The federal Fair Labor Standards Act (FLSA) sets some basic rules when it comes to paying employees minimum wage and overtime, but certain common pay practices can violate the law without employers even knowing it. If any of the following sound familiar, it may be time for a compliance check.
1. "All Our Employees Are Exempt - They're Salaried"
Don't assume that just because you pay your employees a salary, they are considered exempt (not entitled to the FLSA minimum wage and overtime pay protections). Similarly, giving an employee a high-ranking job title such as "manager" does not, by itself, determine the employee's status. In order for an exemption to apply, you must ensure that an employee's specific job duties and salary meet all the requirements of the law for the specific exemption claimed.
One of the more commonly used exemptions under the FLSA exempts from both the minimum wage and overtime pay protections bona fide executive, administrative, professional and outside sales employees. For this exemption to apply, an employee generally must be paid on a salary basis of no less than $455 per week and perform certain types of work that:
- Is directly related to the management of his or her employer's business, or
- Is directly related to the general business operations of his or her employer or the employer's clients, or
- Requires specialized academic training for entry into a professional field, or
- Is in the computer field, or
- Is making sales away from his or her employer's place of business, or
- Is in a recognized field of artistic or creative endeavor.
Remember—job titles alone do not determine the exempt or non-exempt status of any employee. Exemptions are determined for each specific employment situation based on the specific job duties performed and compensation received.
2. "We Don't Need to Pay Overtime - Our Employees Volunteer to Work Late"
Non-exempt employees must be paid for all hours worked, including time spent doing work not requested by the employer but still allowed (otherwise known as working "off the clock"). Employees generally may not volunteer to perform work without the employer having to count the time as hours worked. Pay special attention to the following situations when it comes to paying employees for time worked:
- Rework. When an employee must correct mistakes in his or her work, the time must be treated as hours worked, even when the employee voluntarily does the rework.
- Waiting for Work. Time, which an employee is required to be at work or allowed to work for his or her employer, is hours worked. A person hired to do nothing or to do nothing but wait for something to do or something to happen is still working.
- Place of Work. Hours worked include all the time during which an employee is required or allowed to perform work for an employer, regardless of where the work is done, whether on the employer's premises, at home or at some other location.
It is the responsibility of management to exercise control and see that work is not performed if the employer does not want it to be performed.
3. "Overtime Doesn't Apply - We Use Contract Workers"
While it is true that independent contractors are not entitled to overtime pay because they are not considered "employees" covered under the FLSA, the mere existence of a contract stating that a worker is an independent contractor is not sufficient to determine the worker's status. Analyze the underlying nature of each relationship in light of all relevant factors to ensure that each worker is properly classified.
Note that state wage and hour laws may also apply to employment subject to the FLSA. When both the FLSA and a state law apply, the law setting the higher standards must be observed. If you have any questions regarding permissible pay practices, please consult a knowledgeable employment law attorney. Our section on Employee Pay includes information on other issues related to employee compensation.
You can review other key practices necessary for staying HR compliant by downloading our free Must-Do HR Checklist!