On March 25, 2009, the Government Accountability Office ("GAO") released a report which found that the Wage and Hour Department of the U.S. Department of Labor ("WHD") consistently falls short in properly investigating claims of wage and hour violations under the Fair Labor Standards Act ("FLSA"). The GAO found that the WHD has an ineffective system regarding complaint intake, conciliation, and investigation. In response to the newly released report, the Labor Secretary issued a statement committing the WHD to ensuring compliance with federal labor laws and announcing that the WHD has begun the process of hiring 250 additional field investigators to carry out its enforcement responsibilities.
The two most common violations committed by employers are the failure to pay overtime to employees who the employer incorrectly designated as exempt, and the failure to pay non-exempt employees the proper amount of overtime.
To qualify as exempt, an employee must meet the "duties" test for the particular exempt classification and, with the exception of outside sales personnel and certain computer related positions (analyst, programmer, etc.), be paid at least $455 per week on a salary basis. Subject to limited exceptions, exempt employees must receive their full salary for any workweek in which they perform any work, without regard to the number of days or hours worked, as long as they are available and ready to work.
The two most common exempt classifications are administrative and executive. To qualify for the administrative exemption, the employee's primary duty must (1) be the performance of office or non-menial work directly related to the management or general business operations of the employer or the employer's customers, and (2) include the exercise of discretion and independent judgment with respect to matters of significance. The FLSA regulations provide a non-exclusive list of functional areas that are generally held to be related to management or general business operations. These include finance and accounting, purchasing, marketing, health and safety, personnel management, employee benefits, computer network and database administration, and regulatory compliance. Factors to consider when determining discretion and independent judgment with respect to matters of significance include, but are not limited to, the authority to formulate or implement management policies or operating practices, the performance of work that affects business operations to a substantial degree, the authority to commit the employer in matters that have a significant financial impact, the investigation and resolution of matters of significance, and the involvement in planning business objectives.
To qualify for the executive exemption, the employee's primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise, and the employee must (1) customarily and regularly direct the work of at least two or more full-time employees or their equivalent, and (2) have the authority to hire or fire employees, or the employee's suggestions and recommendations as to the hiring and firing must be given particular weight.
Given the fact-specific nature of these determinations and the potential exposure for misclassification, an employer should review the job duties of employees that have been classified as exempt to confirm that the individuals meet the duties tests. As part of this analysis, a review, and where necessary, an update, of job descriptions should be undertaken.
With respect to non-exempt employees, the greatest exposure is in the failure to pay, or the underpayment of, overtime. An employer can violate the overtime payment requirement by either not paying the employee at the correct hourly rate, or by not paying the employee for all hours worked.
With respect to the first issue, an employee's hourly rate must be adjusted, and overtime recalculated, for those weeks in which an employee received additional compensation, including attendance or performance bonuses or lump sum longevity payments. With respect to the second issue, hours worked by employees who come in early or who stay late on their own initiative, and hours spent by employees working during an unpaid lunch, or off-site, must be counted if the employer is aware of and allows the practice to take place. Under certain circumstances, time spent in training or traveling for the company also needs to be counted.
Attendance at lectures, meetings, training programs and similar activities need not be counted as working time if the following four criteria are met: (a) attendance is outside of the employee's regular working hours; (b) attendance is voluntary; (c) the course, lecture, or meeting is not directly related to the employee's job; and (d) the employee does not perform any productive work during such attendance.
In regards to travel time, generally home-to-work and work-to-home travel is not counted as hours worked. This is true whether the employee works at a fixed location or at different job sites. However, time spent by an employee in travel as part of his principal activity, such as travel from job site to job site during the workday, must be counted as hours worked. Further, time spent by an employee driving for the benefit of the employer (such as driving several employees to an off-site training location outside of the regular workday), is counted as hours worked. The time spent riding by the passengers is not counted as hours worked if the time is outside of the regular workday and the passengers are not performing any work during the travel time.
To ensure that employees are paid for all hours they work and to prevent employees from deciding when to work additional hours, the employer should require that all employees comply with the company's record keeping policy, or implement such a policy if one does not exist. To the extent it does not have one, the employer should also implement a policy which prohibits employees from working outside their normal hours or during an unpaid lunch break without their supervisor's advance approval.
Given the rise in civil litigation and DOL enforcement actions, and the significant potential exposure in such cases, all employers should closely review their pay practices to ensure they comply 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.
