will invalidate the pay scheme, obliging the employer to pay one-and-one half of the regular rate of pay, rather than one-half that rate.

Commuting Time and Employer-Provided Vehicles

The final regulations address a 1996 amendment to the Portal to Portal Act that provided that an employee’s normal commute to and from work does not become compensable time merely because the employee drives an employer-provided vehicle. The new regulation states, “The use of an employer’s vehicle for travel by an employee and activities that are incidental to the use of such vehicle for commuting are not considered ‘principal’ activities when the following conditions are met: The use of the employer’s vehicle for travel is within the normal commuting area for the employer’s business or establishment and the use of the employer’s vehicle is subject to an agreement on the part of the employer and the employee or the representative of the employee.” The DOL’s introductory comments to the revised regulations also make clear that employees may not be required to incur direct or indirect out of pocket costs related to the commute, such as for parking or gas. Although both employer and employee advocates had asked the DOL to give examples of what constitutes activities “incidental to the use of a vehicle” for commuting, the DOL declined because doing so would require it to issue a new proposed regulation for comments. It may do so in the future.

Exclusion of the Value of Stock Options From the Regular Rate of Pay Computation

The final regulations also address a 2000 amendment to the FLSA, which provided that the value or income derived from employer-issued stock options are not included in non-exempt employees’ regular rate of pay for purposes of calculating overtime. The regulations specify the conditions that must be met to exclude such amounts.

• The grant must be made under a program, the terms and conditions of which are communicated at the time the program is adopted or at the time of the grant;
• In the case of stock options or stock appreciation rights, the right cannot be exercisable for a period of at least 6 months after the time of the grant (with the exception of rights arising as a result of an employee’s death, disability, retirement, or change in ownership);
• The right to exercise must be voluntary; and
• If determinations are based on performance criteria, the criteria must be previously established or based upon past performance of one or more employees subject to certain specified guidelines.

Article courtesy of Worklaw® Network firm Shawe Rosenthal.

On March 22, 2011, the U.S. Supreme Court held in Kasten v. Saint-Gobain Performance Plastics Corp., that retaliation under the Fair Labor Standards Act, can be based on oral complaints, not just written ones. The Court rejected the employer’s argument that oral complaints are too indefinite to provide an employer with fair notice that an employee is engaging in protected activity.

Facts of the Case: The plaintiff employee believed that the location of the defendant employer’s time clock was illegal under the FLSA because it prevented employees from receiving fair compensation for the time they spent changing in and out of work clothes. The employer had an ethics policy that imposed on employees the obligation to report suspected violations of the law and an internal grievance resolution procedure that instructed employees to immediately contact their supervisor with “questions, complaints, and problems.” The employee claimed that he “raised concerns” with his supervisor that the location of the time clocks was “illegal” and that he also advised human resources personnel (a generalist and the HR manager) that the company would “lose in court” if a legal challenge were brought about the time clock location. He also told his lead operator that he was “thinking about starting a lawsuit about the placement of the time clocks.” The employee claimed that his subsequent discharge from employment was because of these complaints. He sued under the FLSA’s anti-retaliation provision and his claims were dismissed on summary judgment. The trial court, affirmed by the U.S. Court of Appeals for the Seventh Circuit, concluded that the FLSA, which prohibits retaliation against employees because they “file any complaint” required a written filing with a government agency.

The Court’s Ruling: A divided Supreme Court held that the FLSA covers oral complaints, but declined to rule on the related question of whether a complaint must be made to the external authorities rather than solely to the employer. (The Court majority deemed that latter question to have not been raised by the employer.) In concluding that oral complaints are covered, the Court rejected the notion that the statute clearly specified by the use of the term “file” that complaints had to be in writing. The Court reasoned that filings can be oral or written, depending on the context, and thus the language of the statute did not resolve the question on its face. The Court then looked to the purpose of the FLSA, which was intended to prohibit labor conditions detrimental to the general well being of workers, and the population that the law intended to protect, which at the time of passage included numbers of illiterate workers. The Court, however, acknowledged that employers have a right to receive “fair notice that an employee is making a complaint that could subject the employer to a later claim of retaliation.” The Court thus held that a complaint “must be sufficiently clear and detailed for a reasonable employer to understand it, in light of the content and context, as an assertion of rights protected by the statute and a call for their protection.” The dissent would have held that only complaints filed with external authorities (be they oral or written) are protected by the FLSA, given the language, structure, and content of the law. The dissent chided the majority for declining to address an issue implicit in the majority’s holding – whether intra-company complaints are protected – given that the majority’s opinion “assumes a ‘yes’ answer – and … makes no sense otherwise.”

Lessons Learned: The Court has expanded the class of individuals who can claim that they were subject to retaliation for protected complaints, given that purely oral concerns may be later characterized by an employee as such. The Court has indicated, however, that an employee’s complaint must be sufficiently definite to give the employer fair notice. Employers should consider adopting policies that encourage employees to reduce to writing complaints that concern matters of significance so that appropriate action can be taken. Such policies would also warn employees that to the extent they are unwilling, for any reason, to make a written complaint, they need to direct their concerns to responsible individuals within the organization designated to respond to complaints so that appropriate action can be taken. While a policy may not, by itself, limit what communications will suffice to serve as “fair notice,” a policy designating line-level supervisors as persons authorized to receive complaints may give rise to an inference that complaints to them about FLSA-covered matters constitutes “fair notice.” Finally, supervisors should be instructed to immediately report to human resources or other higher management any concerns or complaints from employees that appear to challenge the legality of a policy or practice.

Article courtesy of Worklaw Network firm Shawe Rosenthal.

CEMEX Inc. in Houston will pay $1,514,449 in overtime back wages to 1,705 ready-mix drivers after an investigation by the department’s Wage and Hour Division found violations of the Fair Labor Standards Act. Employees in Arizona, California, Florida, Georgia, New Mexico, North Carolina, South Carolina and Texas failed to receive premium pay for hours worked more than 40 in a workweek. CEMEX, the largest supplier of cement and ready-mix concrete in the country, is also required to comply with the requirements of the FLSA in the future or risk being found in contempt of the order.

Click here to read the News Release.

Are You in the Restaurant, Construction or Health Care Industries? If so, below is an excerpt from the most recent DOL in Action newsletter you need to read. Just like the IRS is doing with Independent Contractor misclassification Concerns, the DOL is doing with Wage and Hour, and Safety and Health concerns.

Department Launches Enforcement Efforts in Utah and Denver

The Department’s Wage and Hour Division (WHD) has launched a pair of concentrated enforcement efforts in Utah and the Denver metropolitan area to combat violations of federal minimum wage, overtime pay and child labor regulations. In Utah the initiative will focus on the restaurant industry by conducting approximately 65 establishment investigations. In addition to restaurants, the Denver initiative will include construction sites, where WHD plans to use the results to develop future strategies to increase compliance levels in order to secure safe and healthy workplaces for employees.

• Read the Utah Release
• Read the Denver Release

WHD Promotes Compliance with Fair Labor Standards Act in NY

DOL’s Wage and Hour Division is currently conducting a compliance initiative in the health care industry for all New York state counties north of New York City. This initiative from the Albany District Office aims to promote compliance with the minimum wage, overtime, recordkeeping and child labor provisions of the Fair Labor Standards Act (FLSA), and to ensure employees are protected and compensated in accordance with the law. Investigations during the last five years revealed that less than 36 percent of health care employers in that area were in compliance with the FLSA.

• Read the News Release

Note: If you are in HR we recommend you subscribe to the DOL’s email list at https://service.govdelivery.com/service/subscribe.html?code=USDOL_167