Fair Labor Standards Act: An Overview
I. WHO IS AN EMPLOYER?
A. Businesses covered under the federal wage-hour laws:1 (see footnotes)
- Construction enterprises, retail and service employers and laundry and dry cleaning establishments if their annual dollar volume exceeds $500,000.00.
- Hospitals and health care facilities.
B. Businesses not covered under the federal wage-hour laws:
- Establishments that employ only members of the owner's family.
- Charitable, religious and educational activities of a private, not-for-profit organization unless performed in connection with a school or similar institution.
II. WHO IS AN EMPLOYEE?
A. The definition of "employee" is broader under the Fair Labor Standards Act ("FLSA") than under the common law definition.
The FLSA defines employ as to "suffer or permit to work." Courts have held that "to permit" and "to suffer" implies "much less positive action than required by common law."
B. Factors the United States Supreme Court has considered most significant in determining employee status in FLSA cases:
- Is the work an integral part of the "employer's" business?
- Does the worker have an investment in materials and equipment?
- Does the worker have an opportunity for profit and/or bear the risk of loss?
- Does the worker have competition?
III. OVERTIME PAYMENTS
A. Under state and federal wage-hour laws, employers must pay employees a premium of one and one-half times their regular rate of pay for all hours worked over forty in a work week.
B. There are, however, exceptions to this requirement. Several of the main exemptions are based upon an employee's primary job duties and require payment on a salary basis.
IV. EMPLOYEES WHO ARE EXEMPT BECAUSE THEIR PRIMARY JOB DUTIES MEET CERTAIN CRITERIA
A. Executives paid on a salary basis;
- The employee's primary duty consists of the management of the enterprise or a recognized department; and,
- The employee regularly supervises the activities of two or more employees.
B. Administrators paid on a salary basis;
- The employee's primary duty consists of office or non-manual work directly related to management policies or general business operations of the employer's business; and,
- The employee customarily and regularly exercises discretion and independent judgment.
C. Professionals paid on a salary basis;
- The performance of work either requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, including work that requires the consistent exercise of discretion and judgment; or
- The performance of original and creative work in a recognized field or artistic endeavor, including work that requires invention, imagination or talent.
D. Computer analysts, programmers, software engineers and similarly-skilled professional workers who perform certain duties may be treated as exempt if their hourly rate of pay is at least 6.5 times greater than the applicable minimum wage.
E. There are also exemptions which apply to employees involved in interstate transportation.
F. Hospitals, nursing homes and related institutions may pay employees overtime for work over 8 hours in a day and 80 hours in a biweekly pay period.
V. SALARY BASIS
A. As noted above, in order to qualify for an exemption from the overtime pay requirements, executive, administrative and professional employees must be paid on a salary basis.
B. Salary basis is defined by 29 C.F.R. §541.118 which states, in part, that an employee will be considered to be paid "on a salary basis" within the meaning of the regulations if under his employment agreement he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.
C. Currently, employees may not be deemed paid on a salary basis if they are subject to part-day deductions for missed work because of personal reasons.
D. These requirements have been interpreted by certain courts as disqualifying employees where the employer maintains a policy under which the employee's pay is subject to docking, even if it has never actually been docked.
E. Also, there is a question as to whether an employee is paid on a salary basis where his or her bank of accrued paid leave time is docked, or subject to docking, for part-day absences taken for personal reasons.
The salary basis quagmire has been more thoroughly addressed in "A Call For Bright-Lines To Fix The Fair Labor Standards Act" - Hofstra Labor Law Journal, Vol. 11, No. 2, Spring, 1994, authored by Lipman, Plesur and Katz.
VI. ARE EMPLOYEES PAID FOR ALL WORK
After determining whether an employee is entitled to overtime pay, we need to determine how much the employee has worked.
A. Work before "punching in" or after "punching out" is compensable.
B. How is time recorded on the "punch card" rounded?
C. Training time is usually compensable.
D. On-call time may be compensable work time if the on-call policy is too restrictive.
- Where an on-call policy is so restrictive that the employee cannot use the time effectively for his own purposes, or the employee is required to stay on the employer's premises, time spent on-call may be deemed compensable time;
- Factors which may be considered in determining the status of on-call time include:
- Whether the employee could engage in personal activities while on-call;
- An on-premises requirement;
- Excessive geographical restrictions on employee's movements;
- Unduly restrictive frequency of calls;
- uly restrictive time limit for response;
- Whether the employee could easily trade on-call responsibilities; and,
- Whether the use of a pager could ease restrictions.
- A ban on overtime does not mean that overtime worked is not compensable. U.S. Court Of Appeals held that a widely known policy forbidding overtime did not relieve an employer from the obligation to pay overtime compensation to employees who worked more than 40 hours in a workweek. Evidence in that case showed that managers knew that employees worked more than 40 hours a week and that discipline concerning the policy only forced employees to submit false or incomplete time records. The court held that, under the circumstances of the case, the employer was required to do more than just issue admonishments to avoid FLSA liability.
2 (see footnotes)
The overtime pay to which an employee is entitled depends upon the employee's regular rate of pay. In determining the proper rate of pay, the employer must first determine the hours that must be included as working time, and those that may be excluded. Below is a brief outline of time that should be included or excluded when calculating an employee's overtime pay.
A. What has to be included?
- Non-discretionary bonuses;3 (see footnotes)
- The reasonable cost to the employer of goods and facilities regarded as part of wages;
- Production bonuses;
- Gain sharing;
- Attendance bonuses;
- On-call pay;
- "Combat" pay (a premium for working in a difficult or undesirable position);
- Cost of living bonus; and,
- Pay for lunch.
What may be excluded?
- Discretionary bonuses when both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement or promise causing the employee to expect such payment regularly
- Profit sharing contributions, which meet the criteria set forth in the regulations. See, 29 C.F.R. §549;
- The cost of benefits, such as medical and dental, if employees do not have the option of opting out of coverage for increased wages for any reason;
- Gifts unrelated to hours worked, production or efficiency;
- Payments for suggestions if:
- Not related to employee earnings;
- Suggestion arose outside scope of usual and customary duties;
- Employees were not required to participate in making suggestions; and,
- Suggestions were not made because of an assignment or within a specific period.
- Payments for absences, holidays or leaves;
- Payments for occasional absences, such as jury service, bereavement leave, or inability to get to work because of weather; and,
- Payment for foregoing vacation or sick leave does not have to be included if there is an agreement that employees will receive this pay and the pay for unused time off is equivalent to normal earnings.
VIII. IF EMPLOYEE WORKS AT TWO DIFFERENT RATES, EMPLOYER MAY USE WEIGHTED AVERAGE OR DESIGNATED RATE TO CALCULATE OVERTIME PAY
1Employees may be individually covered if they are "engaged in commerce or in the production of goods for commerce." In addition to the exemptions stated below, federal overtime exemptions or reduced overtime requirements apply to small newspapers, public telephone companies, certain employees of radio and television stations, certain drivers or driver helpers making local deliveries for a trip rate, drivers, operators and conductors of buses and trains, taxi drivers, laundry and cleaning establishments, local bulk petroleum distribution enterprises, seafood and fishing industries, forestry and logging operations, home workers making wreaths, amusement and recreational establishments, domestic babysitters and companions of the aged and infirm, and firefighters and police officers. It should be noted, however, that New York law does not recognize all of these exemptions. The New York Mininum Wage Orders must be reviewed to determine whether employees in enterprises exempted by federal law may be entitled to an exemption under New York Law.