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WAGE & HOUR

COMPLIANCE PRACTICAL SOLUTIONS FOR HR 2nd Edition

Kara E. Shea, J.D. Holly K. Jones, J.D.

Brentwood, Tennessee


This book provides practical information concerning the subject matters covered. It is sold with the understanding that neither the publisher nor the author is rendering legal advice or other professional service. Some of the information provided in this publication contains a broad overview of federal and state law, which changes regularly. You should consult a competent attorney if you are in need of specific legal advice concerning any of the subjects addressed in this book.

Š 2010 M. Lee Smith Publishers LLC 5201 Virginia Way P.O. Box 5094 Brentwood, Tennessee 37024-5094 (800) 274-6774 www.mleesmith.com www.hrhero.com ISBN 978-1-60029-184-5

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means without permission from the publisher.

Printed in the United States of America

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CONTENTS Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Chapter One: OVERVIEW OF FLSA REQUIREMENTS Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–1 Subject Matter Covered by FLSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–1 Subject Matter Not Covered by FLSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–3 Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–3 Equal Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–4

Chapter Two: TO WHOM DOES THE FLSA APPLY? Covered Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2–1 Covered Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2–9 Chapter Two Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2–14 Chapter Two Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2–19

Chapter Three: CHILD LABOR PROVISIONS Type of Work Performed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–1 Limitation on Number of Hours Worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–3 Minimum Wage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–4 Age Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–4 State Law Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–5 Chapter Three Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–5 Chapter Three Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3–9

Chapter Four: MINIMUM WAGE Extra Hours Worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–1 Exceptions to Minimum Wage Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–2

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Non-Hourly Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–5 Payroll Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–7 State Minimum Wage Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–8 Chapter Four Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–9 Chapter Four Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4–11

Chapter Five: OVERTIME BASICS What Is the FLSA “Workweek”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–1 Compensatory Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–4 Chapter Five Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–7 Chapter Five Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–11

Chapter Six: WORK TIME ISSUES If They Work, You Must Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6–1 Controlling Overtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6–6 Is It “Work Time”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6–7 Chapter Six Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6–24 Chapter Six Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6–29

Chapter Seven: CALCULATING OVERTIME Total Compensation in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–2 Payments That Are Included in Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–2 Payments That May Be Excluded from Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–7 Exceptions to the Regular Rate Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–12 Calculating Overtime for Hourly Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–13 Calculating Overtime for Salaried Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–18 Calculating Overtime for Piece Rate/Day Rate Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–22 Calculating Overtime for Fire Protection and Law Enforcement Personnel . . . . . . . . . . . . . . 7–23 Chapter Seven Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–23 Chapter Seven Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7–31

Chapter Eight: FLSA EXEMPTIONS Overview of Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–2 Motor Carrier Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–3 iv


Contents

Commissioned Retail and Service Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–6 Home Health Aides/Domestic Service Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–9 Other Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–11 Chapter Eight Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–11 Chapter Eight Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–15

Chapter Nine: WHITE COLLAR EXEMPTIONS Key Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–2 Executive Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–5 Administrative Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–11 Professional Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–17 Computer Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–21 Outside Sales Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–24 Highly Compensated Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–25 Conducting an Exemption Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–26 Chapter Nine Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–30 Chapter Nine Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9–35

Chapter Ten: PAYMENT ON A SALARIED BASIS Permissible Deductions from Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–2 Effect of Improper Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–8 Protecting Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–10 Fee Basis Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–12 Chapter Ten Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–13 Chapter Ten Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–17

Chapter Eleven: ENFORCEMENT, LITITGATION, AND RECORDKEEPING DOL Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–2 FLSA Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–6 Retaliation Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–14 Recordkeeping Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–15 DOL Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–18 Chapter Eleven Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11–20

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Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N–1

Appendix A: ANSWER KEY FOR QUIZ QUESTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A–1

Appendix B: OVERVIEW OF CHAPTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B–1

Appendix C: EXEMPTION AUDIT CHECKLIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C–1

Appendix D: YOUTH POSTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D–1

Appendix E: STATE LAW COMPARISON State Child Labor Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E–1 State Minimum Wage Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E–27 State Overtime Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E–51

Appendix F: SAMPLE & MODEL POLICIES Employee Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–1 Hours of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–2 Jury Duty/Witness Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–3 Time Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–4 Overtime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–5 Compensatory Compensation for Exempt Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–6 Sample Policy Language: Disciplinary Suspensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–7 Sample Policy on Deductions from Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–8 Model Salary Basis Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–10 Wage and Salary Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F–12

Appendix G: THE FAIR LABOR STANDARDS ACT AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G–1

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INTRODUCTION

hat do Wal-Mart Stores, Inc.; Lowe’s Home Improvement Warehouse; Cintas Corporation; Wachovia Securities; and Washington Mutual, Inc., all have in common? They are all employers that were heavily hit by hefty wage and hour settlements in the past year. To toss out a few numbers, what would a $22.75 million settlement mean for your business?1 How about $39 million?2 $65 million?3 What about $1 billion?4

W

Wage and hour compliance issues may well be the single greatest source of worry for employers — at least those who are reading the headlines. Historically, lawsuits arising from wage and hour issues have outnumbered lawsuits filed in federal district courts in relation to all other kinds of employment claims combined. In the wake of the Great Recession, with many displaced workers seeking legal remedies, the number of wage and hour suits has only continued to rise. According to Seyfarth Shaw’s sixth annual Workplace Class Action Litigation Report,5 in 2009 collective actions pursued in federal court under the Fair Labor Standards Act (FLSA)6 continued to outnumber all other types of private class actions in employment-related cases. Class actions are particularly prevalent in FLSA litigation because if an employer miscalculated wages for one employee, there is a good chance that other employees also were affected. In these actions, each individual employee’s claim for unpaid overtime and/or minimum wages may be quite small — a few hundred dollars, even. But when a number of similarly situated employees file their claims jointly in a class action lawsuit, the resulting damages can be enormous. For some, the stakes are simply getting too high. In December 2008, Wal-Mart agreed to a $350 million settlement plan to address a backlog of wage and hour suits filed by employees across the country. Last year, the 10 largest private wage and hour settlements totaled over $360 million. Then, dwarfing this number, telecommunications giant AT&T began 2010 under the weight of not one, vii


Wage & Hour Compliance — Practical Solutions for HR

but two wage and hour lawsuits, together seeking a total of $1 billion in damages and back pay for 5,000 current and former employees. Further, the Obama administration has strongly committed to an emphasis on federal regulation and enforcement, which will result in even more government initiated lawsuits. For the 2010 and 2011 federal fiscal years, millions of budget dollars, hundreds of employees, and countless hours of time have been specifically dedicated to ramping up enforcement of existing federal laws. For example, in 2009, the Government Accountability Office (GAO) urged both the Department of Labor (DOL) and the Internal Revenue Service (IRS) to step up efforts to uncover employers’ misclassification of workers as independent contractors instead of employees. In response, the IRS began a series of random audits that will examine around 6,000 U.S. employers for proper worker classification and tax compliance over the next three years. The IRS also allocated a significant part of its generous FY 2010 budget toward enforcement activities, specifically targeting issues such as employee misclassification. The DOL, also a key player in this era of enforcement, hopes to return worker protection agencies to staffing levels that were present in 2001, with plans to hire an additional 177 inspectors, investigators, and other staff over the next year. Specifically, 90 of these enforcement personnel (to the budgetary tune of $244 million) will serve the Wage and Hour Division (WHD), providing better protection to workers with an emphasis on curbing misclassification. This manual is intended to give you the information and tools you need to spot potential wage and hour problems in your organization, as well as offering practical, real-life solutions for those problems. Each chapter contains realistic, detailed examples to illustrate the concepts discussed. At the end of each chapter, you can test your knowledge and understanding of the subject matter covered with a multiple-choice quiz. The answer key (provided in Appendix A) provides detailed explanations of the correct answers. Also included in the Appendices are many tools to aid you in your compliance efforts, including:

• An exemption audit checklist that employers may use in applying the white collar overtime exemptions;

• A chart summarizing the overtime laws of all 50 states; • A chart summarizing the minimum wage laws of all 50 states; • A chart summarizing the maximum hours that may be worked by minors in all 50 states; • Several sample wage and hour policies; and • The full text of the FLSA and many of the most relevant regulations. In short, by troubleshooting for the issues highlighted in this book, you should be able to greatly reduce your organization’s exposure to wage and hour claims. viii


Wage Hour Manual