HR That Works Blog

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.

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.

Lawsuit seeks more than $1 million in back wages for approximately 4,500 workers nationwide

HOUSTON — The U.S. Department of Labor has announced the filing of a lawsuit against Houston-based Kinder Morgan Inc. and Kinder Morgan Energy Partners LP for their failure to pay more than $1 million in overtime compensation to approximately 4,500 current and former operators, technicians, maintenance workers, laborers and administrative nonexempt employees in violation of the Fair Labor Standards Act. The department’s suit asks the court to order the defendants to pay the full amount of back wages due, along with liquated damages, and to prohibit them from violating the law in the future.

Kinder Morgan Inc., owner of Kinder Morgan Energy Partners LP, is one of the largest pipeline transportation and energy storage companies in North America, with an enterprise value of $30 billion and approximately 8,000 employees nationwide. The defendants provide services to local oil refineries and clients such as Conoco/Philips, Exxon Mobil and Shell.

“There is no excuse for denying workers their rightful wages, and this lawsuit demonstrates that the department will use all available enforcement tools, including litigation and penalties, to ensure accountability and compliance with the law,” said Secretary of Labor Hilda L. Solis.

The complaint was filed against both companies in the U.S. District Court for the Southern District of Texas, Houston Division, after an investigation by the Labor Department’s Wage and Hour Division found systemic violations nationwide resulting from the employers’ failure to include certain bonuses in overtime pay calculations for these employees.

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates of pay, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers must also maintain accurate time and payroll records.

Word to the wise: Make sure you know what bonuses belong in OT and which ones don’t! Here’s what the CFR’s say about it:

Bonuses

§ 778.208   Inclusion and exclusion of bonuses in computing the “regular rate.”

Section 7(e) of the Act requires the inclusion in the regular rate of all remuneration for employment except seven specified types of payments. Among these excludable payments are discretionary bonuses, gifts and payments in the nature of gifts on special occasions, contributions by the employer to certain welfare plans and payments made by the employer pursuant to certain profit-sharing, thrift and savings plans. These are discussed in §§778.211 through 778.214. Bonuses which do not qualify for exclusion from the regular rate as one of these types must be totaled in with other earnings to determine the regular rate on which overtime pay must be based. Bonus payments are payments made in addition to the regular earnings of an employee. For a discussion on the bonus form as an evasive bookkeeping device, see §§778.502 and 778.503.

§ 778.209   Method of inclusion of bonus in regular rate.

(a) General rules. Where a bonus payment is considered a part of the regular rate at which an employee is employed, it must be included in computing his regular hourly rate of pay and overtime compensation. No difficulty arises in computing overtime compensation if the bonus covers only one weekly pay period. The amount of the bonus is merely added to the other earnings of the employee (except statutory exclusions) and the total divided by total hours worked. Under many bonus plans, however, calculations of the bonus may necessarily be deferred over a period of time longer than a workweek. In such a case the employer may disregard the bonus in computing the regular hourly rate until such time as the amount of the bonus can be ascertained. Until that is done he may pay compensation for overtime at one and one-half times the hourly rate paid by the employee, exclusive of the bonus. When the amount of the bonus can be ascertained, it must be apportioned back over the workweeks of the period during which it may be said to have been earned. The employee must then receive an additional amount of compensation for each workweek that he worked overtime during the period equal to one-half of the hourly rate of pay allocable to the bonus for that week multiplied by the number of statutory overtime hours worked during the week.

(b) Allocation of bonus where bonus earnings cannot be identified with particular workweeks. If it is impossible to allocate the bonus among the workweeks of the period in proportion to the amount of the bonus actually earned each week, some other reasonable and equitable method of allocation must be adopted. For example, it may be reasonable and equitable to assume that the employee earned an equal amount of bonus each week of the period to which the bonus relates, and if the facts support this assumption additional compensation for each overtime week of the period may be computed and paid in an amount equal to one-half of the average hourly increase in pay resulting from bonus allocated to the week, multiplied by the number of statutory overtime hours worked in that week. Or, if there are facts which make it inappropriate to assume equal bonus earnings for each workweek, it may be reasonable and equitable to assume that the employee earned an equal amount of bonus each hour of the pay period and the resultant hourly increase may be determined by dividing the total bonus by the number of hours worked by the employee during the period for which it is paid. The additional compensation due for the overtime workweeks in the period may then be computed by multiplying the total number of statutory overtime hours worked in each such workweek during the period by one-half this hourly increase.

§ 778.210   Percentage of total earnings as bonus.

In some instances the contract or plan for the payment of a bonus may also provide for the simultaneous payment of overtime compensation due on the bonus. For example, a contract made prior to the performance of services may provide for the payment of additional compensation in the way of a bonus at the rate of 10 percent of the employee’s straight-time earnings, and 10 percent of his overtime earnings. In such instances, of course, payments according to the contract will satisfy in full the overtime provisions of the Act and no recomputation will be required. This is not true, however, where this form of payment is used as a device to evade the overtime requirements of the Act rather than to provide actual overtime compensation, as described in §§778.502 and 778.503.

§ 778.211   Discretionary bonuses.

(a) Statutory provision. Section 7(e) (3)(a) of the Act provides that the regular rate shall not be deemed to include “sums paid in recognition of services performed during a given period if  *  *  * (a) 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 payments regularly  *  *  *”. Such sums may not, however, be credited toward overtime compensation due under the Act.

(b) Discretionary character of excluded bonus. In order for a bonus to qualify for exclusion as a discretionary bonus under section 7(e)(3)(a) the employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement. The employee has no contract right, express or implied, to any amount. If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it. Thus, if an employer announces to his employees in January that he intends to pay them a bonus in June, he has thereby abandoned his discretion regarding the fact of payment by promising a bonus to his employees. Such a bonus would not be excluded from the regular rate under section 7(e)(3)(a). Similarly, an employer who promises to sales employees that they will receive a monthly bonus computed on the basis of allocating 1 cent for each item sold whenever, is his discretion, the financial condition of the firm warrants such payments, has abandoned discretion with regard to the amount of the bonus though not with regard to the fact of payment. Such a bonus would not be excluded from the regular rate. On the other hand, if a bonus such as the one just described were paid without prior contract, promise or announcement and the decision as to the fact and amount of payment lay in the employer’s sole discretion, the bonus would be properly excluded from the regular rate.

(c) Promised bonuses not excluded. The bonus, to be excluded under section 7(e)(3)(a), must not be paid “pursuant to any prior contract, agreement, or promise.” For example, any bonus which is promised to employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee’s continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.

§ 778.212   Gifts, Christmas and special occasion bonuses.

(a) Statutory provision. Section 7(e)(1) of the Act provides that the term “regular rate” shall not be deemed to include “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency  *  *  *”. Such sums may not, however, be credited toward overtime compensation due under the Act.

(b) Gift or similar payment. To qualify for exclusion under section 7(e)(1) the bonus must be actually a gift or in the nature of a gift. If it is measured by hours worked, production, or efficiency, the payment is geared to wages and hours during the bonus period and is no longer to be considered as in the nature of a gift. If the payment is so substantial that it can be assumed that employees consider it a part of the wages for which they work, the bonus cannot be considered to be in the nature of a gift. Obviously, if the bonus is paid pursuant to contract (so that the employee has a legal right to the payment and could bring suit to enforce it), it is not in the nature of a gift.

(c) Application of exclusion. If the bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under section 7(e)(1) even though it is paid with regularity so that the employees are led to expect it and even though the amounts paid to different employees or groups of employees vary with the amount of the salary or regular hourly rate of such employees or according to their length of service with the firm so long as the amounts are not measured by or directly dependent upon hours worked, production, or efficiency. A Christmas bonus paid (not pursuant to contract) in the amount of two weeks’ salary to all employees and an equal additional amount for each 5 years of service with the firm, for example, would be excludable from the regular rate under this category.

The Patient Protection and Affordable Care Act (“Affordable Care Act”) amended section 7 of the Fair Labor Standards Act (“FLSA”) to require employers to provide reasonable break time for an employee to express breast milk for her nursing child for one year after the child’s birth each time such employee has need to express the milk. Employers are also required to provide a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk. The break time requirement became effective when the Affordable Care Act was signed into law on March 23, 2010. The Wage and Hour Fact Sheet #73 “Break Time for Nursing Mothers under the FLSA” and the Frequently Asked Questions (FAQs) provide basic information about the law.

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