FLSA Compliance: Simple Until You Do It

Wage and Hour
by Stephen Bruce, PhD, PHR
"Complying with the Fair Labor Standards Act (FLSA), already trickier than expected, is made even harder by misconceptions and myths, says Attorney Ted Boehm."

For example, he says, there’s the misconception that employers may provide “comp time” in lieu of overtime compensation. For most private employers, comp time is not permissible (government employers often may use comp time).

However, employers may control employees’ hours worked to prevent them from working overtime hours. For example, if an employee works late on a Tuesday, and you see that he or she is likely to exceed 40 hours for that week, the employer can give employee a day off during that week.

Boehm, an associate in the Atlanta office of law firm Fisher & Phillips, LLP, offered his tips at a recent webinar sponsored by BLR® and HR Hero®.

Here are the major risks you run when you don’t do wage/hour right, says Boehm:

  • Back Pay
  • Liquidated Damages
  • Civil Money Penalties
  • Injunctions
  • Attorneys’ Fees
  • Criminal Penalties
  • Time and Trouble
  • Reputation

Four Basic FLSA Requirements

The basics of FLSA are four simple rules:

  • You must pay minimum wage (currently $7.25).
  • You must pay premium pay for hours worked over 40 hours.
  • You must maintain an accurate record of hours worked.
  • You must observe limitations on the employment of minors under 18.

Form of Payment Not Determinative

Nonexempt employees may be hourly, salaried, commissioned, paid by the day, paid by the job, paid a piece rate, or paid in many other ways, but these four requirements still apply.

Are class action lawyers peering at your comp practices? It’s likely, but you can keep them at bay by finding and eliminating any wage and hour violations yourself. Our editors recommend BLR’s easy-to-use FLSA Wage & Hour Self-Audit Guide. Try it for 30 days … on us.

Changes to Nonexempt Workers’ Schedules

Under the FLSA, a “workweek” is a fixed regularly recurring period of 168 hours—that is, 7 consecutive 24-hour periods. A workweek can be set to begin on any calendar day.

The employer can change a workweek and can do so to avoid overtime expense, but, a change must be intended to be permanent, and the employer cannot change the workweek frequently, Boehm says.

Timekeeping and Hours Worked

Contrary to what many believe, says Boehm, the FLSA does not require:

  • Vacations and holidays
  • Lunch breaks (not counted as work so long as the employee is relieved from duty)
  • Rest periods (but if rest periods are given, breaks of 10 to 20 minutes are compensable)
  • Sick days

However, make sure to check state laws and/or union contracts, Boehm says.

Deductions that Cut into the Minimum Wage

Most deductions cannot cut into the minimum wage. (Federal minimum wage is currently $7.25 per hour; your state minimum may be more, warns Boehm.) However, the FLSA permits employers to make deductions from employees’ wages, even if it takes them below minimum wage or overtime due, provided the deductions are required by law, such as:

  • State and federal taxes
  • Social Security
  • Child support orders

In addition, generally an employer may make deductions for things that cut into minimum wage or overtime provided they are authorized by the employee and for the employee’s benefit, for example:

  • Group health insurance
  • Savings bonds
  • Charitable contributions
  • Wage advances

Employers cannot make deductions that cut into the employee’s minimum wage or overtime if the deduction is for the employer’s benefit. For example:

  • Cash shortages
  • Sale of goods or services in excess of their cost
  • Cost of repair of vehicle or equipment damages by employee

Boehm recommends that employers check with their attorney before making unusual deductions like cash shortages or damage. When employees get a paycheck that is less than they expected, that’s a major trigger for lawsuits or visits to the Department of Labor (DOL), he says.

All you need to avoid exempt/nonexempt classification and overtime errors, now in BLR’s award-winning FLSA Wage & Hour Self-Audit Guide. Find out more.

Overtime Should Be Easy

Calculating overtime should be easy, but when you move from the theoretical to the practical, it’s not, says Boehm.

Employers must pay nonexempt employees 1.5 times their “regular rate” for time worked over 40 hours in a 7-day “workweek.”

The regular rate is “all remuneration for employment” divided by all hours the pay covers. This usually includes things like:

  • Bonuses
  • Commissions
  • Incentive pay

Exclusions are very limited. The FLSA does exclude discretionary bonuses, but those are rare, says Boehm.

Commission-Based Plans

Employers must pay overtime on commissions earned. Commissions must generally be apportioned over the workweek during which they were earned, if possible. When it is difficult to actually apportion among weeks, 2 methods of allocation that can be used to apportion the amount back over workweeks in which it was earned:

  • Assume the employee earned an equal amount each week.
  • Assume the employee earned an equal amount for each hour worked.

In tomorrow’s Advisor, you’ll learn more of Boehm’s tips and explanations, plus an introduction to the wage and hour self-audit guide that help you find violations before the feds do.

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  1. Barb        
    May 7, 2013 11:11 am

    And state quirks only complicate things even more. In California, for example, nonexempts get OT for working more than 8 hours in a day, not only for working more than 40 hours in a week.