United States: Ten FLSA Myths That Can Get You Into Trouble

Last Updated: June 14 2016
Article by Sally Rogers Culley and Brian Hayden

If you are an employer, you likely know that the Fair Labor Standards Act ("FLSA") requires payment of a minimum wage, along with overtime pay for nonexempt employees who work more than 40 hours in a workweek.  But do you really know all you need to know?  Do you know how to determine whether an employee is exempt or nonexempt?  Do you know what timekeeping records you are required to keep for your employees?  Do you know what the ramifications are if you get sued for an FLSA violation? 

Our experience in representing employers is that most of them try very hard to comply with the FLSA.  Unfortunately, however, there is a great deal of incorrect or partial information provided to employers on the internet or through word-of-mouth that can result in inadvertent noncompliance with the FLSA and the possibility of a claim for unpaid wages.  Combine this misinformation with new rules that have recently been adopted by the Department of Labor (effective December 1, 2016), and employers can have a hard time knowing what they need to do to comply with the FLSA.  Here are ten FLSA myths, along with the correct information, to assist employers in making sound FLSA decisions.

Myth #1 – Salaried employees are exempt from the FLSA's overtime requirements.

Fact:  Sorry, it's not that easy. Generally, employees whose jobs are governed by the FLSA (includes the vast majority of jobs) are either "exempt" or "nonexempt." In a nutshell, nonexempt employees are entitled to overtime pay, and exempt employees are not.  Some employees are exempt because of the nature of their work, regardless of how or how much they are paid (e.g., doctors, teachers, and lawyers).  But other, more common, exemptions require payment of a salary in a specific amount, which is what forms the basis for this myth.  But the payment of a salary doesn't end the analysis.  Rather, an employee's job duties must be analyzed to determine whether they fit into a particular exemption.  For example, for the "executive" exemption to apply, an employee must regularly supervise two or more other employees, have management as his primary duty, and have genuine input into the job status of other employees (such as hiring, firing, promotions, etc.).  If an employee doesn't perform those job duties, then that employee would not fall under the "executive" exemption no matter how or how much that employee is paid.  Each employee or employee position should be fully evaluated to determine the applicability of the FLSA overtime exemptions; that evaluation can sometimes get complicated, unfortunately, so it can be a daunting and time-consuming, but necessary, task.

Incidentally, with regard to the amount of salary required for the overtime exemptions to apply, the rule is about to change.  Currently the standard salary threshold is $455 a week ($23,600 per year), but starting December 1, 2016, that threshold will increase to $913 a week ($47,476 per year), thus making more employees eligible for overtime pay.  There is also a "highly compensated employee" exemption, and the salary threshold for that will be increased from $100,000 to $134,004.

Myth #2 – Managers are exempt from the FLSA's overtime requirements.

Fact:  Not necessarily.  As stated above, each exemption to the FLSA overtime requirements has a specific list of job duties that an employee must perform in order for the exemption to apply to that employee. Job titles or position descriptions do not control the applicability of an FLSA overtime exemption; rather, the actual job duties must be analyzed.

Myth # 3 – Getting sued for unpaid overtime isn't that big a deal.

Fact: Actually, being sued for unpaid overtime can be a very big deal. If an employee or former employee wins her case, she'll be entitled to her unpaid wages, which can be doubled as liquidated damages. The FLSA contains a two-year statute of limitations (three years for willful violations), which means those unpaid wages can accrue for a full two (or three) years. Add to that the employee's attorney's fees and the costs and fees associated with defending the lawsuit and the total dollar figure can be substantial. Further, if employees can get a class certified, that figure increases exponentially. Such cases, which involve extensive discovery and fighting over whether the case is proper for class certification, can very quickly get into the hundreds of thousands of dollars in defense costs. In addition, defending an unpaid overtime case can be a huge distraction for an organization.  Executives and other high-level personnel get tied up for hours in depositions and other discovery. What's more, such lawsuits can easily undermine employee morale and create an "us against them" mentality. The bottom line is that a lawsuit over unpaid overtime can quickly turn into a big, expensive headache.

Myth #4 – I've got insurance coverage for any FLSA claims made by employees.

Fact:  You may not.  Many insurance policies – even EPLI policies – do not have coverage for wage and hour claims made under the FLSA.  And some of the policies that do provide coverage limit the benefits to be provided for such claims.  It is common for insurers to cover none of the additional wages to be paid to an employee, and to cover payment of attorneys' fees only up to a specified amount.  Therefore, an employer may be fully or partially responsible for paying the amounts described above under Myth #3.

Myth #5 – I require my employees to request approval to work overtime, so I don't need pay overtime unless it was approved in advance.

Fact:  This is incorrect, and relying on this myth is a surefire way for an employer to get itself sued.  A nonexempt employee who works overtime is entitled to be paid overtime, period.  This applies even if the employee failed to properly document her time worked, or to follow the employer's policy of requiring advance approval of overtime work.  An employer can certainly discipline an employee for failing to follow its policies, but it cannot refuse to pay for the overtime work in accordance with the FLSA.

Myth #6 – It's not that important to keep track of all time worked by employees.

Fact: To the contrary, it's very important to do this.  The FLSA requires employers to keep certain records for each nonexempt employee.  There is no specific timekeeping method required – it can be via a time clock, computerized entry, or simply a paper form filled out by hand. For each employee, the records should include the number of hours worked each day and the total hours worked each workweek. These records should be maintained for at least two years, though three years is preferable. 

Also, from a practical perspective, it is difficult for an employer to defend a lawsuit when it does not have records accurately showing the amount of time that an employee worked.  Keeping accurate records will not eliminate the possibility of a lawsuit (employees will often claim that they worked "off the clock"), but such records would certainly be helpful in defending an FLSA claim, and could significantly reduce the amount of unpaid overtime claimed by an employee.  Also, if an employer has failed to keep records as required by law, then the employee's records will be given greater weight.

Myth # 7 – There aren't that many FLSA lawsuits anymore.

Fact:  Over the past ten years, FLSA lawsuits have generally been on the rise.  Several factors account for this, including federal agency activities and a growing focus on wage and hour laws resulting from efforts across the country to raise the minimum wage.  According to one evaluation of federal judiciary data, the number of federally filed wage and hour cases hit an all-time high in 2015, rising over 7 percent from the previous year to a total of 8,781 cases filed.  In comparison, in 2000, only 1,935 such suits were filed.  By 2010, that number had grown to 6,825.  There is no good reason to believe that this overall trend will end anytime soon.  Rather, the concept of minimum wage is something people can easily grasp and use as a springboard to focus on other wage and hour issues.

Myth # 8 – The FLSA doesn't apply to me; it's meant for private employers.

Fact: This is just wrong. The FLSA applies to state and local government employers. Indeed, the definitions section of the FLSA makes it clear that the Act covers all public agency employees of a State, a political subdivision of a State, or an interstate government agency. 

Myth # 9 –  Independent contractors are not covered by the FLSA.

Fact: While that's technically true, whether an individual is an employee or an independent contractor is a tricky question. Just ask Uber Technologies, Inc., which was recently hit with a lawsuit in Miami on behalf of a proposed class of Uber drivers who claim that they are employees rather than independent contractors under IRS worker classification rules.  That lawsuit comes almost immediately on the heels of a proposed $100 million settlement by Uber in a California lawsuit that also raised that issue.  The takeaway from these lawsuits is that merely labeling an individual an "independent contractor" doesn't mean it's so.  Rather, courts in Florida examine a number of factors to determine whether a person providing a service is an employee or independent contractor, including the nature and degree of the alleged employer's control over the work performed, and the alleged employee's opportunity for profit or loss depending upon her managerial skill.  Needless to say, such an analysis probes deeper than mere labels.  Don't let the paint job fool you.  Look under the hood.

Myth # 10 – I don't need to worry about the FLSA unless an employee brings it up.

Fact:  By that point, it may be too late.  The FLSA doesn't require an employee to give notice to her employer before filing a lawsuit.  And once a claim is made, an FLSA settlement requires approval by either the Department of Labor or a court.  The takeaway is that an employer shouldn't let an FLSA issue go unchecked; once a lawsuit is filed, it can be a headache to resolve.  As the saying goes, an ounce of prevention is worth a pound of cure.

The above myths showcase some of the misinformation commonly relied upon by employers.  However, there are other potential perils that employers may face in attempting to comply with the FLSA, some of which may be specific to a particular industry or method of payment.  A good resource for employers is the Department of Labor, and many questions can be answered on the Department of Labor's website, found at www.dol.gov.  The use of an employment attorney to perform an FLSA audit, particularly in light of the new rules going into effect in December, is also strongly encouraged.  The key is to fully research any "myths" that you hear and to periodically re-evaluate your company practices, to ensure full compliance with the FLSA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Brian Hayden
 
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