FAIR LABOR STANDARDS ACT (FLSA) &

PAYROLL

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Robert J. Grazioli, MHR, SPHR Director, Human Resources Comal County

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CONTENT C o v e r a g e I n t e r a c t i o n w i t h P a y r o l l L e g i s l a t i o n H i s t o r y E m p l o y e e o r N o t ? E x e m p t o r N o n - E x e m p t ? D e d u c t i o n s O v e r t i m e I s s u e s Tr a v e l & Tr a i n i n g I s s u e s F M L A / U S E R R A L e a v e s F L S A C o m m o n E r r o r s

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Compensation and benefits are two of the most visible elements of your total rewards that

Payroll & the FLSA interacts with

Types of Compensation

+ Direct compensation

Indirect compensation

Pay systems Benefit and recognition programs

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LEGISLATION AFFECTING COMPENSATION

• First legislation that required prevailing wages/benefits on federal construction projects (equal to those in geographic area)

Davis-Bacon Act (1931)

• Extended prevailing wages to federal suppliers

• Stipulated overtime (time and a half) be paid to non-exempt employees for work exceeding 40 hours in a workweek

Walsh-Healey Act (1936)

• Commonly referred to as the Wage and Hour Law • First min wage was $0.25 per hour!

And No HR did not invent this one!

Fair Labor Standards Act (FLSA) (1938, 1986, 2004)

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ADDITIONAL COMPENSATION LEGISLATION

• Defines general rules for hours worked

(on-call/standby time, preparatory/ concluding activities, waiting time, meals & breaks, travel time

Portal-to-Portal Act (1947)

• Amended Portal-to-Portal Act. Time commuting not paid work time, even when using company auto. Exception when carrying essential equipment from home to work & doing work should be paid -- ??

Employee

Commuting Flexibility Act

(1996)

• States that the statute of limitations on pay discrimination lawsuits resets as each allegedly discriminatory paycheck is issued

Lilly Ledbetter Fair Pay Act

(2009)

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FAIR LABOR STANDARDS ACT (WAGE & HOUR LAW)

D e s i g n e d t o p r o t e c t w o r k e r s & a d d r e s s c o n d i t i o n s t h a t b u r d e n e c o n o m y d u r i n g G r e a t D e p r e s s i o n

A p p l i e s t o o r g a n i z a t i o n s w i t h e m p l o y e e s w h o e n g a g e i n i n t e r s t a t e c o m m e r c e , p r o d u c e g o o d s f o r i n t e r s t a t e c o m m e r c e , o r h a n d l e , s e l l , o r w o r k o n g o o d s / m a t e r i a l s t h a t h a v e b e e n m o v e d i n / p r o d u c e d f o r i n t e r s t a t e c o m m e r c e .

A p p l i e s t o e m p l o y e r s w i t h a t l e a s t $ 5 0 0 , 0 0 0 i n a n n u a l d o l l a r v o l u m e o f b u s i n e s s .

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FAIR LABOR STANDARDS ACT (WAGE & HOUR LAW)

C o v e r s t h e f o l l o w i n g r e g a r d l e s s o f d o l l a r v o l u m e o f b u s i n e s s :

- H o s p i t a l s o r i n s t i t u t i o n s e n g a g e d i n c a r e o f t h e s i c k , a g e d , m e n t a l l y i l l , o r d i s a b l e d w h o r e s i d e o n t h e p r e m i s e s

- S c h o o l s f o r c h i l d r e n w h o a r e m e n t a l l y o r p h y s i c a l l y d i s a b l e d o r g i f t e d

- P r e s c h o o l s , e l e m e n t a r y & s e c o n d a r y s c h o o l s , a n d i n s t i t u t i o n s o f h i g h e r e d u c a t i o n

- F e d e r a l , s t a t e , & l o c a l g o v e r n m e n t a g e n c i e s

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FAIR LABOR STANDARDS ACT (WAGE & HOUR LAW)

Defines the term “employ” to include the awful words used by HR “Suffered or Permitted to work”

- Suffer or permit to work means that if an employer requires or allows employees to work, the time spent is generally hours worked”

- Time spent doing work not requested by the employer, but still allowed, is generally hours worked, since the employer knows or has reason to believe that employees are continuing to work and the employer is benefiting from the work being done (this time is generally referred to as “working off the clock).

Reference: CFR Title 29: Labor, Subpart C—Application of Principles, § 785.11 General

http://www.twc.state.tx.us/news/efte/wh_part785.html#785_46

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FAIR LABOR STANDARDS ACT (WAGE & HOUR LAW)

E m p l o y e r h a s n o o n g o i n g o b l i g a t i o n u n d e r t h e F L S A t o s e l f - e m p l o y e d i n d e p e n d e n t c o n t r a c t o r s

C r i t i c a l y o u c l e a r l y i d e n t i f y w h i c h w o r k e r s a r e e m p l o y e e s ( c o v e r e d b y F L S A ) a n d w h i c h a r e I n d e p e n d e n t C o n t r a c t o r s ( n o t c o v e r e d b y F L S A )

- W h o g e t s a F o r m W - 2 v e r s u s F o r m 1 0 9 9

IRS INDEPENDENT CONTRACTOR TEST

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Behavioral control

Financial control

Type of relationship

Previous “20 Factor” test now broken down into three main groups:

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EXEMPT AND NONEXEMPT EMPLOYEES

Type of Employee

Importance:

Exempt Excluded from minimum wage and overtime pay requirements of the law.

Nonexempt Are not excluded from minimum wage requirements and are entitled to overtime. Overtime is guaranteed to employees who are paid less than $23,660 per year or $455 per week.

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FLSA EXEMPTIONS

An exempt employee must meet three requirements.

Minimum salary (at least $23,660 Yearly /$455 per week)

Paid on a salary basis without improper deductions

Exempt duties

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PRIMARY DUTY ISSUES

A primary duty is the main or most important duty and is an important part of exemption.

No particular percentage of exempt duties is required under the FLSA (i.e., no 50% requirement)

The lower the total percentage, the greater the legal risk if challenged.

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EXECUTIVE EXEMPTION An employee must meet minimum salary requirement as well as:

Have a primary duty of managing an organization, department, or subdivision.

Direct the work of at least two full-time employees or their equivalent.

Have the authority of the employer to hire and fire.

Affect promotion decisions.

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ADMINISTRATIVE EXEMPTION Requires performance of office or nonmanual work

directly related to the management or general business operations of the employer or the employer’s customers.

Includes the exercise of discretion and independent judgment related to “matters of significance” (not applicable just because employer experiences financial loss if ee fails to perform properly)

Meet minimum salary requirement

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PROFESSIONAL EXEMPTIONS

Learned professionals

• Requires advanced knowledge in a field of science or learning that is acquired by prolonged instruction.

• Work is intellectual in nature and requires exercise of discretion and judgment.

Creative professionals

• Must meet minimum salary requirements. • Perform work that requires invention, imagination, originality,

or talent. • Perform in a recognized field of creative or artistic endeavor.

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HIGHLY COMPENSATED EXEMPTION

A H I G H LY C O M P E N S AT E D E M P L O Y E E M U S T:

B E PA I D T O TA L A N N U A L C O M P E N S AT I O N O F $ 1 0 0 , 0 0 0 O R M O R E T H AT I N C L U D E S AT L E A S T $ 4 5 5 P E R W E E K PA I D O N A S A L A RY O R F E E B A S I S .

P E R F O R M O N E O F T H E D U T I E S O F A N E X E M P T E X E C U T I V E , A D M I N I S T R AT I V E , O R P R O F E S S I O N A L E M P L O Y E E .

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COMPUTER EMPLOYEE

Must meet the salary minimum requirement with either a salary of $455 per week or a wage of $27.63 per hour.

Employee’s pay cannot be subject to deductions inconsistent with the salary basis requirement.

Primary duties must fall into one of four categories.

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IMPROPER DEDUCTIONS

Employers that make improper deductions will lose the exemption if they did not intend to pay on a salary basis.

Example: An exempt employee is normally not subject to deductions for illness in less than full-day increments. (An FMLA exception may occur.)

(Ref 29 CFR 541.602 for Additional Guidance)

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SAFE HARBOR

A “safe harbor” exists if: The employer has a clearly communicated

policy prohibiting improper pay deductions & a complaint procedure.

Employees are reimbursed for any improper deductions.

The organization makes a good-faith effort to comply in the future.

Unless employer willfully the policy by continuing to make improper deductions after receiving employee complaints

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FLSA BASIC OVERTIME PROVISIONS

Sets rate of overtime pay (1.5 times regular pay after 40 hours worked).

Requires overtime on time worked, NOT time compensated.

Sets workweek as any fixed, recurring period of 168 consecutive hours (7 days X 24 hours).

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EXAMPLE OF FLSA BASIC OVERTIME COMPUTATION

An employer pays an employee a $40 attendance bonus for working a full 40-hour workweek. If the worker works 45 hours during that week, what will the employee’s gross paycheck be if her hourly rate is $10? To calculate the total pay for the week, you must add the bonus to the hours worked at base pay (45 X $10/hour = 450 + $40 bonus = $490). To get the Average Straight Time Hourly Earnings (ASTHE), the $490 is divided by the total hours worked, 45, to yield $10.89. Pay calculation: 45 hours base pay ($450) + bonus ($40) = $490.00 ASTHE = $490/45 hours = $10.89 Overtime premium = $10.89 X 0.5 = $5.45 X 5 = $27.25 Total gross pay = $517.25

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COMPENSATORY TIME

Overtime usually must be paid in cash.

Public-sector employers may grant compensatory time off.

Public employees can accumulate “comp” time.

Presently, compensatory time is not allowed for private-sector nonexempt employees.

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MINIMUM WAGE PROVISIONS

Fair Minimum Wage Act of 2007

Raised minimum wage to $7.25 per hour in three phases – last phase in

2009

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PORTAL-TO-PORTAL ACT

Amended FLSA and defines general rules for hours worked.

Provides guidelines on (many determined case by case in the courts): On-call/standby time. (Ref: CFR 785.17 Hours Worked)

Preparatory/concluding activities. Waiting time. (Ref 29 CFR 785.15 & 785.16 Hours Worked)

Meals and breaks. (Ref 29 CFR 785.18 & 785.19 Hours Worked)

Travel time. Training time.

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TRAVEL TIME

Ordinary home to work travel is not work time

Travel between job sites during the normal work day is work time

Special rules apply to travel away from the employee’s home community

(Ref 29 CFR 785.37, 785.38, and 785.39 Hours Worked for Additional Guidance)

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TRAVEL PAY Day

Friday

Saturday

Sunday

Activity

Travels to conference and works en route

Works at conference

Travels from conference and does not work en route

7 8 9 10 11 12 1 2 3 4 5 6 7AM PM

Normal Work HoursTime

Total Paid Hours

5

12

4

Paid time

Unpaid time

Under the Portal-to-Portal Act, employers do not have to pay a nonexempt employee for hours spent traveling when those travel hours occur outside the employee’s normal workdays and normal work hours and the employee does not work during those hours. Unless both conditions are met, the employee must be paid for the hours.

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TRAINING TIME

Time employees spend in meetings, lectures, or training is considered hours worked and must be paid, unless…

Attendance is outside regular working hours Attendance is strictly voluntary The course, lecture, or meetings is not job related The employee does not perform any productive work

during

(Ref 29CFR 785.28, 785,29 and 785.30 Hours Worked, for additional guidance)

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FAMILY AND MEDICAL LEAVE ACT (FMLA)

Covers employers with 50 or more employees for 20 or more workweeks in current or preceding year.

Employee must have worked at least 12 months for employer, have worked 1,250 hours in past year, and work at a site that 50 or more employees work within 75 miles of.

• Provides up to 12 workweeks of unpaid, job-protected leave for birth or adoption of a child or serious health condition of a child, spouse, parent, or the employee.

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FMLA UPDATED REGULATIONS

Department of Labor regulations pertaining to: • “Serious health condition” definition. • Employee’s notice of FMLA leave. • Intermittent leave. • Medical certification. • Fitness for duty.

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FMLA EXPANSION

• FMLA leave due to a spouse, son,

daughter, or parent being on or called to covered active duty.

Qualified exigency

leave

• FMLA leave for an eligible employee who is the spouse, son, daughter, parent, or next of kin to a covered service member with a serious injury or illness.

Military caregiver

leave

Up to 12 workweeks

Up to 26 workweeks during a 12-

month period

FMLA-eligible employees are entitled to:

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UNIFORMED SERVICES EMPLOYMENT

AND REEMPLOYMENT RIGHTS ACT (USERRA)

Protects the employment, reemployment, and retention rights of persons who serve in the uniformed services.

Requires employees to provide oral or written notice of the need for leave (30 days if feasible).

Allows for five years of leave.

Gives employees on leave the same seniority-based benefits they would have received if they had not taken leave.

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BENEFITS REQUIRED BY STATUTE

SOCIAL SECURITY/MEDICARE UNEMPLOYMENT INSURANCE WORKERS’ COMPENSATION COBRA FMLA

LAW

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INCOME REPLACEMENT PROTECTION

Employer-provided sick

leave • Pays 100% of

pay for a set number of days.

Short-term disability

• Replaces a portion of lost income.

• Typically 50% to 70% for up to six months.

Long-term disability

• Begins when short-term coverage expires.

• Usually integrated with Social Security.

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PAID LEAVE

P a i d L e a v e f o r e v e n t s : Holiday pay Sick pay Vacation pay Leave of absence Bereavement leave Personal days

Paid-time-off banks Paid time off is lumped

into one account.

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COMMON FLSA ERRORS TO AVOID Don’t assume all employees paid a salary are not due

overtime Improperly applying an exemption Failing to pay for all hours an employee is “suffered or

permitted” to work Limit the number of hours employees are allowed to record Failing to Include all pay required to be included in

calculating the regular rate for overtime Failing to add all hours for the same employer when

calculating overtime due Making improper deductions from wages that cut into

required minimum wage or overtime (i.e., shortages, damage, tools, uniforms and equipment)

Treating an employee as an independent contractor Confusing Federal law and State Law

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QUESTIONS?

FAIR LABOR STANDARDS ACT (FLSA) &

PAYROLL

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Robert J. Grazioli, MHR, SPHR Director, Human Resources Comal County Tel: 830-643-5859 Email: hrsrjg@co.comal.tx.us