Wage and Hour Law Guide for FSPA Members

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FREQUENTLY ASKED QUESTIONS

I am a small business owner; do I even need to worry about the FLSA?

Probably. There are two types of coverage under the FLSA: enterprise and individual. Enterprise coverage includes businesses with at least $500,000 in gross annual sales and two or more employees engaged in commerce. If you are a covered enterprise, all employees are subject to the requirements of the FLSA. However, even if you are not a covered enterprise, some of your employees may be individually covered if they are engaged in commerce. A more complete discussion of FLSA coverage appears on page 1.

If I pay my employees a salary, do I have to pay them overtime, as well?

Unless they meet all of the requirements for an exemption from overtime, yes. It is a common misconception that all salaried employees are exempt from overtime. All employees are entitled to overtime unless they meet all of the requirements for an exemptionwhich are strictly and narrowly construed. While being paid a salary of at least $455 per week (or its equivalent) is one requirement for several overtime exemptions, there are other requirements that must be met. For a complete discussion of the requirements for exemptions relevant to the pool and spa industry, see pages 15 through 25.

I allow my service technicians to take their trucks home with them, so how do I figure out when their day starts and stops?

Ordinarily, normal commuting to and from work is not compensable work time (meaning that an employee’s day does not start until they arrive at work and does not end until they leave work). Where an employee uses their employer’s vehicle to commute back and forth to work, all of their commuting time is compensable (meaning that their day starts when they leave their house and does not stop until they return to their house), UNLESS four conditions are met in which case the normal commuting rules apply. These four conditions are set out on page 6.

My technicians are on the road all day and do not clock in or out for lunch, so I automatically deduct a half-hour meal break each day. Is that OK?

Although not a violation of the FLSA, automatic meal break deductions are a dangerous practice that could open an employer to potential liability for unpaid wages. An explanation of why this practice is dangerous appears on pages 4 through 5.

My employees take continuing education courses; do I have to pay them for time spent in classes?

Most likely yes. Time spent by employees attending meetings, training programs, and similar activities is compensable work unless four conditions are met. These four conditions are identified on page 7.

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My employees must wear company uniforms, do I have to pay to have these uniforms cleaned?

No, but depending on the nature of the “uniform” the cost of cleaning may not directly or indirectly reduce an employee’s wage to below either the required minimum wage for straight-time hours or any overtime pay due for the week in which the expense is incurred. A complete discussion of wage deductions and out-of-pocket payments appears on pages 14 through 15.

I would like to make a deduction from a salaried-exempt employee to reimburse the company for tools or equipment lost or damaged by the employee. Can I?

An employer can always make such deductions, but doing so may jeopardize the employee’s exempt status. The Department of Labor has taken the position that deductions from the salaries of otherwise exempt employees for the loss, damage, or destruction of the employer’s property would defeat the “salary basis” requirement of the white-collar exemptions. A more complete discussion of the salary-basis appears on pages 20 through 22.

I would like to pay my service manager extra compensation for servicing pools on those rare weeks where not enough service technicians report to work. Is this a problem?

It should not be a problem unless the manager is cleaning pools so often that his primary duty is no longer management. The Department of Labor has taken the position that compensation in addition to an employee’s guaranteed salary is not inconsistent with the “salary basis” of payment and thus does not, standing alone, defeat an otherwise applicable exemption for an employee paid a bona fide salary.

I have service technicians who I treat as independent contractors, is this OK?

Probably not. The FLSA utilizes the “economic realities” test to determine whether an individual is an employee or independent contractor. This test is the broadest of the test used to determine employment status and the most likely to conclude that an individual is an employee. Under this test, workers are considered employees if, as a matter of economic reality, they are dependent upon the business to which they provide service. In making this determination, various factors are considered. These factors are discussed on page 2.

An employee left and, although we mailed the final paycheck to the last known address, it was returned to the company. What do we do now?

Payroll checks over $10 which remain unclaimed after more than 1 year are considered abandoned property and must be reported to the Florida Department of Revenue.

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TABLE OF CONTENTS

FREQUENTLY ASKED QUESTIONS..................................................................................................... i

TABLE OF CONTENTS......................................................................................................................... iii

OVERVIEW OF THE LAW .....................................................................................................................1

THE EMPLOYMENT RELATIONSHIP...................................................................................................1

A. Employment vs. Independent Contractor Status ............................................................2B. Employment vs. Volunteer Status ...................................................................................2C. Employment vs. Trainee Or Student Status....................................................................3

HOURS WORKED..................................................................................................................................3

A. Time Records...................................................................................................................4B. Breaks ..............................................................................................................................4

1. Rest Breaks ..........................................................................................................42. Meal Breaks..........................................................................................................4

C. Medical Attention & Examinations...................................................................................5D. Waiting Time, On-Call Time, And Sleeping Time ...........................................................5

1. Waiting Time.........................................................................................................52. On-Call Time ........................................................................................................5

E. Commuting And Travel Time...........................................................................................61. Normal Commuting ..............................................................................................62. Out-of-Town Travel ..............................................................................................6

F. Attending Meetings, Training, Or Similar Sessions ........................................................7G. Civic or Charitable Work..................................................................................................8

THE MINIMUM WAGE............................................................................................................................8

OVERTIME PAY .....................................................................................................................................8

A. The Workweek .................................................................................................................8B. The Regular Rate.............................................................................................................8

1. Hourly Employees ................................................................................................92. Salaried Employees .............................................................................................93. Piece Rate ..........................................................................................................104. “Booked Hour” Pay Plans...................................................................................115. Bonuses And Incentive Payments .....................................................................116. Commissions ......................................................................................................127. Exclusions From The Regular Rate...................................................................13

COMPENSATORY TIME......................................................................................................................14

WAGE DEDUCTIONS AND OUT-OF-POCKET PAYMENTS ............................................................14

EXEMPTIONS FROM THE FLSA’S REQUIREMENTS ......................................................................15

A. The “White Collar” Exemptions......................................................................................161. Executive Employees.........................................................................................162. Administrative Employees..................................................................................173. Professional Employees.....................................................................................174. Computer Employees.........................................................................................185. Outside Sales Employees ..................................................................................196. “Highly Compensated” Employees ....................................................................197. “Combination” Exemptions.................................................................................19

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B. The “Salary Basis” Issue................................................................................................201. Personal Days Off ..............................................................................................202. Sick Days Off ......................................................................................................203. First And Last Weeks Of Employment...............................................................204. Offsets For Jury/Witness/Military Pay................................................................205. Safety-Rule Violations........................................................................................216. Conduct-Rule Violations.....................................................................................217. FMLA Leave .......................................................................................................218. Rules Applying To All Salary Deductions ..........................................................21

C. Other Exemptions ..........................................................................................................221. Commission-Paid Employee Exemption ...........................................................222. Motor-Carrier Exemption ...................................................................................24

RECORDKEEPING ..............................................................................................................................25

CHILD LABOR .....................................................................................................................................26

ENFORCEMENT ..................................................................................................................................27

WAGE PAYMENT.................................................................................................................................28

A. Direct Deposit of Wages................................................................................................28B. Wage Payment Upon Termination ................................................................................28C. Wage Payment Upon Death..........................................................................................28D. Vacation/Sick Pay ..........................................................................................................29E. Unclaimed Wages..........................................................................................................29F. Garnishment...................................................................................................................29

CONCLUSION ......................................................................................................................................29

This booklet should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult competent counsel concerning your particular situation and any specific legal questions you may have. Employers are specifically encouraged to consult an attorney to determine whether they are subject to state requirements that extend beyond the scope of this booklet.

If you have any questions concerning this handbook or any other wage and hour or employment law matter, please feel free to contact any Fisher & Phillips office or you can contact David Buchsbaum in our Fort Lauderdale office directly. He may be reached at (954) 847-4730 or by e-mail at dbuchsbaum@laborlawyers.com.

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OVERVIEW OF THE LAW

The Fair Labor Standards Act (FLSA) is more commonly known as the federal wage-hour law. Its best-known requirements seem simple: with some exceptions, employers must pay employees at least the minimum wage for all their “hours worked”; must pay them 1.5 times their regular hourly rate for all time worked over 40 hours in a workweek (unless they are exempt); and must keep accurate records of their daily and weekly hours worked. The devil is in the details.

The FLSA’s many rules, exemptions, quirks, and provisions for particular kinds of employees or industries make it one of the most complex of all federal laws and one of the most difficult to comply with. Indeed, this 60-year-old law is in many ways a creature of a different time and can be impractical as applied to the circumstances of today’s workforce. Nevertheless, the FLSA remains the law, and it is applied very strictly.

Broadly stated, employees are covered if they work for an “enterprise” which has 1) two or more employees who are engaged in commerce, are engaged in the production of goods for commerce, or are handling, selling, or otherwise working on goods or materials that have been moved in or produced for interstate commerce; and 2) an annual gross sales volume of at least $500,000.

Alternatively, employees can be covered individually if they themselves engage in interstate commerce or in the production of goods for interstate commerce, or to meet the needs of interstate commerce.

A complete discussion of the FLSA’s provisions with respect to private employers in general is not possible in a limited space, so this booklet addresses only the FLSA’s highlights and common issues as they apply to businesses in the swimming pool industry. It should be viewed only as a general guide.

Keep in mind that the FLSA does not preempt state or local wage-hour provisions imposing more stringent requirements than the FLSA’s. When the FLSA and a state or local law both apply to the same situation, you must follow whichever standard favors the employee more.

For example, the Florida Minimum Wage Amendment and Florida Minimum Wage Act establish a state-wide minimum wage. The Florida minimum wage applies to all employees covered by the FLSA.

THE EMPLOYMENT RELATIONSHIP

The FLSA applies only to employment relationships. Thus, a threshold question is whether such a relationship exists. The FLSA does not offer much help in deciding this question, saying only, for example, that to “employ” someone is to “suffer or permit” the person to work.

The courts and the U.S. Department of Labor (DOL) apply the concept of employment very broadly under the FLSA and tend to find that an employment relationship exists. The fact that an employer calls someone an independent contractor or a “temporary” or “leased” employee, or that an individual is not considered an employee for tax purposes or under other laws, or is paid a certain way, does not determine employment status under the

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FLSA. There is substantial risk in erroneously treating someone as not being an employee.

A. Employment vs. Independent Contractor Status

Businesses sometimes assume that they need not follow the FLSA with respect to people they call “independent contractors”; that might well not be so. In general, independent contractors are self-employed workers hired to perform specific services for another company under only limited supervision from the company. Legally speaking, however, it is not possible to define with certainty the term “independent contractor.” When the issue arises, the courts and administrative agencies decide whether a person is an employee or an independent contractor by examining the relationship against certain criteria, including:

• whether the business controls the way the work is performed;

• whether the person has any opportunity for profit or loss in a business sense;

• whether the person has any significant investment in equipment or materials;

• whether initiative, judgment, or open-market competition is required for the success of the claimed independent enterprise;

• whether the relationship is for a specific or short time, versus an indefinite or long period; and

• whether the service rendered is an integral part of the business receiving the service.

Ultimately, under the FLSA, an individual is an employee if, as a matter of economic reality, they are dependent upon the business to which they render their services. The determination of independent contractor status is highly subjective and is usually determined on a case-by-case basis. Moreover, this is an area of increased scrutiny by the DOL. As a result, an employer would be wise to seek an independent review of the employment status of any independent contracts by someone knowledgeable in that area of the law.

On the servicing side of the pool and spa industry, it could be difficult for an employee to establish that any service or repair technician who regularly performs services for the company is an independent contractor. On the construction side of the industry, however, the use of subcontractors to perform specific aspects of the project, such as electrical work, is more common.

B. Employment vs. Volunteer Status

People who volunteer their time for humanitarian, charitable, religious, or civic purposes might not be FLSA employees. However, among other things, the

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relationship must be truly voluntary and without contemplation of pay. Employees generally cannot volunteer to their employer to perform work similar to what they do in their regular jobs. The DOL and the courts typically scrutinize employee “volunteerism” where the employees’ day-to-day employer is somehow involved in the arrangement.

C. Employment vs. Trainee Or Student Status

The U.S. Supreme Court has said that people who voluntarily work for their own advantage on the premises of another in order to learn a skill or trade, and who do so without any expectation of compensation for the work, are not necessarily FLSA “employees.” Thus, it is at least possible that people functioning as “students” or “interns” or holding some other, similar status will not be deemed to be employees.

Several criteria are considered in deciding this question, but generally the non-employee status of a trainee or student is likely to be challenged if 1) the person is doing work similar to that which the business would receive from an employee; 2) on balance, the relationship is more for the business’s benefit than the learner’s; or 3) the person is being paid. For example, most new hires have to learn how to do their jobs, but this does not mean that they can be handled as non-employees during that time.

Overall, never treat trainees or students as non-employees without carefully analyzing their status in advance.

HOURS WORKED The FLSA never actually generally defines the phrase “hours worked”; the closest it comes is describing the term “employ” to include “to suffer or permit to work” The U.S. Supreme Court has filled this gap to some extent with a two-point test for determining what qualifies as work:

• whether the activity is controlled or required by the employer; and

• whether the activity is pursued necessarily and primarily for the benefit of the employer’s business.

The DOL and the courts have construed “hours worked” to include all time which an employer knows or has reason to know an employee spends in activities which are “work” under the Supreme Court’s definition. At a minimum, this includes all the time you require an employee to be on your premises, on duty, or at a prescribed workplace.

However, you must also accurately record and pay for work that you simply “permit,” even if you do not require or request the work. For example, usually an employer will have to pay for time an employee continues working beyond the end of his or her scheduled workday; the DOL’s view is that an employer should either pay for this sort of work or prevent the work from being done.

The FLSA does not require employers to count absences from work for holidays, vacations, or illnesses as hours worked.

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It is impossible to cover here all of the many different situations which present difficult hours-worked questions. Some of the more-common issues follow:

A. Time Records

While a time clock or computerized time system is recommended for accuracy, the law does not require employees to punch time cards. It simply requires that the employer maintain an accurate record of hours worked by each non-exempt employee each day and each workweek. The computerized time system is the optimal type of system because it generally results in the most accurate recording of hours. However, in some cases, a hand-written time sheet is the most practical method of tracking time. Where employees do record their time by hand, it is important that they record actual starting and stopping times, and not their scheduled hours.

Regardless of the time keeping method, you should monitor the time records to ensure that employees log in and out each day. Occasionally, handwritten entries will need to be made to an automated time record because a punch was missed. When such entries are made, both the employee and the employee’s supervisor should initial it at the end of the pay period. This will help ensure that the supervisor is aware of the employee’s actual start and stop times and will also help to avoid any disputes concerning the accuracy of the handwritten entry. Also, it is a good idea to have employees sign their time report at the end of the workweek certifying that the “hours reported are true and complete.”

B. Breaks

1. Rest Breaks

Rest periods are considered to be primarily for the benefit of the employer, and short periods of less than 20 minutes for coffee and snack breaks are compensable hours worked. Keep in mind, however, that such rest breaks are not required by either the FLSA or Florida law.

2. Meal Breaks

On the other hand, time employees spend in meal periods generally is not counted as worktime (and so need not be paid) if the employees are completely relieved from duty and are not interrupted. If the employees arguably are not relieved from duty, or if their meal period is interrupted by work, difficult questions can arise as to whether and to what extent the time should be counted and paid for. Further, according to the DOL, meal breaks are ordinarily 30 minutes or more in length. While it would be possible to have a meal break of less than 30 minutes, this would only be under “special circumstances.”

Some employers automatically deduct 30 or 60 minutes each day from their employees for meal breaks, rather then have employees clock in and out for lunch. Such a practice is not encouraged because it is easy for employees to later claim that they did not take the full or any meal break on some days. Where an employee makes such a claim, the burden is on the employer to disprove it, which is difficult two and sometimes three years after the fact.

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In very limited situations, it may not be practical for employees to track their actual meal breaks and an automatic deduction may be the only feasible solution. In such cases, it is strongly recommend that the company have a written meal break deduction policy, as well as procedures in place whereby employees can avoid automatic meal break deductions upon proper notice and authorization by a manager. In addition, employees should sign certification statements to the effect that they took the meal breaks for which deductions were made. Such practices will reduce (but not eliminate) the burden of proof with respect to these deductions.

C. Medical Attention & Examinations

Time spent by employees in waiting for and receiving medical attention is compensable if the medical attention is received during working hours and either 1) the medical attention is received on company property or 2) the employer directs that medical attention be obtained elsewhere.

Time spent by employees receiving a physical examination that is required for continued employment is compensable. Time spent on tests, such as drug screens, by applicants seeking employment is not compensable.

D. Waiting Time And On-Call Time

1. Waiting Time

An employee’s time spent waiting for something to happen or for something to do can be compensable worktime. One must look at all the facts to decide whether an employee is “engaged to wait” (which is compensable) or is “waiting to be engaged” (which is not).

For example, unpredictable periods of inactivity while an employee is “on duty,” such as standing by for another assignment during a shift, are usually regarded as being “engaged to wait.” On the other hand, casual “pick-up” workers who show up on their own at a job site in the hope of being hired for the day are usually “waiting to be engaged” and need not be paid for this time.

2. On-Call Time

Questions sometimes arise as to how to categorize time an employee spends in on-call status. Naturally, all work an employee does while on-call must be treated as compensable.

Whether an employer has to record and pay for time the employee spends waiting but not working while on-call depends upon how restricted the employee is in using the time for his or her own purposes. An employee who is not required to remain on your premises and who can use the “idle” on-call time predominantly for his or her own benefit (even if required to carry a cellular telephone or beeper) generally need not be compensated for that time.

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E. Commuting And Travel Time

Travel-time problems can be among the most complex of all hours-worked issues. Whether and to what extent travel must be counted as hours worked frequently can be evaluated only in the context of specific facts and circumstances.

1. Normal Commuting

Normal commuting to and from work generally is not compensable worktime (although different rules might apply if an employee commutes in the employer’s vehicle). However, travel between a “normal” workplace, such as an office, and another place of assignment, usually is counted as hours worked, as is travel between one assignment and another during a workday.

If an employee travels to and from home in a company vehicle, the time spent commuting is compensable unless a four factor test is met. Where the following circumstances exist, time spent traveling between the employee’s home and the first work site of the day and between the last work site of the day and the employee’s home, need not be compensated:

• use of the vehicle to travel to and from home is strictly voluntary;

• the vehicle is of a type normally used for commuting;

• the employee incurs no costs for driving or parking the vehicle; and

• work sites are within the normal commuting area of theemployer.

In the pool and spa industry, some employers may allow their employees to take their vehicles home with them. Applying the above principles, if the company does not require employees to drive their vehicles home and the vehicles are cars, pick-up trucks, minivans, or other vehicles that individuals normally use for commuting, the time spent driving from home at the beginning of a shift or back home at the end of a shift should not be compensable time. This means that the employee is “on the clock” when they arrive at their first job site of the day and “off the clock” when they leave their last job site of the day. If employees are required to report to the company’s facility in the morning to load up their vehicle, that is their first job site and their day starts when they arrive at the facility. They would then be “on the clock” until they return to the facility at the end of the day (if required) or until they leave their last job site of the day.

2. Out-Of-Town Travel

Travel between home and the place of assignment on a one-day trip to another city by an employee who normally has a fixed place of work is hours worked. If the employee leaves from the normal place of work rather than from home, the travel between home and the normal place of work need not be counted as hours worked. If the travel is by public transportation, the time

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spent traveling between home and the departure point, such as an airport, may be deducted.

Overnight out-of-town travel by public transportation must be counted as hours worked to the extent that it occurs during normal working hours, even if the traveling is done on weekends and holidays. Overnight out-of-town travel as a passenger outside normal working hours does not have to be counted as hours worked, if the employee is not otherwise working while traveling. If the employee is required to drive a vehicle in connection with this travel, all of the travel time must be considered hours worked (except for bona fide meal periods).

If the employee is allowed to use public transportation for the trip but instead uses an automobile for personal reasons, the employer may count as hours worked either 1) the time spent driving to the destination; or 2) the time that would have been considered hours worked if the employee had used public transportation.

F. Attending Meetings, Training, Or Similar Sessions

Attending meetings, training programs, and similar activities is not compensable work if each of four conditions is met:

• the attendance must be outside of the employee’s regular working hours;

• the attendance must be voluntary;

• the meeting, training, or other such activity cannot be directly related to the employee’s current job; and

• the employee must not perform any productive work during the attendance.

Attendance is not considered voluntary if the employer requires it either expressly or by implication. Attendance is directly related to a employee’s job if it is intended to make the employee better at his or her regular job, as distinguished, for example, from training that a person undertakes in order to be eligible to be considered for a promotion. There are certain exceptions to these general training-time principles, and they must be considered on a case-by-case basis.

In practice, there are very limited situations in which the time spent by an employee in any such sessions will not counted as hours worked. For example, if employees are required to take continuing education courses, two of the four requirements for excluding the time are likely not being met (voluntary attendance and not being related to current job). If the course is during regular working hours, another requirement is not being met.

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G. Civic or Charitable Work

If an employee is directed or requested by his or her employer to do work for a civic or charitable purpose on the employer’s premise, the time spent must be counted as hours worked. For example, an employee who is directed by the employer to participate in or attend a charitable function must be paid for the time. However, when the employee voluntarily spends time at such activities outside his or her regular working hours, the time need not be counted.

THE MINIMUM WAGE

Currently, the federal minimum wage is $5.85 per hour. The federal minimum wage rises to $6.55 on July 24, 2008, and again to $7.25 on July 24, 2009.

As of January 1, 2008, the Florida minimum wage is $6.79. Unlike the federal minimum wage, the Florida minimum wage is adjusted annually based on the rate of inflation. The Florida Agency for Workforce calculates the adjusted minimum wage rate on October 30 of each year. The Agency will publish the adjusted rate by October 15, which will take effect on the following January 1.Employers can find the effective Florida minimum wage at the following website: http://www.floridajobs.org/resources/fl_min_wage.html.

The rate of a nonexempt employee paid solely on an hourly basis must of course be at least the minimum wage. When nonexempt employees are paid in other ways, such as on a salary, commission, or piece-rate basis, their pay must generate an hourly rate of at least the minimum wage when divided by their hours worked in the workweek.

OVERTIME PAY Overtime pay must be figured at 1.5 times the employee’s “regular rate” of pay for all time worked over 40 hours in a workweek (“overtime hours”). This seemingly simple concept can, in practice, become quite complex.

A. The Workweek

In most cases, the basis for determining overtime is an employee’s workweek. A “workweek” is a fixed and regularly-recurring interval of seven, consecutive, 24-hour periods. The workweek does not have to coincide with a calendar week and can begin on any day and at any time of day. Different workweeks can be established for each employee or group of employees.

Generally, you may not average an employee’s hours over two or more workweeks to see whether any overtime pay is due. For instance, a nonexempt employee who has workweeks of 45 hours and 35 hours in a bi-weekly pay period is due 5 hours of overtime pay for the first week, even though the hours worked average 40 each week.

B. The Regular Rate

The regular rate used to calculate overtime must be an hourly rate regardless of how the employee’s pay is otherwise computed. It is generally determined by dividing an employee’s total compensation (except for certain exclusions summarized below) for any workweek by the total number of hours he or she worked in that workweek which the compensation was intended to cover.

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Remember, the FLSA does not require a nonexempt employee to be paid at an hourly rate. You may pay your employee a salary, commissions, piece-rates, day-rates or a number of other ways. But regardless of how the employee is paid, the FLSA does require that those earnings be converted to a regular hourly rate in order to figure overtime pay.

1. Hourly Employees

If an employee is paid solely at one hourly rate of pay, then that is the individual’s “regular rate.” For overtime hours, in addition to straight-time hourly earnings, the employee must be paid an additional one-half of their hourly rate for each hour worked in excess of 40.

Example: Tom works for ABC Pools at $10 per hour. If he clocks 46 hours in a work week, he must be paid $490.00 (46 hours at $10 plus 6 hours at $5 per hour).

Where an employee in a single work week works at two or more different types of work for which different hourly rates have been set, the individual’s regular rate for that week is generally the weighted average of such rates.

Example: Suppose some of Tom’s work is paid at $10 per hour and other work is paid at $13 per hour. If he works 25 hours at $10 and 20 hours at $13, he must earn $28.33 in overtime premiums (25 hours at $10 plus 20 hours at $13 equals $510 divided by 45 hours equals regular rate of $11.33 times ½ times 5 overtime hours).

2. Salaried Employees

Figuring overtime for salaried, nonexempt employees depends upon how many hours the salary is intended to cover. For example, if the salary covers 40 hours, then the regular rate is determined by dividing 40 into the weekly salary and then paying 1.5 times that rate for all overtime hours. Under such an understanding, you are essentially paying the employee hourly with a guarantee of 40 hours per workweek.

If the salary is intended to cover all hours worked during the period, whether few or many, then one divides the salary by the actually number of hours worked in the workweek and then pays one-half of that rate times the overtime hours. This is known as the “fluctuating workweek” method, and it must be both clearly established and carefully preserved in certain ways. For instance, an employer’s ability to make attendance-related deductions is significantly restricted under the fluctuating workweek system.

Example: Jane works for ABC Pools at a weekly salary of $400 intended to cover all hours worked. In a two-week pay period she clocks

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45 hours the first week and 50 hours the second. In the first week, Jane’s overtime premium is $22.22 ($400 divided by 45 hours times ½ times 5 overtime hours). In the second week, her overtime is $40.00 ($400 divided by 50 hours times ½ times 10 overtime hours). Although the amount of straight-time compensation she earned per hour is less in the second week ($8.00 compared to $8.89), because of the additional overtime compensation, she earned more total compensation by working more hours.

There are many other variations on these themes. As an illustration, some employers pay a salary to cover less than 40 hours, (such as a day-rate, or a 37.5-hour week, for example) while others intend for the salary to provide straight-time pay for some overtime hours up to a certain number. It is possible to maintain salary plans like these, but how overtime is calculated in those situations must be evaluated on a case-by-case basis.

One thing employers generally cannot do is pay nonexempt employees a fixed salary which in itself covers both straight-time and overtime pay. The FLSA provides for a strictly-limited exception to this rule, known informally as a “Belo” contract, but you should never attempt to rely upon that exception without first carefully studying its limitations and requirements to see whether those conditions can be met under your particular circumstances.

3. Piece Rate

A nonexempt employee must be paid overtime even if he or she is paid solely on a piece-rate basis. Where an employee is being paid a flat-amount per pool serviced, that is not tied to customer charges, the employee is likely being paid a piece-rate and not a commission (see below). The regular rate of such an employee usually is calculated by adding together the piece-rate earnings for the workweek and then dividing by the number of hours worked in the week which are covered by the piece-rate earnings. The employee’s overtime pay is then figured by multiplying one-half of that rate times the overtime hours worked.

Example: Suppose Jane is paid $15 per pool and cleans 55 pools in a week in which she clocks 43 hours. In that week, her overtime premium is $28.78 ($15 times 55 pools divided by 43 hours time ½ times 3 overtime hours) and her total compensation is $853.78 ($15 times 55 pools plus $28.78).

The FLSA authorizes another way to compute overtime for piece-rate employees. This special rule calls for paying 1.5 times the usual piece rate for all pieces or units produced during overtime hours. Certain conditions must be met in order to take advantage of this method, including an advance agreement or understanding with the employee making it clear that this alternative will be used.

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4. “Booked Hour” Pay Plans

Some employers charge customers as follows: They calculate the number of hours normally required to do a given type of repair or service (these are called "booked hours") and multiply that number by a dollar figure. The product of this multiplication is the labor price of the repair or service to the customer. Material costs may then be added to the labor price to come up with a final price. The employee assigned to the repair or service job is then paid his or her wage rate multiplied by the number of “booked hours” for the job, regardless of the number of hours that it actually takes the employee to complete the work (which may be more or less).

The regular rate of a nonexempt employee paid on a “booked hour” basis is calculated by dividing his or her “booked hour” earnings by the total number of hours clocked in the week. The employee’s overtime pay is then figured by multiplying one-half of that rate times the total number of overtime hours worked.

Example: Ken works for ABC Pools as a repair technician on a “booked hour” basis. Suppose Ken’s rate is $20 per booked hour and he “books” 30 hours in a week in which he clocks 45 hours. In that week, his regular rate is $13.33 ($20 times 30 booked hours divided by 45 clock hours) and his overtime premium is $33.33 ($13.33 times ½ times 5 overtime hours). Thus, his total compensation for the week is $633.33.

5. Bonuses And Incentive Payments

Many employers fail to realize that all of an nonexempt employee’s pay must be included when computing regular rate, unless the FLSA expressly permits the pay to be excluded. For instance, most bonuses must be figured into an employee’s regular rate, including, among many others:

• additional sums paid for meeting production, efficiency, or sales targets;

• a “shift differential” paid to induce employees to work an undesirable shift;

• cost-of-living bonuses;

• good-attendance payments; or

• distributions from a “gainsharing” pool.

If the bonus covers a single weekly period, it is simply added to the employee’s other weekly earnings for purposes of calculating the regular rate.

Example: Tom works for ABC Pools at $10 an hour. One week he works 50 hours and also earns a $100 bonus for meeting a production

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quota. Under the FLSA, Tom’s “regular rate” is actually $12 per hour [(50 hrs. × $10) + ($100) ÷ 50 hrs]. If ABC pays overtime at 1.5 times Tom’s $10 hourly rate, too little overtime has been paid. Instead, the FLSA requires ABC to pay an additional half-time premium, here ($12.00 ÷ 2) = $6.00, for Tom’s ten overtime hours.

Things are more complex if the bonus was earned for work over a period longer than one workweek. In that situation, once the amount of the bonus is known, the payment must first be apportioned back over the period during which it was earned. If the employer can identify particular bonus earnings to particular workweeks, then the allocation should be done that way.

On the other hand, if it is reasonable to assume that the employee earned an equal amount of the bonus each workweek ending in the period covered by the bonus, an equal amount is allocated to each such workweek. Alternatively, if it is more reasonable to assume that an equal amount was earned in each hour worked in the bonus period, then an equal amount is allocated to each such hour.

Whatever the allocation method is, the employer then computes and pays overtime on the bonus for each workweek for which the bonus was paid.

6. Commissions

"Commissions" are typically computed as a percentage of sales. However, the payment can be of some other nature, if it is based upon or directly keyed to the goods or services the establishment sells.

As with bonuses, when a nonexempt employee receives weekly commission payments, these payments are added to all that person’s other earnings for the workweek. The total is then divided by the hours worked in that workweek to get the employee’s regular rate. The employee then receives overtime pay equal to one-half that rate times his or her overtime hours.

Example: Suppose Ken, the repair technician, is paid commissions at a rate of 20% of customer charges. If Ken works 47 hours in a workweek and is responsible for $2,500 in repairs, he will earn $500 in commission earnings plus $37.23 in overtime ($500 divided by 47 hours times ½ times 7 overtime hours).

Sometimes, commissions are paid to cover a period longer than a workweek. In that case, once the commissions are figured, they must be allocated back over the workweeks in which they were earned. Each week’s commission amount is then divided by the hours worked in that week, and the employee is due one-half of the resulting rate times the overtime hours worked in each corresponding week.

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As with bonuses, if it is not possible to allocate the commissions back to the workweeks in the commission period in proportion to the amount of the commissions earned in each such week, then they must be allocated in some other appropriate and reasonable way so that overtime can be figured. For instance, it might be reasonable under the circumstances to allocate an equal amount of the commissions to each workweek in the commission period, or it might be more appropriate to allocate an equal amount to each hour in the commission period.

7. Exclusions From The Regular Rate

The FLSA specifically allows certain types of compensation to be excluded from overtime calculations, such as:

• some kinds of gifts and similar payments;

• payments made for occasional periods when no work is performed (such as vacations, holidays, or leave), payments made to reimburse certain expenses, and other, similar payments not made as compensation for hours of employment;

• certain payments made under qualifying profit-sharing plans or trusts or thrift or savings plans;

• contributions to a trustee or third person under a qualifying plan providing old-age, retirement, life, accident, or health insurance or similar benefits.

a. Discretionary Bonuses

A bonus is not included in the regular rate if the decisions about whether there will be a bonus and what the amount will be rest within the employer’s sole discretion and are made at or near the time of payment. Year-end Christmas gifts are one example.

The bonus cannot be paid under any contract, agreement, or promise that causes the employee to expect such a payment. If the employer promises in advance to pay a bonus, it abandons its discretion with regard to it, and the bonus must be included in the regular rate. Employers should not rely on this exclusion unless and until they have studied the issue carefully and are surethat it applies.

b. Premium Payments

Certain sorts of “premium payments” may be excluded from the regular-rate computation. The idea is that employers should not have to figure overtime on payments which are themselves in the nature of overtime.

For one thing, you may exclude the premium amount an employee receives for working over eight hours in a day or over 40 hours in a week, or for work exceeding the employee’s normal or regular working hours, when calculating the regular rate.

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You may also exclude extra compensation resulting from the payment of a premium rate of at least 1.5 times the normal non-overtime rate for work performed on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth and seventh days of the workweek.

In addition, you may exclude extra compensation resulting from the payment of a premium rate of at least 1.5 times the non-overtime rate established in an agreement or contract calling for the payment of that premium rate for hours worked outside of the basic, normal, or regular workday (not over 8 hours) or workweek (not over 40 hours).

The FLSA also permits an employer to take a credit for the above premiums against any overtime compensation otherwise due for hours worked over 40 in a workweek.

Employers should not exclude such “premium payments” or take a credit for and such premiums unless and until they have studied the issues carefully and are sure that they apply.

COMPENSATORY TIME

Notwithstanding widespread misconceptions to the contrary, private sector employers cannot compensate nonexempt employees for working overtime in a workweek by giving them time off in another week instead of overtime pay.

However, it is legal to control or rearrange an employee’s hours within a workweek to prevent overtime from being worked. As an illustration, an employee who works 40 hours during the first four days of her five-day schedule can be told to take the fifth day off so as to avoid having her work any overtime hours that workweek.

WAGE DEDUCTIONS AND OUT-OF-POCKET PAYMENTS

In many instances, the cost of tools; equipment; apparel; lost, damaged, or unreturned equipment; shortages; bad checks, and many other such costs may be deducted from employee wages or otherwise imposed on the employee, but not to the extent that the cost cuts into the required minimum wage or overtime wages due that employee.

For example, generally an employee who is required by his or her employer or by the nature of the job to purchase tools or equipment cannot be required or permitted to bear the costs of the purchase to the extent that it directly or indirectly reduces his or her wages to below either the required minimum wage for straight-time hours or any overtime pay due for the week in which the expense is incurred. This is also true even where a prospective employee must pay for such items on an out-of-pocket basis in order to become employed.

Similarly, if you require an employee to wear a uniform, you may not deduct for the cost of or deposit on the uniform to the extent that this reduces the employee’s pay for a workweek to below the minimum wage or required overtime compensation. However, the definition of a “uniform” does not include items of a general street-clothing nature if the employer specifies them only in general terms and allows variations in the details.

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The cost of cleaning and maintaining required uniforms generally may not be imposed upon an employee to the extent that the employee’s wages are thereby directly or indirectly reduced to below the required minimum wage or overtime wages due.

However, where uniforms 1) are made of wash-and-wear materials; 2) may be routinely washed and dried with other personal garments; and 3) need not be ironed, dry-cleaned, washed daily, commercially laundered, or otherwise specially handled, then uniform maintenance costs need not be reimbursed under the FLSA. Where special treatment is required, such as in order to meet an employer’s appearance standards, then a reimbursement must be made if the cost would otherwise cut into the minimum wage or overtime.

An employer may permit and collect for purely personal purchases by employees on a cash basis, even if some amount of employer add-on is included, so long as the transactions are entered into voluntarily by the employee and are at arm’s-length, and so long as collections for the transaction are not made from the employee’s wages. However, where collection for an employee’s purchase is made either directly or indirectly through payroll deduction, a violation will occur to the extent that any employer profit or other add-on cuts into the required minimum wage or overtime wages due the employee. These same principles usually apply to loans or cash advances made to an employee.

Note that, where an employee is subject to the FLSA’s overtime requirements, in determining the excess wages available for offset where a limitation applies, no part of the overtime wages paid for weekly hours worked over 40 may be considered. If you plan to make permissible deductions or offsets in overtime workweeks, you should say so in a policy statement explaining that those deductions or offsets will be made in both overtime and non-overtime workweeks.

Also, deducting work-related costs can destroy a salaried exemption or can alter the circumstances under which an exemption applies if the required salary is impaired. This is more fully discussed later in this booklet.

Finally, the courts and the DOL do not recognize or permit employee agreements which supposedly waive the FLSA’s limitations in these areas. In other words, you may not require or permit employees to pay or have deducted more than the FLSA allows, even if an employee agrees to it.

EXEMPTIONS FROM THE FLSA’S REQUIREMENTS

The FLSA exempts certain types of employees from some or all of its requirements. The DOL and the courts apply these exemptions very narrowly. If an exemption is challenged, it is the employer’s burden to prove that every element of a claimed FLSA exemption applies to the employee for whom it is asserted. There are many misconceptions about how exemptions work, and improperly applied exemptions are among the most-common FLSA violations.

Here is a summary of the exemptions most frequently relied upon -- and most often in dispute.

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A. The “White Collar” Exemptions

The so-called “white collar” exemptions from the FLSA’s minimum-wage, overtime, and timekeeping provisions apply to those employed in a bona fide executive, administrative, or professional capacity or as an “outside”salesperson. Whether these exemptions apply to a particular person depends in part upon what kind of work he or she actually performs, rather than whether the employee is well-paid, well-educated, well-thought-of or highly skilled, or whether the employee has a high-sounding job title or is in a position covered by an impressive-looking job description. Effective August 23, 2004, the requirements for these exemptions were changed significantly.

Whether a person is an exempt executive, administrative, or professional employee also depends upon how he or she is paid, with few exceptions. Exempt individuals generally must be paid on a “salary basis,” described below, at a rate of at least $455 per week, or its equivalent for pay periods longer than one week. But the reverse is not true: Salaried employees are not necessarily exempt.

1. Executive Employees

An executive employee’s primary duty (as a rule of thumb, more than 50% of his or her time) must be spent managing the organization or a customarily recognized department or other subdivision of the organization. “Management” can mean lots of different things, but it generally includes activities such as being involved in hiring, directing, evaluating, disciplining, and firing employees; deciding what work will be done; planning, assigning, and prioritizing work; determining what materials will be used, bought, stocked, or sold; and so on.

The executive must customarily and regularly direct the work of at least two or more other full-time employees or the equivalent (“full-time” usually means 40 hours a week but can be less in particular instances). “Customarily and regularly” is vaguely defined by the DOL as a frequency that must be greater than occasional but may be less than constant. As a rule of thumb, it includes work normally and recurrently performed every workweek, but does not include isolated or one-time tasks.

The executive must also have the authority to hire or fire, or must at least make suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other significant change of status of other employees that are given particular weight. In order to determine whether an employee’s recommendations on personnel decisions are given “particular weight,” factors to be considered include :

• whether it is reflected on the employee’s job description as a specific responsibility,

• how frequently recommendations are made by the manager, and

• how often those recommendations are relied upon.

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In the pool and spa industry, this exemption will generally cover the company’s service manager and/or repair manager. Assistant service managers and assistant repair managers may be covered, but only if they meet all of the requirements for the test. In many instances, especially in smaller pool companies, this is not the case, because the assistant manager is not primarily performing management duties (as opposed to routine paperwork), is not directing the work of two or more employees, and/or is not involved in hiring, firing, and other personnel decisions. The exempt status of assistant managers is an area of intense scrutiny by the DOL and it results in much litigation. The position of office manager also is subject to scrutiny, especially on the issue of whether the employee’s primary duty is management, as opposed to the performance of routine office work.

2. Administrative Employees

A person whose primary duty is performing office or non-manual work directly related to the employer’s management or general business operations (or to the management or general business operations of the employer’s customers) can be an administrative employee.

This work might include things like advising management, being responsible for long-term planning, consulting, negotiating, participating in the formulation of business policy, making decisions affecting business policy, executing or carrying out business policy, and the like. The work must affect matters of consequence or of substantial importance.

The administrative employee’s work must also include the exercise of discretion and independent judgment with respect to matters of significance. This is usually said to consist of evaluating possible courses of action and then, free from immediate direction, taking or effectively recommending one of those actions. Judgment and discretion must involve more than simply applying well-established techniques, clear procedures, or specific or set standards.

Administrative employees generally must also be paid on a “salary basis,” but they can instead be paid on a “fee basis,” a method that is both highly arcane and rarely used (and which is therefore not covered in this handbook).

In the pool and spa industry, there are likely few employees who will meet all of the requirements for this exemption. Specifically, high level decision-makers in departments such as accounting, human resources, and marketing are the most likely candidates for the exemption. However, lower level employees who are primarily completing routine paperwork will not qualify. For example, employees performing accounts payable, accounts receivable, and other basic bookkeeping functions are not considered to be exercising discretion and independent judgment.

3. Professional Employees

The professional exemption applies to an employee who has as his or her primary duty 1) work requiring knowledge of an advanced type in a field of

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science or learning customarily acquired by a prolonged course of specialized intellectual instruction (the “learned” professional), or 2) work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (the “creative” professional). The work of a learned professional must be predominantly intellectual and must include the consistent exercise of discretion and judgment.

Professional employees generally must be paid on a “salary basis,” although the little-used “fee basis” alternative exists for them as well.

On the servicing side of the pool and spa industry, it is unlikely that any positions require the type of advanced knowledge covered by this exemption. On the construction side of the industry, it is possible that a company may employee individuals with engineering, architectural, or other similar advanced degrees.

4. Computer Employees

This exemption applies to computer systems analysts, computer programmers, software engineers, or similarly skilled employees whose primary duty consists of certain kinds of work.

The primary duty of such an employee must be:

• the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;

• the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

• the design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

• a combination of the above duties, the performance of which requires the same level of skills.

This exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment nor does it include employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations.

Exempt computer employees generally must be paid on a “salary basis,” although the little-used “fee basis” alternative also exists for them. However, exempt computer employees can also be paid on an hourly basis, if their hourly rate is at least $27.63 per hour.

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5. Outside Sales Employees

To be an exempt outside salesperson within the FLSA’s meaning, an employee’s primary duty must be making sales or obtaining orders or contracts either for services or for the use of facilities for which a client or customer will pay. The employee must also be customarily and regularly engaged away from the employer’s place(s) of business in doing those things.

The exemption relates only to outside selling. It generally does not include inside selling, telemarketing, sales made through the mail, sales made through the Internet, and so on.

An outside salesperson may engage in activities directly related to his or her own sales or solicitations, such as drawing up sales contracts in the office, telephoning customers to schedule sales visits, or making incidental deliveries and collections, without affecting the exemption. However, the exemption typically does not apply to employees who are delivering things someone else has sold, or to employees who are either promoting sales from a general standpoint or promoting sales to be made by other people.

A person qualifying for this exemption need not be paid in any particular way.

6. “Highly Compensated” Employees

An employee also qualifies for “white collar” exempt status if he or she:

• is paid on a “salary basis” or a “fee basis” at a rate of at least $455 per week;

• has “total annual compensation” of at least $100,000 (including both salary and commissions, nondiscretionary bonuses, and/or other nondiscretionary compensation earned in a 52-week period);

• has a primary duty that includes performing office or non-manual work; and

• customarily and regularly performs any one or more exempt duties or responsibilities of an executive, administrative, or professional employee.

7. “Combination” Exemptions

Sometimes, an employee’s primary duty is a combination of work which meets more than one of the primary-duty tests for the “white collar” exemptions. Work which is exempt under one of those exemptions does not undercut work qualifying for another one of them, so the employee might qualify for more than one of the “white collar” exemptions. Of course, the employee still has to meet all the other tests for exempt status for each of the exemptions claimed.

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B. The “Salary Basis” Issue

Paying a person on a “salary basis” generally means that he or she regularly receives each pay period a fixed, predetermined amount of money for every workweek in which the employee performs any work, without regard to the number of days or hours worked. Ordinarily, salary deductions may not be made from the salaries of “white collar” exempt employees based upon the quality or quantity of the work they perform. On the other hand, the salary need not be paid for a workweek in which the employee performs no work.

In most cases, an employee who is paid other than on a “salary basis” is not exempt as an executive, administrative, or professional employee. For example, the test is not met where the pay method is purely hourly or solely by commissions, or where impermissible deductions are made. However, U.S. Labor Department regulations outline certain circumstances under which deductions from the salary of an exempt executive, administrative, or professional employee are allowable:

1. Personal Days Off

Salary deductions may be made for absences of one or more whole days due to personal reasons other than the employee’s sickness, accident, or disability.

2. Sick Days Off

Salary deductions may be made for absences of one or more whole days caused by the employee’s sickness, accident, or disability, if this is done in conjunction with a bona fide sick-pay plan. Deductions may be made before the employee is qualified for compensation under the plan and after the employee has exhausted the plan’s benefits.

If there is no bona fide sick-pay plan, no deductions may be made for days missed due to sickness, accident, or disability, unless the employee is off for a whole workweek, or unless the absence falls under a special federal Family and Medical Leave Act exception.

3. First And Last Weeks Of Employment

Salary deductions may be made so as to pay only a proportionate part of an employee’s full salary for time actually worked in his or her first workweek or last workweek of employment.

4. Offsets For Jury/Witness/Military Day

Salary deductions can be made to offset any amounts received by an employee as jury fees or witness fees, or as military pay. However, deductions may not be made for absences caused by jury duty, attendance as a witness, or temporary military leave, unless the employee is off for an entire workweek.

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5. Safety-Rule Violations

Disciplinary salary deductions may be made as penalties imposed in good faith for violating safety rules of major significance.

6. Conduct-Rule Violations

Salary deductions may be made to reflect an unpaid disciplinary suspension of one or more whole days imposed in good faith for infractions of workplace conduct rules, if the suspension is imposed under a written policy applicable to all employees. The U.S. Labor Department says that the exception is a narrow one having to do only with “serious” misconduct.

7. FMLA Leave

Salary deductions may be made so as to pay only a proportionate part of an employee’s full salary for time actually worked in a workweek in which he or she takes unpaid leave under the federal Family and Medical Leave Act.

8. Rules Applying To All Salary Deductions

Most deductions permitted by these exceptions may be computed at the hourly or daily equivalent of the exempt employee’s full weekly salary, or in another amount proportional to the time missed. Major safety rule penalties can be imposed in any amount, and deductions to offset sums received as jury or witness fees or as military pay are, of course, to be made in those amounts.

One question employers sometimes ask about salary deductions is, “What happens if we make improper ones?” The general answer is that this causes the exemption to be lost if the circumstances show that the employer did not intend to pay on a “salary basis.” And an “actual practice” of making improper deductions shows that the employer had no such intent. Among the factors relevant to the “actual practice” issue are:

• the proportion of improper deductions made as compared to the occasions on which they might have been made;

• the time period during which the deductions are made;

• the number and geographic location of the employees whose salaries were improperly reduced;

• the number and geographic location of the managers responsible for making the improper deductions; and

• whether the employer has a “clearly communicated policy” permitting or prohibiting the improper deductions.

Isolated or inadvertent improper deductions will not destroy these exemptions if the employer reimburses employees for them.

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In addition, under a regulatory “safe harbor,” improper deductions will not destroy these exemptions if:

• there is a clearly communicated policy that both 1) prohibits the improper pay deductions specified in the general “salary basis” rule, and 2) contains a mechanism for making complaints about such deductions;

• employees are reimbursed for any improper deductions; and

• the employer makes a good-faith commitment to comply with the “salary basis” rules in the future.

As one would expect, the safe harbor is unavailable if the employer fails to reimburse the improper deductions or willfully violates its policy by continuing to make improper deductions after receiving employee complaints.

Improper deductions which are neither 1) isolated or inadvertent, nor 2) covered by a valid safe harbor will destroy these exemptions for the time period during which the deductions were made for employees in the same job classification(s) working for the same managers responsible for the actual deductions.

Employers should be very careful to see that the “salary basis” of pay is properly maintained. A failure to do so can mean that employees treated as exempt will later be found to have been non-exempt, which typically results in substantial liability.

C. Other Exemptions

There are a number of other exemptions from one or more of the FLSA’s requirements, some of which are available only in obscure industries. These exemptions typically are subject to multiple conditions, limitations, and interpretations. Discussed below are the two exemptions most likely to apply to employees in the pool and spa industry.

1. Commission-Paid Employee Exemption

The “commission-paid” employee exemption set forth in Section 7(i) of the FLSA provides an exemption from overtime for an individual:

• who is employed at a “retail” establishment, and

• who receives more than one-half of his earnings in a representative period (of not less than a month) from commissions (as opposed to hourly wages or salary or guarantee or piece rate), and

• who receives total compensation in excess of one and one-half times the federal minimum wage in any overtime workweek. (At the current federal minimum wage, this means earning more than $8.78 per hour; when the federal minimum wage rises to

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$6.55 on July 24, 2008, it will mean earning more than $9.83 per hour; and when it rises again to $7.25 on July 24, 2009, it will mean earning more than $10.88 per hour.)

For Section 7(i) purposes, a “retail or service establishment” is one where 75% of annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.Such establishments sell goods or services to the general public and serve the everyday needs of the community.

Example: Bill works for ABC Pool Cleaning. ABC only cleans pools for residential pools and it pays Bill a percentage of the revenue generated from his route each week. Because ABC does not sell for resale and services only residential homeowners, it is likely a retail establishment. Further, because Bill’s compensation is directly tied to the amounts customer pay for ABC’s services, it is clearly a commission. With a federal minimum wage of $5.85 per hour, if Bill clocks 45 hours in a workweek and earns more than $395.10 in commissions, the third requirement will be met because he will have earned more than $8.78 per hour.

It is still necessary under Section 7(i) to maintain accurate records of an employee's daily and weekly hours worked. The employer must also: (1) make a notation in the payroll records identifying which employees are paid under Section 7(i), (2) maintain a copy of (or a memorandum summarizing) the agreement or understanding under which Section 7(i) is being used, including the basis of compensation, the applicable representative period, the date the agreement or understanding was entered into, and how long it remains in effect, and (3) record the employee's total pay-period compensation, separately stating commissions and non-commission earnings paid to the employee.

The application of this exemption is fact intensive and must be analyzed on a business-by-business basis. Those businesses whose revenue is generated predominantly from the construction and reconstruction of pools and/or spas are unlikely to qualify for this exemption because the DOL has taken the position that construction contractors lack the retail concept, and the courts have agreed with that position.

Other businesses that predominantly service pools and spas for the general public, including those that perform minimal installation of goods incidental to a retail sale, have a substantial argument that they are “retail” establishments. The DOL has previously concluded that comparable businesses, such as chemical lawn care providers, pest control service providers, and plumbing repair service providers, fall within the retail concept. However, currently there are no DOL opinions or court cases applying this exemption to business in the pool and spa industry.

Further, even if a servicing company can establish that it is a “retail” establishment, it must pay its employees on a commission basis. However,

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only compensation that is based upon or directly keyed to the goods or services the business sells are considered true “commissions.” If an employees is paid a flat-rate per pool or spa serviced, such a payment would likely not be considered a commission.

Before relying on the Section 7(i) exemption for any employees, you are urged to consult competent counsel to determine whether the exemption is applicable based on the nature of your business and the method you pay your employees.

2. Motor Carrier Exemption

Generally, this exemption applies to:

• Drivers, driver’s helpers, loaders, and mechanics;

• Of vehicles with either a gross vehicle weight or gross vehicle weight rating of at least 10,001 pounds;

• Whose activities directly affect the safe operation of motor vehicles operated by their employer over public highways;

• In transporting property moving in interstate commerce.

With respect to drivers, obviously their operating vehicles on public highways “directly affects the safe operation” of motor vehicles. The next question is whether they are driving vehicles transporting property which is moving in interstate commerce. This can occur in two ways. First, a driver might of course actually transport property across state lines. In addition, a driver might be making an interstate trip even without crossing state lines, so long as the driver transports property which is nevertheless moving in interstate commerce.

A driver who has engaged in such driving only infrequently might still qualify, so long as the employer (1) can be shown to have an involvement in interstate commerce and (2) establishes that the driver did or could reasonably be expected to do such driving in the regular course of his or her employment.Where these factors are present, the exemption will apply to that employee for a four-month period beginning with the date upon which he or she might reasonably have been called upon to, or actually did, drive in interstate commerce.

For purposes of this exemption, a “driver’s helper” is an employee of a carrier who is required to ride on a motor vehicle being operated in interstate commerce to perform duties affecting the vehicle’s safety of operation. A “loader” is an employee of a carrier whose duties include the proper loading of the employer’s vehicles so that they can be operated safely on public highways. A “mechanic” is a carrier’s employee whose duty is to keep the employer’s vehicles being operated in interstate commerce in safe working condition. These definitions are subject to detailed rulings and interpretations and can be difficult to apply.

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Even if an employee falls within the motor-carrier exemption, this affects only the obligation to pay overtime. The employer still must (1) maintain accurate records of the employee’s actual daily and weekly hours worked; and (2) ensure that the employee receives not less than the minimum wage for all such hours.

This exemption must be evaluated on an employee-by-employee basis according to the actual nature of each individual’s work as assessed against the requirements of detailed rulings and interpretations. The burden of establishing that a person is exempt rests with the employer, who must if challenged prove that every element of the exemption is met. While summaries and job descriptions can assist in generalizing about the possibilities that employees might be exempt, the question’s ultimate answer must be determined against the background of what each incumbent actually does in his or her daily work, as opposed to overviews or assumptions of one kind or another.

On the servicing side of the pool and spa industry, it is unlikely that any employee will meet the requirements of the motor-carrier exemption. However, on the construction side of the industry, it is possible that the drivers of trucks delivering construction materials could qualify.

RECORDKEEPING DOL regulations adopted under the FLSA impose recordkeeping obligations too numerous and detailed to be reproduced here. As an example, with respect to an employee subject to both the FLSA’s minimum wage and overtime provisions, an employer must maintain the following information:

• personal information, including the employee’s name, home address, occupation, sex, and birth date (if under 19 years of age);

• the hour and day when the workweek begins;

• total hours worked each workday and each workweek;

• the total daily or weekly straight-time earnings;

• the regular hourly pay rate for any workweek or work period when overtime is worked;

• the total overtime pay for the workweek or work period;

• any deductions from or additions to wages;

• total wages paid each pay period; and

• the date of payment and pay period covered.

Special provisions also exist, such as those applying to employees who are exempt in one way or another, or who work in certain occupations, or who work under particular kinds of pay arrangements, or who receive room or board.

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The FLSA requires employers to keep the following records for three years: individual employment contracts; collective bargaining agreements; records on employees’ wages and hours; and records showing the employee’s sales and purchases.

Employers must keep the following for two years: basic employment and earnings records; wage-rate records; order, billing and shipping records; and records of deductions from or additions to wages paid. You generally do not have to keep records in any particular form.

Despite the explicit recordkeeping requirements contained in the FLSA, an employer would be wise to keep all records necessary to defend a wage and hour lawsuit for the longest period an employee or former employee has to bring an action for unpaid minimum wage or overtime. The FLSA provides that an employee has two years within which to bring an action for unpaid minimum wage or overtime compensation, or, in the case of a willful violation, three years. Florida law, however, provides that an employee has four years to bring an action for unpaid minimum wage, or five years in the case of a willful violation. Thus, a cautious employer will keeps time and payroll records for five years.

CHILD LABOR The FLSA’s child-labor limitations regulate the employment of individuals under 18 years of age.

There is an age-18 limit for numerous jobs falling within seventeen “Hazardous Occupations Orders” issued by the U.S. Secretary of Labor. Among other kinds, these activities include operating power-driven meat slicers; work relating to power-driven hoisting devices; work involving power-driven woodworking machines, saws, or metal-working equipment; and operating scrap-paper balers and paper-box compactors. As another example, persons under 17 may not drive vehicles on public roads, and 17-year-olds may do so only under restricted circumstances.

Fourteen- and 15-year-olds may work in limited occupations in retail, food service, and gasoline service operations, such as restricted work in offices or in sales, clerical, cleaning, or delivery occupations. Even then, they may work only within strict hours and times-of-day limitations:

• they cannot work during school hours;

• they can work no more than three hours on a school day and eight hours on a non-school day;

• they can work no more than 18 hours in a week when school is in session and no more than 40 hours in a week when school is not in session; and

• they cannot work before 7 a.m. or after 7 p.m., except that they can work until 9 p.m. from June 1 until Labor Day.

Persons under the age of 14 generally cannot be employed.

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Some child-labor exemptions or exceptions exist, such as with respect to certain kinds of agricultural employment, work involving the delivery of newspapers to the consumer, work in conjunction with certain government-sponsored programs, or when a minor is employed by a parent or someone standing in the place of a parent. However, these exemptions are very strictly construed, and you should not rely upon them without carefully ensuring that the relevant exception applies to the particular situation at hand.

ENFORCEMENT The FLSA prohibits an employer from:

• transporting or selling goods produced by employees working in violation of the FLSA’s minimum wage, overtime, or child labor provisions;

• violating the FLSA’s minimum wage, overtime, or child labor provisions;

• retaliating in any manner against an employee because the individual filed a complaint or instituted or testified in an FLSA proceeding;

• violating any of the FLSA’s recordkeeping provisions.

Employers who violate the FLSA can be liable for such things as:

• the unpaid minimum wage or overtime compensation;

• an equal amount as “liquidated damages”;

• civil money penalties imposed by the DOL of up to $1,000 for each “repeated” or “willful” minimum wage or overtime violation;

• civil money penalties imposed by the DOL of up to $11,000 for each child labor violation;

• court injunctions requiring compliance with the FLSA and/or which prohibit an employer from shipping so-called “hot goods” made under FLSA-violating conditions until the FLSA problems are remedied;

• “reasonable” attorney’s fees and costs; and/or

• criminal penalties (up to a $10,000 fine for the first conviction, imprisonment for up to six months if convicted again).

The U.S. Secretary of Labor is authorized to investigate alleged FLSA violations and does so through the DOL’s Wage and Hour Division. The Secretary of Labor may also sue an employer.

Perhaps the fastest-growing FLSA threat to employers is the prospect of private lawsuits by one or more current or former employees. These lawsuits may be pursued as “collective actions” in which multiple plaintiffs join.

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The individuals bringing the suit are often allowed to send out notices to other current or former “similarly situated” employees inviting them to enter the lawsuit. Through this mechanism, a lawsuit which begins with one employee can mushroom into a company-wide action involving tens, hundreds, or even thousands of employees.

There is no requirement under the FLSA that an employee give any notice to his or her employer prior to filing a lawsuit seeking unpaid minimum wages or overtime compensation. Under Florida law, however, employees are required to first notify employers in writing before initiating a civil action to enforce their right to receive the state minimum wage. In the notice, the employee must identify the minimum wage to which they claim entitlement, the actual or estimated work dates and hours for which payment is sought, and the total amount of alleged unpaid wages through the date of the notice. At that point, the employer has fifteen calendar days to pay the total amount of unpaid wages or otherwise resolve the claim to the satisfaction of the employee. Only if the employer does not pay or otherwise resolve the claim may the employee file a lawsuit in state court. Further, if the employee does file a lawsuit, the amount claimed in the lawsuit must be consistent with the initial notice to the employer.

WAGE PAYMENT Florida law provides that payment of wages may be by check, draft, note, or other order of payment. The instrument must be negotiable and payable in cash on demand without discount at an established place of business within the state, the name and address of which must appear on the instrument. The maker or drawer must, of course, have sufficient funds or credit to insure payment for at least 30 days from the issuance of the instrument.

Payment of wages by coupons, tickets, tokens, punchouts, or other devices in lieu of cash must be payable upon demand in United States currency by any legal holder on or after the 30th day of issuance.

A. Direct Deposit of Wages

An employer may deposit wages or salary owed to an employee directly into that employee’s account at a financial institution by electronic or other medium, provided that direct deposit has been authorized in writing by the employee and the employee has designated in writing the institution at which deposit is to be made. However, no employer shall terminate an employee for refusing to authorize such a direct deposit of salary or wages.

B. Wage Payment Upon Termination

There is no Florida law requiring payment of an employee at the same time as termination of employment. However, payment must be made no later than the next ordinary pay day.

C. Wage Payment Upon Death

In case of the death of an employee, an employer may pay any wages or travel expenses that may be due to the employee at the time of his or her death, to the employee’s wife or husband, and if there is no spouse, then to

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the child or children, provided they are over the age of eighteen years. If there is no child or children, payment may be made to the employee’s father or mother.

D. Vacation/Sick Pay

There is no Florida law requiring that an employer provide vacation or sick time to employees. Thus, the conditions governing the provision of such benefits are set by the employer’s policy and/or practice. An employee is not entitled to receive compensation in lieu of using accrued vacation or sick time absent an agreement by the employer. Thus, “use-it-or-lose-it” policies are perfectly acceptable. However, some courts have held that accrued vacation pay is the equivalent of “wages.” Therefore, unless an employer explicitly states that accrued but unused vacation pay is forfeited upon separation, a terminated employee may be entitled to payment for that unused time.

E. Unclaimed Wages

Payroll checks over $10 which remain unclaimed after more than 1 year are considered abandoned property in Florida, pursuant to Florida Statute § 717.115. Employers are required to report abandoned property to the Florida Department of Revenue.

F. Garnishment

A court can order a deduction of any amount of an employee’s salary or wages to be subject to garnishment or attachment to enforce and satisfy the orders and judgments of the court for alimony, child support, money judgment, or other orders subject to the limits contained in the federal Consumer Credit Protection Act and accompanying regulations.

Federal law prohibits an employer from discharging any employee because of the fact that his or her earnings have been subject to any one debt.

CONCLUSION This overview provides a concise and accurate summary, but only of the highlights of these complex laws. Many wage-payment questions are highly fact specific, and there is no substitute for discussing difficult situations with competent counsel.

If you have any questions concerning this handbook or any other wage and hour or employment law matter, please feel free to contact any Fisher & Phillips office or you can contact David Buchsbaum in our Fort Lauderdale office directly. He may be reached at (954) 847-4730 or by e-mail at dbuchsbaum@laborlawyers.com.

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