The FLSA: Avoiding common pitfalls and costly · PDF fileThe FLSA: Avoiding common pitfalls...

The FLSA: Avoiding common pitfalls and costly mistakes

April 8, 2014

Compensation

Your panel

Linda Ulrich Principal

Buck Consultants Compensation Practice

Don Berman Principal &

Professional Services Leader HRTMS

Julia Zuckerman, JD

Director Buck Consultants

Knowledge Resource Center

Nancy Vary, JD Director

Buck Consultants Knowledge Resource Center

The information contained in this presentation and any accompanying documents does not constitute legal advice; consult with your legal and tax advisors before applying this information to your specific situation.

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Compensation

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Agenda

Given the current litigious landscape, it is important for organizations to ensure they are in compliance with federal, state, and local wage and hour laws

Today, we will focus on key FLSA compliance challenges

• Determining exempt and nonexempt status

• Tracking hours worked

& calculating wages correctly

• Understanding the role of job descriptions

Is our programmer/

analyst exempt or nonexempt?

What about our assistant’s use of a

company smartphone to respond to emails

after work?

What about bonuses that nonexempt

employees receive? The job description lists technology that doesn’t even exist

anymore!

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FLSA compliance challenges

• Federal laws • State laws • Lawsuits • Penalties

IT’S COMPLICATED!

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FLSA basics: federal minimum standards

The Fair Labor Standards Act (FLSA) establishes federal standards for: • minimum wage • overtime pay • recordkeeping • youth employment

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FLSA basics: coverage • The FLSA covers:

− full-time and part-time employees (excludes independent contractors and volunteers) working for:

o businesses involved in interstate commerce with $500k or more in sales/revenue annually

o hospitals, nursing homes, residential care facilities, schools/preschools, and government agencies

• The FLSA requires employers to pay: − covered employees no less than the federal minimum wage (currently

$7.25 per hour) for all hours worked

− one and one-half times their “regular rate” of pay for all hours worked > 40 hours in a workweek

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Compliance failures pose major liabilities for employers: The DOL’s watchful eye

The Department of Labor (DOL) is strengthening its outreach and enforcement • The DOL estimates that almost 70% of employers are not in compliance • Over the past few years, the DOL has increased the number of wage-hour

investigators and taken other steps to encourage employees to report violations • “We can help program” • DOL timesheet app • In FY2013, the DOL recovered nearly $250 million in back wages from employers • The Administration’s budget proposal for FY2015 shows a continued emphasis on

workplace pay issues • Aggressive enforcement efforts are expected to continue throughout 2014 and beyond

The impact …

Employers’ time, distraction, reputational damage, litigation costs and potential $$$ liability

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Compliance failures pose major liabilities for employers FLSA litigation is on the rise • Wage and hour lawsuits are up over the past 5 years, with a

particular surge in collective and class actions − 10% increase in FLSA cases filed in 2012-2013

• Employers can incur enormous costs to defend even unproven claims

• FLSA regulations are intricate and case law is ever evolving, and complying with the FLSA can be confusing and challenging, particularly as: − technology alters how, when, and where work can be performed − job responsibilities shift and market pressures affect staffing and budgets

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Reported 2014 FLSA settlements

• A long line of well-known, sophisticated companies have reportedly agreed to pay large sums to settle wage-hour lawsuits (some settlements still awaiting court approval). Most recently: − Walgreens - $23M − Wells Fargo - $15M − JP Morgan Chase - $16M − Tyson Foods – $18.8M − Roto-Rooter – $14.2M − PetSmart – $10M

• How are such sizeable numbers possible? • Is any relief on the way?

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Obama’s directive to the DOL: change overtime rules

• March 13, 2014 Presidential Memorandum orders DOL to: − update existing protections in keeping with the intention of the FLSA − address the changing nature of the American workplace − simplify the overtime rules to make them easier for both workers and businesses

to understand and apply

• Expected to narrow executive, administrative, and professional employees exemptions (so-called "white collar" exemptions) by: − raising salary threshold of $455 per week − changing current job duties tests

• Bright-line overtime test (requiring a certain % of work time be spent on exempt duties) a possibility

• Changes unlikely for some time if DOL pursues normal rulemaking process

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Exempt or nonexempt: that is the question!

Statutory exemptions from minimum wage and overtime pay for: • executive employees • administrative employees • professional employees • outside sales employees • computer employees • highly compensated employees

Job titles do not determine exemption status!

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Exempt or nonexempt: qualifying for an exemption

To qualify for one of the FLSA’s “white-collar” exemptions, an employee generally must satisfy the following 3 tests: • salary level test

Must be paid on a salary basis of at least $455 per week $100,000 for highly compensated employees Excludes outside sales, doctors, teachers, lawyers, certain computer-related jobs

• salary basis test Must receive a set amount of compensation each pay period regardless of variations in

quantity or quality of work Must be paid a full salary for any “workweek” but need not be paid when no work is performed

during the entire workweek Excludes outside sales, doctors, teachers, lawyers, certain computer-related jobs

• job duties test Distinct job duties for each exempt classification that depend on actual duties performed Percentage of time spent performing exempt duties v. non-exempt duties does not necessarily

determine exemption status

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#1 - A field technician sells an HVAC system while out on a call to service a customer’s heating system.

Does this position qualify for an exemption?

Webinar poll – outside sales exemption

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Outside sales exemption

To qualify for this exemption: • the employee’s primary job duty must be making sales, obtaining

orders or contracts for services or for the use of facilities for which the client will be paid

• the employee must customarily and regularly work away from the company’s place of business

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#2 - A programmer analyst meets with internal clients to identify issues in their computer system and then programs a modification

to rectify the issues.

Does this position qualify for an exemption?

Webinar poll – computer employees exemption

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Computer employees exemption

To qualify for this exemption, the employee must: • be engaged in systems analysis and consulting with users • design, analyze, and test computer systems • design or test computer programs • perform a combination of the above • receive either a salary or fee of at least $455 per week or $27.63 per

hour

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Counting time accurately: overtime rules

• Unless an exemption applies, employees working more than 40 hours a week must receive time and one-half for all overtime hours

• The activities below present challenging circumstances in determining whether time should be counted toward overtime:

− Waiting and on-call time

− Travel time

− Donning and doffing

− Vacation, sick time, holidays

− Breaks and meal periods

− Sleeping

− Lectures, meetings, training

− Telecommuting

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Counting time accurately: challenges of modern technology

Alternative work arrangements and technology create compliance challenges • Telecommuting can expose an employer to FLSA liability when employees

perform work, such as sending a work-related email or text message, outside normal working hours

• A very important issue related to vacation time and holidays is the use of smartphones and home computers for work-related emails and text messages by nonexempt employees during vacation or holidays

• Employees must be compensated for time spent for responding to emails and text messages during this time – even if the employer has not requested that they perform this work

• If an employer does not want to compensate employees for this time, it should inform them that they are not to use home computers or smartphones for work purposes during scheduled vacations or holidays; otherwise, the employees need to record and report this time

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Webinar poll – counting time accurately

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#3 - A retail associate has to wait in line to have her bag checked before leaving for lunch and at the end of the day.

Does this count as time worked?



Compensation

Counting time accurately Busk v. Integrity Staffing Solutions • On March 3, 2014, the US Supreme Court agreed to decide whether

time employees spend in security screenings is compensable under the FLSA

• Busk is a class action lawsuit brought by warehouse workers who fill orders placed by Amazon.com customers

• Employer instituted security screenings (including walking through metal detectors and bag searches) to prevent employee theft

• Workers were required to undergo security screenings at the end of their shifts, but were not paid for their time to clear security

• The high court is expected to hear oral argument in the fall, and decide the case by June 2015

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#4 – An organization is implementing a new IT system and a key technician is required to be available by phone after working hours

in case any issues arise.

Does this “on call” time count as hours worked for purposes of receiving overtime?

Webinar poll – on-call time

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On-call time: restrictions on employee’s time

• On-call time qualifies as hours worked under the FLSA if the employee is unable to use his/her time freely

• Simply being required to carry a cell phone or pager or leave word where he or she can be reached does not constitute working unless there are additional constraints on the employee's freedom

• However, if work calls received during on-call time are frequent enough to interrupt the employee’s activities, the time may be compensable

• When an employee is on-call, any time spent responding to calls is hours worked and the employee must be paid overtime

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#5 – A customer service rep has done an exceptional job on a difficult project and his manager decides to give him a $250 spot bonus.

Does this have to be included for purposes of overtime calculation?

Webinar poll – regular rate of pay?

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Regular rate of pay: calculating overtime pay the FLSA way!

• The FLSA defines overtime pay as one and one-half times an employee’s “regular rate” of pay for all hours worked beyond 40 hours per workweek

• To calculate overtime pay, an employer must first determine an employee’s “regular rate” of pay

• The regular rate of pay includes: − non-discretionary bonuses − cost-of-living adjustments − shift differentials − commissions (although certain retail and service industry exceptions

apply) − fair market value of non-cash payments in the form of goods or facilities

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Regular rate of pay: calculating overtime the FLSA way! (cont.)

• Each work week stands alone; hours can’t be averaged over a period of two or more weeks

• Weekly earnings may be determined on a piece-rate, salary, commission, or other basis, but must be calculated in hourly terms by dividing total pay by the number of hours worked

• Shift differentials must be included in determining regular pay • Regular rate exclusions include:

− expense reimbursements − premium payments for overtime − weekend / holiday work − discretionary bonuses and gifts

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Common mistakes: don’t fall into these traps!

• Improperly applying an exemption

• Assuming managers are not entitled to overtime

• Assuming all salaried employees are exempt

• Treating employees as independent contractors

• Making employees perform work before they clock in or after they clock out

• Failing to consider non-discretionary bonuses in calculating overtime pay

• Making improper wage deductions

• Failing to comply with applicable state and local laws, in addition to the FLSA

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Best practices in today’s environment

Regularly review job classifications • Ensure that job titles accurately reflect the nature of the job • Maintain up-to-date job description that reflect employees’ actual duties • Review job descriptions with employees • Periodically audit all positions to determine if properly classified • Determine whether pay ranges satisfy salary thresholds necessary to maintain

many exemptions

Keep abreast of state and local laws on minimum wage and overtime • States and local governments can enact more stringent wage-hour laws in which

case, employers must follow the stricter provisions

Maintain an effective internal complaint procedure • Establish an easily-accessible employee complaint mechanism • Ensure prompt reimbursement of any inadvertent or mistaken pay deductions

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Implement an accurate timekeeping system and educate / train managers on compliance issues • Have a clearly communicated policy on after-hours work, working from home,

telework, and smart phone use • Instruct managers about compensable time and no “off-the-clock” work • Be sure to include non-standard work such as orientation and waiting time • Consider requiring employees to sign off on adjustments to their time records

Audit pay practices regularly • Have a clearly communicated policy on permissible pay deductions • Ensure that all necessary elements of compensation (e.g., non-discretionary

bonuses, shift differentials) are included in the employee’s regular rate for calculating overtime pay

• Ensure prompt reimbursement of any mistaken pay deductions

Don’t forget to review your employee handbooks

Best practices in today’s environment (cont.)

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Tools Presented by Don Berman, HRTMS

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Quick overview

We asked our clients these questions • What benefits do you get from using a job description repository? • What job description elements do you use to classify jobs? • What process do you use in determining FLSA status? • How do you control job description content?

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Clients reported these benefits

• Provides written documentation of company’s efforts to be in compliance with FLSA regulations

• Conducts legally defensible job analysis that is consistent regardless of individual conducting the review

• Assists in writing accurate job descriptions by providing examples that meet compliance

• Creates a central location for documentation for job description, including FLSA testing and scope

• Database that is searchable and allows reporting to find missing data, gaps and/or overdue evaluations

• Provides mass updates to ensure consistency

• Provides an audit trail for changes and approvals

• Explain FLSA decisions internally

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What job description elements are used to classify jobs

• Job descriptions are not required, BUT − provide useful input for job duties test − may be helpful in an FLSA dispute

• Organizations use these elements of the job description to complete an FLSA questionnaire about the exemption: − job summary − essential functions − scope

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What job description elements are used to classify jobs Job summary

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What job description elements are used to classify jobs Essential functions

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Freedom to act Problem complexity Impact Supervision exercised/

received Financial responsibility Budget responsibility

What job description elements are used to classify jobs Scope

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• Exemption tests delivered via FLSA questionnaires • Types of FLSA questionnaires

– Most use DOL standard – Some use state questionnaires as well – Few use a custom or combined set

• Pick the appropriate questionnaire for the job • Complete the questionnaire • Validate via collaborative workflow

What process is used in FLSA determination

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FLSA Exemption Test

What process is used in FLSA determination

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Use reporting/features to identify: • missing job descriptions • stale, outdated content • incomplete, inaccurate or missing content • vague, confusing or acronym/jargon laden verbiage

How our clients control job description content

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Allow stakeholders to collaborate under HR/compensation aegis

How our clients control job description content Collaboration

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• Routing JDs to stakeholders – Hiring Managers, HRBPs, Compensation and Others

• Include legal or those with FLSA expertise when necessary

How our clients control job description content Workflow

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Choose from standard/existing content

How our clients control job description content Content

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Help bubbles point stakeholders in the right direction

How our clients control job description content Guidelines

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In summary

• Although job descriptions are not a requirement of the FLSA, they are the a widely accepted exhibit that can prove the essential functions of a job

• Accurate job descriptions are essential when determining whether an employee is exempt of non-exempt

• Since duties/responsibilities change often, it’s important to periodically review job descriptions to verify if they are still current

• Job Descriptions are also key for evaluating employees, creating equitable salary structures, career pathing and succession planning

• Maintaining job descriptions manually is difficult

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Buck resources

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Latest For Your Information publications on FLSA

Supreme Court will consider the compensability of employee security screenings (March 7, 2014)

Obama directs DOL to change overtime rules (March 14, 2014)

FYI In Depth - The Fair Labor Standards Act: Are you sure you’re in compliance? (April, 2014)

If you are not on our mailing list and would like to receive a copies, please send us your email address and we will forward them to you

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https://www.buckconsultants.com/portals/0/publications/fyi/2014/FYI-2014-0307-SC-will-consider-comp-emp-sec-screen.pdf

https://www.buckconsultants.com/portals/0/publications/fyi/2014/FYI-2014-0307-SC-will-consider-comp-emp-sec-screen.pdf

https://www.buckconsultants.com/portals/0/publications/fyi/2014/FYI-2014-0314-Obama-directs-DOL-change-overtime-rules.pdf







• Free and available to the public! • Go to:

Research and insights > Publications > FYI Research and insights > Publications > Legislate Research and insights > Ideas> Health care reform Research and insights> Multimedia > On-demand webinars

• Get personalized access to the latest HR news and events from Buck via the Subscription Center

Resources on Buckconsultants.com

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https://www.buckconsultants.com/SubscriptionCenter

FLSA audit checklist

If you answered “No” to any of these questions, you may be violating the Fair Labor Standards Act.

YES NO

1. Have you properly classified your employees as exempt vs. nonexempt? • Classifying an employee is not as simple as looking at the employee’s title. You must review

each employee’s salary and duties. • Exempt employees must fit into one of the following categories: executive, administrative,

or professional employees; highly compensated white-collar employees; and outside sales, or computer personnel.

• In addition, exempt employees must generally be paid a minimum salary of $455 per week.

YES NO

2. Are you paying your nonexempt employees for all hours worked? • Make sure that you are counting and combining all hours – whether or not worked at more

than one location. • Do you have a system for auditing time records? Do your employees record training time?

Travel time? Time spent working at home? On-duty waiting time? Time spent after hours reading and responding to emails?

• Do your employees work before or after regularly scheduled shifts? Do your employees work during their meal or break periods? Have you clearly communicated to employees whether or not you want and/or expect them to read and respond to emails after hours or on vacation?

Answer the following questions to determine if you are in compliance with the Fair Labor Standards Act:

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FLSA audit checklist

YES NO

3. Are you paying your nonexempt employees the correct amount of overtime? • Overtime is calculated based on an employee’s “regular rate” of pay. This includes

performance-based bonuses, cost of living adjustments, shift differentials, non-cash payments, and some commissions.

• Also, in general, overtime may not be calculated based on hours worked over more than one week.

YES NO

4. Are you keeping complete and accurate records of wages, hours, age, names, social security numbers, pay rates, specific hours worked, overtime versus straight-time earnings, pay dates, week beginning and ending dates, and additions to or deductions from wages? • These records are required by the FLSA and must be available for inspection by the Wage

and Hour Division. • Failure to keep such records can lead to penalties either for the failure itself or because you

cannot then prove compliance with minimum wage and overtime requirements without them.

YES NO

5. Are you in compliance with state and local wage-hour requirements? • The FLSA does not supersede any state or local laws that are more favorable to employees. • Rather, state or local law may require you to pay a higher minimum wage or comply with

more stringent exemption requirements.

If you answered “No” to any of these questions, you may be violating the Fair Labor Standards Act.

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Questions?

The information contained in this presentation and any accompanying documents does not constitute legal advice; consult with your legal and tax advisors before applying this information to your specific situation.

April 8, 2014



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Contact information

Julia Zuckerman, JD Director, Knowledge Resource Center Buck Consultants, A Xerox Company 1800 M St, NW, Suite 700 Washington, DC 20036 p 202.776.1096 [email protected] www.buckconsultants.com

Nancy Vary, JD Director, Knowledge Resource Center Buck Consultants, A Xerox Company 485 Lexington Avenue, 10th Floor New York, NY 10017-2630 p 212.330.1317 [email protected] www.buckconsultants.com

Linda Ulrich Principal, Compensation Buck Consultants, A Xerox Company 500 Plaza Drive Secaucus, NJ 07096 (C) 201.927.6805 [email protected] www.buckconsultants.com

Don Berman Principal and Professional Services Leader HRTMS 3434 Edwards Mill Rd., Ste. 112-137 Raleigh, NC 27612 201.818.4766 [email protected] www.hrtms.com

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mailto:[email protected]


http://www.buckconsultants.com/


http://www.hrtms.com/

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