Over the years, I’ve found that the majority of questions that I get from HR Managers are addressed in the Fair Labor Standards Act (“FLSA”).  This article provides a brief refresher and then responds to the most common of those questions.

A Little History

Before diving right in, I thought it would be interesting to provide a little history of the FLSA.   The Act is perhaps the broadest piece of labor legislation in the U.S. and has not been altered much since its passing in 1938.  As you most likely know, the FLSA covers a vast range of issues including the method of paying overtime to employees, minimum wage requirements and child labor laws.  It was originally designed to protect workers and address conditions that burdened the American economy during the Great Depression of the 1930’s.  You may be surprised to learn that many of the components of the Act were included to discourage overtime payments to employees as a means to promote the hiring of new employees as a Depression-recovery mechanism.  However, even though times have changed dramatically since it was enacted, the FLSA has continued to govern the way American businesses have paid their employees for almost seventy-five years.

Overtime – To Pay or Not To Pay

One of the areas of the Act that can be considered somewhat confusing is the designation of employees as exempt or non-exempt. Correctly classifying each position in an organization as exempt or nonexempt is of the utmost importance because it is this designation that determines an employee’s overtime eligibility.  Under the FLSA, exempt employees are excluded from the minimum wage and overtime pay requirements under the law. The FLSA is a little vague in the definitions provided, and volumes could be written on this topic itself, but briefly, exempt employees are those who earn a minimum of $455 per week and fall into one of three categories: Executive, Administrative or Professional.  For the sake of brevity and getting to the relevant point of my topic, I am going to assume that everyone reading this article has written position descriptions for each of their employees and a designation of exempt/non-exempt has been made (of course you have!).

The first thing to know is that ALL nonexempt employees must be paid overtime pay at a rate of 1.5 times their regular rate of pay for hours worked in excess of 40 in a designated workweek.   Nowhere in the law does it say that employees must be paid overtime for hours worked over 8 per day; however, some states do require that as a matter of state law, and this is a fairly common requirement in collective bargaining agreements.  Further, it is important to remember that when calculating overtime rates, not only must the basic hourly rate be included but also any nondiscretionary bonuses, shift premiums, production bonuses or commissions.  Discretionary bonuses do not need to be included when calculating overtime payments.

The FLSA requires that overtime be paid on hours worked in excess of 40 per workweek, not for hours compensated.  Therefore, no overtime need be paid on sick, holiday, vacation, jury duty or similar compensation for unworked days.  However, many organizations do voluntarily treat such time as time worked for the purpose of determining overtime pay.

Finally, it is very important to recognize that the FLSA regulations state that an employer “shall not permit” employees to work overtime without the payment of an overtime premium.  Employers are prevented from using the defense that an employee volunteered to work overtime.  As such, employers must be cautious and not allow nonexempt employees to work overtime without prior management approval.  This has recently become a huge issue for employers who provide nonexempt employees with a PDA/BlackBerry-type device.  Remember, time spent reading e-mails is considered to be work and should be taken into account when calculating overtime.  If a nonexempt employee works unauthorized overtime, he or she must be paid for that time in accordance with overtime regulations.  However, if the hours were not approved, an employer has the right to subject the employee to discipline.

Compensatory Time as a Substitute?

Under the FLSA it is not allowable for private sector businesses or not-for-profit organizations to substitute Compensatory Time (also known as “comp time”) for overtime payments, even if requested by a nonexempt employee.  However, public-sector employers, generally comprised of entities of the federal, state, and local governments, may grant comp time instead of cash in certain circumstances.  It should be noted in those cases where it is allowable, the FLSA requires that comp time be earned at a rate of not less than one and one-half hours for each hour of work for which overtime compensation would be required.

Exempt Employees and Time Away From Work

Okay, now to the question that I have been asked more than any other over the past nine months.  “Is it okay to pay an exempt employee for less than a full day of leave, for example, for three hours of Paid Time Off (PTO) to go to a doctor’s appointment?”  The answer to the question is “yes,” under FLSA regulations it is allowable to charge an exempt employee’s leave balance for less than a full day of leave, however, he or she must be paid for a full eight hours for the day.

As a follow up question, I often get “can I dock an exempt employee’s pay if he/she does not have adequate leave to cover the requested time off?”  The answer to this question is a clear “no.”  The FLSA states that an exempt employee’s pay cannot be subject to deductions for less than full day increments.  Be forewarned, docking an exempt employee’s pay for less than a full day is a very risky business.  Not only does it put the docked employee’s exempt status into jeopardy, but if facts demonstrate that an employer has an actual practice of making improper deductions, the overtime exemption for all employees in the same job classification working under the individuals responsible may be at risk.  Yikes!  That means that all employees in a particular job classification may lose their exemption from overtime eligibility – and that could get quite expensive.   It is, however, okay to allow an exempt employee’s PTO balance to go into the negative if there are not enough hours in his/her account to cover the absence.

Ann Kontner is a former senior human resources executive with vast experience in all facets of the HR field. She brings to S&J over 25 years of HR experience in corporate compliance, administrative management, staff development and executive leadership skills. She has worked for a wide range of employers including both public and privately held corporations, federal government contractors, and has experience working in both domestic and international markets.
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