FLSA Rules, Regulations & Classification Standards

Term Definition Introduced In

DOL A federal department responsible for wage and hour standards, unemployment and employment services, occupational safety, and some economic statistics; United States Department of Labor Module 1

FLSAA complex law that deals with a range of topic areas including minimum wage, overtime pay, wage and hour recordkeeping, and child labor standards affecting full-time and part-time workers in federal, state, and local governments, and the private sector; Fair Labor Standards Act Module 1

Fluctuating-Workweek Method

A method for paying an employee for their hours worked irrespective of whether or not the employee works more than 40 hours during that week, overtime is calculated with the employee's salary for all work perform during a week on a straight-time basis. Module 5

Minimum Wage The federal minimum hourly compensation rate contained in the FLSA Module 5

"No Pay Docking Rule" A requirement that an employer may not provide less than the guaranteed weekly salary to an exempt employee, unless one of the seven exceptions to the rule applies Module 3

Overtime Premium Pay A method for paying overtime to an employee during hours worked earning premium pay - requires a contract between the employer and employee Module 5

Premium Pay The amount paid to an employee for working weekends, late shifts, or other duties requiring additional compensation - requires a contract between the employer and employee Module 5

Reclassification The process for reclassifying an employee from either an exempt to non-exempt status or non-exempt to exempt status Module 4

WHD A division within the U.S. Department of Labor that administers the FLSA; Wage and Hour Division Module 1Youth Minimum Wage Rate

A section of the FLSA that allows employers to pay a wage no less than $4.25 an hour to employees under 20 years of age for a period of 90 calendar days after they are first employed Module 1

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FLSA Rules, Regulations and Classification Standards Module One Male: Okay, Module one, FLSA Key Elements. As an overview of the FLSA,

understand that it prescribes standards for basic minimum wage and overtime pay and

affects most private and public employment. It requires employers to pay covered

employees who are not otherwise exempt at least the federal minimum wage and

overtime pay of one and one-half times the regular rate of pay for hours worked over 40

in a work week.

For non-agricultural operations, it restricts the hours that children under

the age of 16 can work. And it forbids the employment of children under age 18 in

certain jobs deemed too dangerous.

For agricultural operations, it prohibits the employment of children under

age 16 during school hours and in certain jobs deemed, again, too dangerous.

The Act is administered by the Employment Standards Administration's

Wage and Hour Division within the U.S. Department of Labor which I'll refer to as WHD,

the Wage and Hour Division. I won't be addressing government entities, in other words

public employment, during our brief time together. Be aware that every employer of

employees subject to the FLSA's minimum wage and overtime provisions must post a

notice explaining the Act. You need to have that up in a conspicuous place, 24/7 where

workers are likely to see it. If you want, you can get a free copy of the poster from the

Department of Labor website www.dol.gov.

Also do note that there are some jobs excluded from FLSA coverage. In

that regard, there are two general types of exclusion. Some jobs are specifically

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excluded from overtime coverage in the statute itself. Like employees of movie theaters

and many agricultural workers. Another type of exclusion is for jobs which are governed

by some other specific federal law. Let me give you an example. Most railroad workers

are governed by the Railway Labor Act and many truck drivers are governed by the

Motor Carriers Act. Again, not at all by the FLSA. You are going to find that many of

the FLSA exclusions in Section 213 of the FLSA. Once again, if you want to see the

specific exclusions, look at Section 213 of the FLSA. Everyone, as a general rule, if a

job is governed by some other federal labor law, the FLSA isn't going to apply.

Now I suspect that you all know that there is a federal minimum wage and

that a number of states have their own minimum wage rates. Whichever minimum

wage rate is higher, federal or state, that's what takes precedence. There is an internal

link, rather an Internet link, in your workbook that you can follow to find out what's going

on in your own individual state.

Okay, all right. Understand that the Act requires employers of covered

employees, who are not otherwise exempt, to pay those employees the minimum wage

of not less than $7.25 per hour. That became effective July 24, 2009. Now youths

under 20 years of age may be paid a minimum wage of not less than $4.25 an hour

during the first 90 consecutive calendars of employment with you, you the employer,

and I'm going to go into more depth on that in just a minute or so. You may pay

employees on a piece rate basis as long as they receive at least the equivalent of the

required minimum hourly wage rate and overtime for hours worked in excess of 40 in a

work week.

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Now some of you have tipped employees. So employers of tipped

employees, and that means those who customarily and regularly receive more than $30

a month in tips, may consider such tips as part of their wages. But, you, the employer,

must pay a direct wage of at least $2.13 an hour if you are going to claim a tip credit.

Now that's another topic I'm going to go into in more depth in just a minute or so.

Now the Act also permits the employment of certain individuals at wage

rates below the statutory minimum wage under certain certificates that are issued by the

Department of Labor. Obviously, you have to apply for it, get a certificate for what I'm

about to explain. Now those individuals are: student learners, in other words,

vocational education students; full-time students in retail or service establishments;

agriculture or institutions of higher learning; and individuals who's earning or productive

capacities for the work to be performed are impaired by physical or mental disabilities

including those related to age or to injury. So again, with that last one, you are allowed

to pay lower than the normal minimum wage for people with disabilities if you get a

certain certificate from the Department of Labor.

Now here are a couple of things I get asked about a lot. The Act does not

limit either the number of hours in a day or the number of hours in a week that an

employer may require an employee to work. As long as the employee is at least 16

years old.

Similarly, the Act does not limit the number of hours of overtime that may

be scheduled. Obviously, everyone, don't forget, of course, that you can work people

as long as you want and that they will let you. But you've got to pay covered

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employees, those that are not exempt from overtime, not less than one and one-half

times their regular rate of pay for all hours worked in excess of 40 in a work week.

Again, unless that employee is exempt from overtime.

Here's something that might interest some of you. The Act prohibits

performance of certain types of work in an employee's home. Unless the employer has

obtained prior certification from DOL, the Department of Labor. For example,

restrictions apply in the manufacture of knitted outerwear, gloves and mittens, buttons

and buckles, handkerchiefs, embroideries and jewelry where safety and health hazards

aren't involved. All right? And employers wishing to employ home workers in those

kinds of industries, are required to provide written assurances to DOL that they, the

employer, will comply with the Act's wage and hour requirements, among other things.

Also the Act generally prohibits the manufacture of women's apparel and

jewelry under hazardous conditions in the home except under special certificates, again,

that have to be issued by DOL. This can happen where the employee can't adjust to

factory work because of age or a disability, physical or mental, or that they have to stay

home to take care of a disabled individual, again, in their house.

All right. Let me go over the tipped employees and tipped credit issue that

I mentioned just a few seconds ago. Tipped employees are those who customarily and

regularly receive more than $30.00 a month in tips. And, everyone, tips are the property

of the employee. You, the employer, you are prohibited from using an employee's tips

for any reason other than as a credit against your minimum wage obligation to that

employee. Or, in furtherance of a valid tip pool. I will explain tip pools in just a moment.

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Now only tips actually received by the employee can be counted in

determining whether the employee is a tipped employee and in applying the tip credit.

Please understand that a tip is the sole property of the tipped employee, regardless of

whether the employer takes a tip credit.

Now the FLSA prohibits any arrangement between the employer and the

tipped employee whereby any part of the tip received becomes the property of the

employer. An example, let me give you an example. Let's say that you have a tipped

employee and they receive at least $7.25 an hour in wages directly from the employer.

Now, the employee may not be required to turn over their tips to the employer. So even

if you are paying minimum wage, they get to keep the tips on top of it.

Now regarding the tip credit, Section 3m, M as in Mike, that's a lower case

m of the FLSA, 3m permits an employer to take a tip credit towards it's minimum wage

obligation for tipped employees equal to the difference between the required cash wage

which must be at least $2.13 an hour and the Federal Minimum Wage. Therefore, the

maximum tip credit you can currently claim under the FLSA is $5.12 per hour, being the

minimum wage of $7.25, minus the minimum required cash wage of $2.13. Okay?

Now, if an employee's tips, combined with the employer's direct wages of

at least $2.13 an hour, do not equal the minimum hourly wage of $7.25, then you have

to make up the difference. Of course, that would be on like a week-to-week sort of a

basis. Now, if you are going to claim the tip credit, then you must provide certain

information either orally or in writing to a tipped employee before you can actually use

the tip credit.

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That information is:

1. The amount of cash wage the employer is paying a tipped

employee. Which, as I've already said a couple of times, has to be at least $2.13 an

hour.

2. You have to tell them about the additional amount claimed

by you, the employer, as a tip credit. That can't, at the moment anyway, exceed $5.12.

3. You have to let them know that the tip credit claimed by you,

the employer, can't exceed the amount of tips actually received by the tipped employee.

4. That all tips received by the tipped employee are to be

retained by the employee except for a valid tip pooling arrangement limited to

employees who customarily and regularly receive tips. And the fifth item.

5. The tip credit will not apply to any tipped employees unless

the employee has been informed of those tip credit provisions.

Now everyone, obviously, I urge you to notify tipped employees in writing

if you are going to actually claim the tip credit.

Let's discuss tip pools. The requirement that an employee must retain all

tips doesn't preclude a valid tip pooling or sharing arrangement among employees who

customarily and regularly receive tips. Examples of that would be wait staff, waiters,

waitresses, bellhops, counter personnel who serve customers, bussers and service

bartenders. Now a valid tip pool cannot include employees who do not customarily and

regularly receive tips such as: dishwashers, cooks, chefs and janitors. Please be

aware of that.

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Now the FLSA does not impose a maximum contribution amount or

percentage on valid mandatory tip pools. However anything above 15 percent is

probably going to be deemed to be excessive.

By the way, I get asked a lot if mandatory service charges on a bill or a

credit card service charge is a tip. They are not. A compulsory charge for service, for

example, let's say 15 percent of the bill, is not a tip. Those charges are part of the

employer's gross receipts. Some are distributed to employees from service charges

can't be counted as tips received. But, of course, they can be used to satisfy the

employer's minimum wage and overtime obligations under the FLSA. If an employee

receives tips in addition to the compulsory service charge, those tips may be considered

in determining whether the employee is a tipped employee and in the application of the

tip credit.

Where tips are charged on a credit card, and the employer must pay the

credit card company a percentage of each sale, the employer may pay the employee

the tip less that percentage. For example, where a credit card company charges an

employer three percent on all sales charged to it's credit service, the employer may pay

the tipped employee 97 percent of the tips without violating the FLSA. However, this

charge on the tip may not reduce the employee's wage below the required minimum

wage. Now the amount due to the employee must be paid no later than the regular

payday and may not be held while the employer is waiting for reimbursement from the

credit card company. All right?

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Now let me switch gears a little bit and tell you about the youth minimum

wage. Section 6g, g as in golf, Section 6g of the FLSA, as amended by the 1996 FLSA

amendments, allows employers to pay a youth minimum wage of not less than $4.25 an

hour to employees who are under 20 years of age during the first consecutive calendar

days after initial employment. You can, of course, pay more than $4.25 an hour to

eligible workers during that 90-day period. Now only employees under 20 years old can

be paid the youth minimum wage. And only again during the first 90 consecutive

calendar days after initial employment by you, the employer.

Now the eligibility period runs for those 90 days beginning with the first

day of work for an employer. It doesn't matter when the job offer was made or accepted

or when the employee was considered "hired". The 90-day period starts with, and

includes, the first day of work for the employer. The 90-day period is counted as

consecutive days on the calendar, not days of work. It simply doesn't matter how many

days during that period the youth actually performs any work. Also if the youth leaves

your employ for a few weeks or months, or whatever, the 90 days continue to run from

their first day of work. Do note that the law contains certain protections for employees

that prohibit employers from displacing any employee to hire someone at the youth

minimum wage. So, in plain language, you can't just churn employees every 90 days;

turn them over so you can hire someone under 20. You can't displace someone over

20 just to get rid of them to replace them with someone under that age.

Now the youth minimum wage applies to all employers covered by the

FLSA unless prohibited by state or local law. If state or local law requires payment of a

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minimum wage higher than $4.25 an hour and makes no exception for employees under

age 20, the higher state or local minimum wage standard is going to take precedence.

That's what's going to apply.

Finally, if the employee turns 20 during that 90 days, you can only use the

lower rate until basically through the day before their birthday. So it's one day before

their birthday.

Regarding overtime, let me go over just one or two very simple basics

now. I'm going to go over overtime in more depth when I get to module five.

Now unless specifically exempted, employees covered by the Act must

receive overtime pay for hours worked in excess of 40 in a work week at a rate not less

than time and one-half their regular rates of pay. As I said earlier, there is no limit in the

Act on the number of hours employees age 16 or older can work in any workweek.

In a few minutes, I'll be going over the differences between workers

exempt from overtime and those who are not.

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FLSA Rules, Regulations and Classification Standards Module Two Male: For right now, let me take us into module two, Youth Employment for Non-

Agricultural Occupations.

Both federal and state laws govern the employment of youth workers.

When both are applicable, the law with the stricter standard has to be obeyed. The

federal youth employment provisions do not require minors to obtain working papers or

work permits. Although a number of states actually do. The federal laws also don't

restrict the number of hours or times of day that workers 16 years of age or older can be

employed. Although, once again, many states do.

The federal law also does not apply where no FLSA employment

relationship exists. It also doesn't regulate or require such things as breaks, meal

periods or fringe benefits. It does not regulate such issues as discrimination,

harassment, verbal or physical abuse or morality, though other federal and state laws

could very well do that.

Let me tell you about child labor. I want to start with minimum age

standards for employment. Children of any age are generally permitted to work for

businesses entirely owned by their parents. Except those under age 16 may not be

employed in mining or manufacturing. No one under 18 may be employed in any

occupation the Secretary of Labor has declared to be hazardous. As far as the age

breakdown, once the youth reaches 18 years of age, he or she is no longer subject to

the federal youth employment provisions.

Now the basic minimum wage for employment, let's talk about that.

Sixteen and 17 year olds may be employed for unlimited hours in any occupation other

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than those, as I've already said, declared hazardous by the Secretary of Labor. Young

persons 14 and 15 years of ago may be employed outside school hours in a variety of

non-manufacturing and non-hazardous jobs for limited periods of time and under

specified conditions.

Children under 14 years of age may not be employed in non-agricultural

occupations covered by the FLSA. Permissible employment for those kinds of children

is limited to work that is exempt from the FLSA such as delivering newspapers to a

consumer or being a child actor. Now children may also perform work not covered by

the FLSA such as completing minor chores around private homes or casual babysitting.

I want to talk about occupations banned for all minors under the age of 18.

The FLSA establishes an 18 year minimum age for those non-agricultural occupations

that the Secretary of Labor finds and declares to be particularly hazardous for 16 and 17

year old minors or detrimental to their health or well being. Now child labor regulation

number three bans 14 and 15 year olds from performing any work proscribed by the

hazardous occupations.

Now, at this moment everyone, there are currently 17 hazardous

occupations which include a partial or total ban on the occupations or industries they

cover. The first one, hazardous occupation one is called manufacturing or storing

explosives. This one bans minors working where explosives are manufactured or

stored. But it permits work in retail stores selling ammunition, gun shops, trap and skeet

ranges and police stations.

Now hazardous occupation two is titled driving a motor vehicle or work as

an outside helper on motor vehicles. This one bans operating motor vehicles on public

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roads and working as outside helpers on motor vehicles except that 17 year olds may

drive cars or small trucks during daylight hours for limited times and under strictly limited

circumstances.

Hazardous occupation three is coal mining. Everyone, just generally, this

one bans most jobs in coal mining.

Now hazardous occupation four has a kind of long title to it. It's

occupations in forest fire fighting, forest fire prevention, timber tract, forestry service and

occupations in logging and sawmilling occupations. As you can well imagine, this one

bans most jobs in forest fire fighting, forest fire prevention that entails extinguishing an

actual fire. Timber tract management, forestry services, logging and sawmills.

Now hazardous occupation five is titled power driven woodworking

machines. It bans the operation of most power driven woodworking machines including

chain saws, nail machines, nailing guns and sanders.

Hazardous occupation six is titled exposure to radioactive substances and

ionizing radiation. That bans employment of minors where they are exposed to

radioactive materials. I suspect most of us don't want to work around those things

anyway.

Hazardous occupation seven is titled power driven hoisting apparatus. It

bans operation or operating, if you will, riding on and assisting in the operation of most

power driven hoisting apparatus such as forklifts, non-automatic elevators, bobcat

loaders, skid steer loaders, backhoes, man lifts, scissor lifts, cherry pickers, work assist

platforms, boom trucks and cranes. Interestingly, it does not apply to chairlifts at ski

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resorts or electric and pneumatic lifts used to raise cars in garages and gasoline service

stations.

Hazardous occupation eight is titled power driven metal forming, punching

and shearing machines. It bans the operation of certain power driven metalworking

machines, but permits the use of most machine tools.

Hazardous occupation nine is mining, other than coal. It bans most jobs in

mining at metal mines, quarries, aggregate mines and other mining sites including

underground work in mines, work in or about open cut mines, open quarries and sand

and gravel operations.

Hazardous occupation 10 is titled power driven meat processing

machines, slaughtering and meat packing plants. Everyone, I think this is fairly obvious.

It bans the operation of power driven meat-processing machines such as meat slicers,

saws and meat choppers wherever used, including restaurants and delicatessens. It

also prohibits minors from cleaning that kind of equipment including the handwashing of

the disassembled machine parts. That ban includes the use of this machinery on items

other than meat, such as cheese and vegetables.

Hazardous occupation 10, this one about the meat processing machines,

also bans most jobs in meat and poultry slaughtering, processing, rendering and

packing establishments.

Hazardous occupation 11 is power driven bakery machines. This one,

again, as the name implies, bans the operation of power driven bakery machines such

as vertical dough and batter mixers, dough rollers, rounders, dividers and sheeters and

cookie or cracker machines. Here's something interesting on this one. It permits 16

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and 17 year olds to operate certain lightweight, small portable countertop mixers and

certain pizza dough rollers under certain conditions. Of course, that's why we see

teenagers working in pizza shops. They are allowed to.

Hazardous occupation 12 deals with balers, compactors, and power

driven paper products machines. It bans the operation of all compactors and balers,

and certain power driven paper product machines such as plate and type printing

presses and envelope die cutting presses. Now 16 and 17 year olds may load. But not

operate or unload certain scrap paper balers and paper box compactors under very

specific guidelines.

Hazardous occupation 13 is the manufacture of brick, tile and related

products. It bans most jobs dealing with the manufacture of those things.

Hazardous occupation 14 power driven circular saws, band saws,

guillotine shears, chainsaws, reciprocating saws, wood chippers and abrasive cutting

disks. We all understand what that's all about.

Hazardous occupation 15 is wrecking, demolition and ship breaking

operations. This one bans most jobs in those kinds of activities.

Hazardous occupation 16 are roofing operations and work performed on

or about a roof. It bans most jobs in roofing operations, including work performed on

the ground and removal of the old roof and all work on or about a roof.

Now the last one, hazardous occupation 17 is trenching and excavation

operations. It bans most jobs in trenching and excavation work, including working in a

trench more than four feet deep. Good deal.

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FLSA Rules, Regulations and Classification Standards Module Three Male: Everyone, let's move onto module three. Job classifications exempt from

overtime. Now employees who jobs are governed by the FLSA are either exempt or

non-exempt. Non-exempt employees are entitled to overtime pay. Exempt employees

are not. Most employees covered by the FLSA are non-exempt, although some are not.

Some jobs are classified as exempt by definition. For example, outside

sales employees are exempt. They do all their work outside, etc. Inside salespeople

who do most of their work inside of the facility, are not exempt. For most employees,

when we talk about exemptions, they are exempt or non-exempt. Whether or not they

are, depends on how much they are paid, how they are paid and what kind of work they

do. With very few exceptions, to be exempt an employee must be paid at least $23,600

a year. An easier way to think about that is a minimum of $455 a week and be paid on

a salaried basis and also perform exempt job duties. Now those requirements are

outlined in the FLSA regulations. I'm going to be going over that for you right now.

The first test is the salary level test. Employees who are paid less than

$23,600 per year, $455 a week, are non-exempt. Even if they are doing exempt duties,

that's it. I will tell you that most employees who earn more than $100,000 a year, and

are not performing manual labor, are generally going to be found to be exempt.

The next test as to whether or not they are exempt, is the salary basis

test. The first one was salary level, have to be paid at least $455 a week in a salary.

Now here we come to the salary basis test. Generally an employee paid on a salary

basis if they have a guaranteed minimum amount of money they can count on receiving

for any workweek in which they perform any work. Now that means even if the worker

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only works for a few minutes during a given day, they get paid for the entire day. The

guaranteed minimum does not have to be the entire compensation received, but there

must be some amount of pay the employee can count on receiving in any workweek in

which they perform any work.

Now some rules of thumb indicating that an employee is paid on a salary

basis include whether an employee's base pay is computed from an annual figure

divided by the number of paydays in a year, or whether an employee's actual pay is

lower in work periods where they work fewer than the normal number of hours. So if it's

just a straightforward deal, that's a pretty good indicator, that's an indicia, that they are

exempt. But if it rises and falls based on the quantity or quality of work, that doesn't

look so good.

Whether an employee is paid on a salary basis is a fact. It either is or

isn't. Therefore specific evaluation of particular circumstances is necessary. Whether

an employee is paid on a salary basis is not affected by whether pay is expressed in

hourly terms. Hourly terms, a lot of the payroll systems actually break it down that way.

But really it's whether the employee is, in fact, guaranteed that minimum amount of pay

every week.

Now the FLSA salary basis test applies only to reductions in monetary

amounts. Requiring an employee to charge absences from work to leave accruals is

not a reduction in pay. Because basically the monetary amount of the employee's

paycheck remains the same.

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Similarly, paying an employee more than the guaranteed salary amount

isn't normally inconsistent with salary basis status because that doesn't result in any

reduction in base pay.

I want to expand on this just a little bit. Everyone, let's say that you have a

vacation time policy where an exempt employee has to take their PTO time in blocks of

four hours. So an employee has eight hours in their leave bank. They call you up one

morning and they say 'Listen, I'm thinking about buying a car. I'm going to go down to

the dealership this morning.' They come in a half-hour late. So you pay them for the

whole day. But, you take away four hours out of their leave bank. A few days later they

say 'I've decided to buy that car. I'm going to go do the paperwork.' They come in an

hour late. Again you pay them for the whole day. But now you wipe out their vacation

account. They have no time left in their leave bank.

The next week they call up and they say 'Listen, I'm going to go pick my

new car up.' They come in an hour late. Everyone, you still must pay them for the

whole day if they do any work at all that day. You have to pay them. I know some of

you are saying 'But they don't have any leave time left.' Everyone, it doesn't matter. If

you want to put them into a negative balance and they earn it back out, fine. But the

point is, if you try to dock their pay on a day when they did any work, you are going to

lose that exemption. You will then have to start paying them overtime on an ongoing

basis. All right?

What I'm saying is that, with some exceptions, the base pay of the salary

basis employee that's exempt may not be reduced based on the quantity or quality of

work performed. That usually means the base pay of the salary basis employee can't

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be reduced if they perform less work than normal if the reason for that is determined by

the employer. For example, this kind of exempt employee's base pay can't be reduced

if there is no work to be performed such as a plant closing or a slow period or something

like that.

There are various times when you can dock someone's base pay in full

day increments. That would be where, let's say they have no leave time coming, they

take a personal day off. They do no work whatsoever. They don't come in. They don't

call in. They don't check their email. Nothing at all. Then you can take that day away

from them.

You can also take away a full day for legitimate disciplinary suspensions.

But again, it has to be in full day increments and it can't include a day where they did

any work. So that if I have an exempt employee who I find out has been engaged in,

let's say, sexual harassment. I say 'I'm suspending you. I want you to leave right now.

I don't want to see you here for three days.' I'm going to have to pay him for today

because he did some work. The following days where there is a full suspension. If they

do no work whatsoever. Then, bingo, I can take away that pay, I can dock their pay.

Also, everyone, there are various things under the FLSA dealing with sick

pay. Let us say, for example, that you have a company that has no sick time program

at all. We have an exempt employee who has no sick time leave built up at all. There

is no program. They miss an entire day because they are sick. They do no work

whatsoever. You will have to pay them for that day. However, let us say you do have a

sick time program. The person has simply used up all their accrual. They are now sick

for an entire day. Do no work whatsoever. You don't have to pay them for that day.

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You can also dock for the appropriate number of hours during the first week that

someone comes to work for you if they work less than the full week. And then the week

that they leave your employ.

Also FMLA leave under the Family Medical Leave Act is nonpaid leave.

As a consequence, if they are out on FMLA leave and/or intermittent FMLA leave, you

can dock their pay for that. Basically there can be permissible and impermissible

reductions in salary basis pay. Permissible reductions have no effect on their exempt

status. Impermissible ones, though, might overturn the apple cart.

I'll tell you where most people end up not being exempt is the last test, the

duties test. An employee who meets the salary level test, and also the salary basis test,

is exempt only if they also perform exempt job duties. Whether the duties of a particular

job qualify as exempt depends on what they are. Job titles or position descriptions are

not useful, they are not dispositive. They don't mean anything. A secretary is still a

secretary. I don't care if you call her an administrative assistant. The Chief Executive

Officer is still the CEO, even if you call him a janitor or her a janitor. It's the actual job

tasks that have to be evaluated. Along with the particular job tasks fit into the

employer's overall operations.

There are three like major categories of exempt job duties. There is

executive. There is administrative. There is professional.

Let's begin with executive exempt job duties. Job duties are exempt,

executive job duties, if the employee:

1. Regularly supervises two or more other employees; and

2. Has management as the primary duty of that position; and

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3. Who also has some genuine input into the job status of other

employees such as hiring, firing, promotions or assignments.

Supervision means exactly what the commonsense meaning of it implies.

The supervision must be a regular part of the employee's job and must be of other

employees. Supervision of nonemployees does not meet the standard. The two

employees requirement may be met by supervising two full-time employees or the

equivalent number of part-time employees. In other words, you are just looking at the

equivalent of two 40-hour workers, no matter how that's kind of sliced and diced.

Mere supervision isn't sufficient. In addition, the supervisor employee

must have management as the primary duty of their job. The FLSA regulations contain

a list of typical management duties. They include, in addition to supervision,

interviewing, selecting and training employees, setting rates of pay and hours of work,

maintaining production or sales records beyond merely clerical kinds of functions,

appraising productivity, handling employee grievances or complaints, or disciplining

employees. Determining work techniques, planning the work, apportioning work among

employees, determining the types of equipment to be used in performing work or

materials needed. Planning budgets for work, monitoring work for legal or regulatory

compliance, and providing for safety and security of the workplace.

Now determining whether an employee has management as their primary

duty requires, again, a case-by-case evaluation. You have to ask yourself, is the

person in charge of a recognized department or subdivision of the enterprise? Are they

in charge of a shift?

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An employee can qualify as performing executive duties, even if they

perform a variety of regular job duties as well. For example, the night manager at a fast

food restaurant may, in reality, spend a lot of the shift preparing food and serving

customers. However, they are the boss, even when not engaged in active bossing

duties, if you will. In the event that some executive decisions are required, that person

is there to make them, that is generally going to be sufficient. Think of it this way,

everyone, if at least 51 percent of the time they are doing exempt things that's going to

be fine. Even if the rest of it, 49 percent is not exempt.

Some of you say 'Oh, no, I thought there was a rule if they do more than

20 percent nonexempt work that knocks them out of the box.' Everyone, that all

changed back in 2004.

Now the final requirement for the executive exemption is that the

employee have genuine input into personnel matters. That doesn't require that the

employee be the final decision maker on those things, but rather that the employee's

input is given weight, particular weight. Usually it means that making personnel

recommendations is part of their normal job duties. That the employee makes these

kinds of recommendations frequently enough to be a real part of the job. And that

higher management takes the employee's personnel suggestions and recommendations

seriously.

Now let me tell you about the most difficult one to understand, exempt

administrative job duties. The most elusive and imprecise of the definitions of exempt

job duties is for exempt administrative job duties. The regulatory definition provides that

exempt administrative job duties are office or non-manual work which is directly related

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to management or general business operations of the employer or the employer's

customers. And a primary component of which involves the exercise of independent

judgment and discretion about matters of significance.

Now the administrative exemption is designed for relatively high level

employees who's main job is to keep the place running. A useful rule of thumb is to

distinguish administrative employees from operational or production employees.

Employees who makes what the business sells are not administrative employees.

Administrative employees provide support to the operational or production employees.

They are staff, rather than line employees.

Examples of administrative functions include labor relations and

personnel. In other words, human resources employees. Payroll and finance, including

budgeting and benefits management. Records maintenance, but not just clerical.

Accounting and tax work. Marketing and advertising as differentiated from direct sales.

Quality control. Public relations, including shareholder investment relations and

governmental relations. Legal and regulatory compliances. Some high level computer-

related jobs such as network, Internet and database administration.

Again, someone to be exempt has to exercise a fair amount of

independent judgment, discretion over matters of real significance. To be exempt under

the administrative exemption, the staff for support work has to be office or non-manual.

And, I'll say it for the third time, must be of matters of significance.

Employees perform office or non-manual work but are not administratively

exempt. Nor is administrative work exempt just because it's financially important. In

other words, in the sense that the employer would experience financial losses if the

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employee fails to perform competently, that isn't the criteria. It's is that employee

making a decision about these things rather than if they are incompetent. They don't do

their job well, then we are going to suffer a loss.

Once again, administratively exempt work typically involves the exercise

of discretion and judgment with the authority to make independent decisions on matters

which affect the business as a whole, or at least a significant part of it.

Questions to ask in this regard is whether the employee has the authority

to formulate or interpret company policies. Let's say that I'm the HR Director of a

company. I've got a counterpart at another company. Every thing is equal between us

except for this, when that person suggests a new policy or procedure, generally even

though they are not the final decision maker, that company goes with it. Now, in my

case in my example, I want to make a decision, but I always get slapped down. We can

all understand that even though everything else is equal, salary and status and job title

so on and so forth, that person is exempt. I am not.

You might also look at how to measure what the employee's assignments

are in relation to the overall business operations of the enterprise. Many years ago, I

was the Director of Operations for a really large food service company. We were a $60

million a year company. We said that one of our buyers, one of our Assistant Buyers

was exempt. The problem was she had a limit of $25,000 before she had to come and

get permission to spend any more. The Wage and Hour Division audited us and they

felt that $25,000 was absolutely nothing when someone, when the department was

buying millions and millions of dollars in materials. Therefore they said she was not

exempt. We had to go back and pay her back overtime and so forth.

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Let me give you one more of these exemptions. It's the exempt

professional job duties one. The job duties of a traditional learned professions are

exempt. That include lawyers and doctors and dentists and teachers, architects and

clergy and things like that. You also might find professional exempt work to mean work

that's predominantly intellectual, requires a specialized education and involves the

exercise, again, of discretion and judgment. To be professionally exempt worker's have

to have an education beyond high school, and actually usually beyond college. And in

fields that are distinguished from more academic things. In other words, it has to be an

advanced degree of some type.

Also in this category employees might be exempt if they perform creative

professional job duties. That would be people like actors and musicians, composers,

writers, cartoonists and some journalists. This exemption, that part of it, is meant to

cover employees in those kinds of jobs whose work requires invention, imagination,

originality or talent. And who contribute a unique interpretation or analysis.

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FLSA Rules, Regulations and Classification Standards Module Male: Now let's turn our attention to module four, Misclassification. There is a

greater danger that you will be audited by Wage and Hour today than at any other time

that I can remember. Let me tell you why I say that. At the Wage and Hour Division

stakeholder meeting that was held May 21, 2010, Wage and Hour Division Deputy

Administrator Nancy Lempink announced the agency would be pursuing an aggressive

auditing and enforcement policy. She said that DOL would target employers that had

been setting the pace in the race for the bottom of the compensation scale by

misclassifying workers as independent contractors or otherwise treating qualifying

employees as exempt from the payment of overtime. Everyone, she wasn't kidding. In

the last few years WHD has hired literally hundreds of investigators to look into, among

other things, misclassification of non-exempt workers as being exempt from overtime.

Now WHD can audit back two years. If it feels that whatever it finds done wrong was

done willfully, it can audit back three years and hit you with not only the amount you

should have paid in back overtime, but also liquidated damages equal to double the

amount of overtime you should have paid, plus attorney's fees. Big numbers. Big risks.

Let me give you some suggestions for avoiding FLSA penalties and back

pay lawsuits.

1. I strongly urge you to undertake a voluntary FLSA

classification self-audit in order to provide immediate evidence of good faith on the part

of your organization. I want to be honest with you about something. This is important.

There is a real strong difference of opinion on who should conduct that internal audit.

One school of thought is that you should only have an attorney do it so that whatever is

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found will enjoy some benefit from the attorney-client privilege. Without that protection,

self-audit reports are discoverable by WHD and private plaintiffs and provide a quick

and easy means for them to establish liability, willful misconduct and the amount of back

pay owed to covered workers.

Now the other school of thought is that if you intend to act in good faith,

and to fairly and equitably settle all back pay claims with employees, back overtime and

so forth, then there really isn't much of an incentive to pay a lawyer thousands and

thousands of dollars that won't shelter you from paying out what you are willing to pay

out to begin with. In other words, if you are going to enter into a fair settlement, go back

and try to calculate what we really owe this person and so forth. Then you are showing

good faith. Hopefully you will stop Wage and Hour from going back three years. They

are going to audit back two years anyway, which you yourself are going to do.

Therefore, they are not going to hit you with all these penalties, etc. if you are showing

good faith.

Those are competing viewpoints everyone. I will leave it to you and your

own corporate culture and your own appetite for risk to decide what to do.

Now besides this voluntary self-audit, do bring your job classifications and

job descriptions into alignment with FLSA exemption requirements.

Also determine the exempt status of each worker. Go back and re-audit

every worker that you think is exempt to justify are they or are they not? If they are

appropriate, fine. Then you document it. Where they are not, obviously you go back

and you do your very best job at trying to calculate how much you owe this individual.

It's not easy. I've engaged in some of these for my clients, my private clients, and it's

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not easy. You've got an exempt worker who's time you have not been tracking. Now,

all of a sudden, over a two-year time horizon, we are trying to figure out, on average,

how many hours per week they worked. Some help might come from when they were

logged onto their computer. When they checked the system from home. Other things

where there is an 'essence', a 'time stamp' there are some metadata in the computer

that can maybe help you figure that out. Time logs of when they entered and left the

building and so forth.

On a going forward basis, you should develop internal procedures and

checklists, etc. to assure that on an ongoing basis you are properly classifying workers.

Now if reclassification is necessary, do find out, try to figure out how much overtime is

due each individual. Then enter into settlement discussions with them. Be transparent

about it. It's interesting. I have found that yes, people want the money. But they are

actually upset that you are saying 'you are not exempt anymore' because they view it as

some sort of loss of something, status or something. But anyway, enter into settlement

discussions. Come up with a number that everyone is happy with.

Then settle back overtime claims. Needless to say, you want to enter into

a written settlement agreement. Again, I want to be candid with you. Back overtime

pay settlement agreements that are not administered by WHD probably won't withstand

being attacked by a disgruntled employee, even though they signed it. I've seen some

case law that held that unless the Wage and Hour Division supervised the settlement,

the agreement will not bar a future action by the employee. In other words, the

employee signs the settlement, takes the money, thinks about it a while and then say

'Oh, I should have gotten more money.' Then they run down to the courthouse. You

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say 'But we settled all this.' They say 'Yeah, but you intimidated me. I didn't have

Wage and Hour looking out for me. Therefore, I should be able to bring this lawsuit.'

And so forth. That is a point of view.

I will tell you though, once again, there is an opposing point of view.

Everyone, if you don't mind my own personal opinion, this is my opinion. In my own

career I've noticed that once someone has settled some sort of wage claim, or an

employment claim, and they've got the money. They've run off and spent the money on

something else, you are never going to hear from them again.

Now, I do also want to caution you that if you are entering into a

settlement agreement of any type with anyone that's over 40 years old. I want to

recommend that you follow the guidelines for settlements that are found in the Age

Discrimination and Employment Act, the ADEA. What I'm specifically referring to is in

your document, urge the person to go talk to a lawyer before they sign the document.

Give them up to 21 days to consider your offer. And then, even if they agree, 'I'll do it.'

and all that. Give them seven days to change their days. Give them seven days of

remorse. Those are things that you find in the ADEA.

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FLSA Rules, Regulations and Classification Standards Module Five Male: Our last topic deals with overtime issues. Unless specifically exempted,

employees covered by the Act must receive overtime pay for hours worked in excess of

40 in a work week and, as I've said already, and I know you all already knew this, at a

rate of not less than time and a half their regular rate of pay. Also, as I said earlier,

there is no time limit on how many hours you can have somebody work if they are 16

years old or older.

Now the Act does not require overtime pay for work on Saturdays,

Sundays, holidays or regular days of rest. The Act applies on a workweek basis. An

employee's workweek is a fixed and regularly recurring period of 168 hours, or if you

will, seven consecutive 24-hour periods. It doesn't have to coincide with the calendar

week. It can begin any day of the week, any hour of the day. Different workweeks can

be established for different employees or groups of employees. Do note that averaging

of hours over two or more weeks is not permitted. Normally overtime pay earned in a

particular workweek must be paid on the regular payday for the pay period for which the

wages were earned.

Everyone in the private sector, there is no such thing as comp time.

Therefore, if I have a non-exempt worker who works 42 hours during the first week of a

two-week payroll period. I'm trying to keep my overall payroll dollars flat. The second

week of that two-week payroll period, I need to have them clock out and go home after

37 hours. Time and a half. That will keep everything even. So I've paid them for the

overtime. But I managed to keep the overall dollars flat. If it worked out the other way,

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where they worked 40 hours the first work week, 42 hours the second week, there is

nothing I can do about it. I'm going to pay two hours of overtime.

Now the regular rate of pay can't be less than the minimum wage. The

regular rate includes all the pay that you pay them that is a requirement. If you are

simply reimbursing expenses, giving voluntary bonuses, discretionary bonuses. You

want to, you feel like paying them a premium for Saturday, Sunday work and all that,

that's fine. So voluntary payments don't go under the regular rate of pay when you are

trying to figure out overtime. But anything that you are obligated to do, you have to add

it in.

So if I say to a non-exempt worker, 'listen, if you get this done by Friday at

five o'clock, I'll give you $100 bonus.' And they do it. That's not discretionary. They

have actually earned that.

To summarize how to calculate overtime if a worker gets an hourly rate

and nothing more, the regular rate will be the hourly rate. If productivity bonuses are

given, they must be included in the regular rate. If the worker gets a shift differential,

higher hourly pay for working a usual shift, that is still part of the regular rate since

you've obligated yourself to do it. Purely discretionary things, no. But if you've

obligated yourself, you have to actually figure it out.

By the way, on a shift differential, you are actually paying a higher rate per

hour. That's why they are going to get more money overtime because simply the hourly

rate is higher. Not simply because we are paying a differential on that.

You are going to find some examples of how to figure some of this out in

29CFR778.110. So Title 29 Code of Federal Regulations, Section 778.110.

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Now in calculating overtime pay for tipped employees, how you do that is

you must multiply the minimum wage, right now $7.25 an hour, by 1.5. Subtract the tip

credit of $2.13 an hour. Multiple that figure by the number of overtime hours worked.

Then add that sum to the worker's 40-hour total. Let me say that one more time. In

calculating the overtime rate for a tipped employee, you have to multiply the minimum

wage by 1.5. Subtract the tip credit. Multiply whatever that number is by the number of

overtime hours worked. Then add that amount of money to what their normal paycheck

would be.

For salaried non-exempt employees, basically you take, in essence, you

take your annual salary divide it by 52 weeks. There is your weekly wage rate. That's

their normal rate for the week. Divide that by 40 hours. That gives you their hourly

regular rate. Then it's 1.5 that for hours worked over 40.

Now the last thing I want to tell you about, though, is some of you can

save an awful lot of money by going to what is called the fluctuating work week method

of calculating overtime. Now right this down, for those of you who have people who are

salaried non-exempt and their workweek fluctuates. Sometimes they work more than

40 hours, sometimes less than 40 hours. Even if they work more than 40 hours, it's

never the exact amount. It jumps all over. So this fluctuating workweek method is

justified, it's okayed by 29 CFR 778.114. 29 CFR 778.114. In addition, on May 5, 2011

DOL came out with a final rule dealing with the fluctuating workweek and you ought to

take a look at that.

Basically everyone, under this method, what you are doing is instead of

using 40 hours as the denominator, you are using the actual number of hours worked.

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So that let's say in a normal situation you are paying someone a certain amount per

year. Divided by 52, that gives you the weekly rate. You divide that by 40. That gives

you the hourly rate. Then any overtime hours is 1.5 that.

In the fluctuating method, what you are doing is if they work 48 hours in a

given workweek. First of all, you take the annual pay that you are paying them divided

by 52. That gives you the amount you are paying them per week. But now here's the

thing. You take what you are paying them per week. That's the numerator. The

denominator in the division problem though is not 40. It's how many hours they actually

worked that week. So if it's 48, obviously the answer to the division problem, the

quotient of the division is going to be a smaller number than if you divided it by 40. Now

you've already paid them on a straight time basis for all the hours they worked that

week. You now only have to pay them .5 of this reduced hourly rate. It will save some

of you thousands and thousands of dollars.

Now to use that method, there has to be a clear understanding between

you and the employee, preferably in writing, that they are going to be paid using the

fluctuating workweek method. And it explains how that method works. It explains that

the workweek has to be a fluctuating one. Where sometimes they work more than 40

hours, sometimes less. It's over 40 hours, but it's not the same amount every week,

etc. And they are paid a fixed salary no matter how many hours they work that week.

By the way, the attraction of this for an employee is they are guaranteed a certain

amount of money even in workweeks where they work less than 40 hours. So there is

that foresee ability.

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Now understand that you cannot use bonuses, other than purely

discretionary bonuses such as a Christmas bonus. You can't use commissions or any

other compensation in addition to salary, stating that you can't use that as part of their

salary. Again, if somebody goes onto this method, they are basically giving up the

bonuses, other than purely discretionary ones. The benefit to them is number one, they

have a job. But number two, that they have this predictability. The salary has to be

large enough so that even when you do your division, it never falls below the minimum

wage. For either the federal or state, whichever is higher. That's how it's worked out.

Everyone, it is certainly worth your time. Those of you who have people who work

these fluctuating schedules. It is worth your time to look at 29 CFR 778.114.

Oh my gosh, where did our time go? Everyone, unfortunately that is all

the time we have to today. Thank you so much for participating.

This concludes today's special CareerTrak audio conference - FLSA

Rules, Regulations and Classification Standards. For more information about the many

training resources we offer, to request your free copy of our latest catalog or to receive

a schedule of current seminars in your area, please call toll-free 1-800-556-3009. Or

visit our website at www.CareerTrak.com. Thanks again. My best wishes to you all.