An Overview of Wage and Hour Law

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www.lfhc.com Jim Mulroy
THE FAIR LABOR STANDARDS ACT IN TEN MINUTES
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Why is this important?

• Recently rediscovered by plaintiffs lawyers
• Many reported large damage awards
• In some jurisdictions, one-third of all federal
  lawsuits are wage and hour suits
• Typically brought as class actions and can be
  expensive to resolve

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Typical Lawsuits Involve

• Misclassification of non-exempt employees as
  exempt
• Off the clock overtime
• Failure to provide uninterrupted lunch breaks
• Preliminary and post work activity
• Misapplication of no overtime rules
• Failure to properly calculate regular rate and
  overtime rate
• A lot of strategic consideration in defending
  these cases

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Basic Standards

• A workweek is defined as seven consecutive,
  24-hour days
• Employers should study overtime pattern of
  employees and establish a workweek which
  minimizes overtime
• Overtime is computed on a weekly, not daily, basis

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Minimum Wage Overtime

• Federal Minimum Wage 5.15/hour
• Overtime 1 ½ times the regular rate of pay for
  hours worked over 40 in a work week
• Determination of regular rate

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Regular Rate Definition

• The regular rate is the employees total
  compensation for the week, divided by the total
  number of hours actually worked
• Employer must include most forms of compensation,
  including base rate non-discretionary bonuses
  commissions incentives etc.

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Regular Rate Exclusions

• Payments excluded from the regular rate
• Gifts
• Paid leave
• Reimbursed expenses
• Discretionary bonuses
• Employer contributions to profit-sharing plans,
  trusts, savings accounts
• Payments to third parties for insurance and
  pension plans

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Exempt/Non-exempt

• Exempt - exempt from FLSAs
• Minimum wage
• Overtime
• Record keeping requirements as to hours worked
• Non-exempt Subject to above requirements
• An employee may be salaried exempt or salaried
  non-exempt
• Salaried non-exempt still must be paid overtime

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White Collar Exemptions

• The two most often used in your industry
• Executive
• Administrative
• Note that if everyone in your organization is
  classified as exempt you have a problem

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Three Tests for Exemption

• Salary Basis (periodic payment of same amount)
• Salary Level (455 weekly)
• Job Duties

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Salary Basis Test

• Receives predetermined compensation each pay
  period (on a weekly or less frequent basis).
• The compensation cannot be reduced because of
  variations in the quality or quantity of the work
  performed.
• Must be paid the full salary for any week in
  which the employee performs any work.
• Need not be paid for any workweek when no work is
  performed.

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Deductions From Salary

• If deductions from the predetermined salary are
  made for absences occasioned by the employer or
  by the operating requirements of the businesses,
  exemption may be lost
• Deductions may not be made for time when work is
  not available and employee is

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Permitted Salary Deductions

• Seven exceptions from the no pay-docking rule
• Absence from work for one or more full days for
  personal reasons, other than sickness or
  disability.
• Absence from work for one or more full days due
  to sickness or disability if deductions made
  under a bona fide plan.
• To offset any amounts received as payment for
  jury fees, witness fees, or military pay.

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Permitted Salary Deductions

• Seven exceptions from the no pay-docking rule
• Penalties imposed in good faith for violating
  safety rules of major significance.
• Unpaid disciplinary suspension of one or more
  full days imposed in good faith for violations of
  workplace conduct rules.
• Proportionate part of an employees full salary
  may be paid for time actually worked in the first
  and last weeks of employment.
• Unpaid leave taken pursuant to the Family and
  Medical Leave Act.

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Executive Duties

• Primary duty is management of the enterprise or
  of a customarily recognized department or
  subdivision
• Customarily and regularly directs the work of 2
  or more other employees and
• Authority to hire or fire other employees or
  whose suggestions and recommendations as to
  hiring, firing, advancement, promotion or other
  change of status of other employees are given
  particular weight.

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Customarily and Regularly

• A frequency that must be greater than occasional
  but which may be less than constant
• Includes work normally and recurrently performed
  every workweek
• Does not include isolated or one-time tasks

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Two or More

• The phrase two or more other employees means
  two full-time employees or the equivalent (must
  equal 80 hours weekly)

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Staffing Meets the Two or More Requirement
General Manager
Assistant Manager
Half-time Employee
Full-time Employee
Half-time Employee
Full-time Employee
Half-time Employee
Half-time Employee
Half-time Employee
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Staffing Does Not Meet the Two or more
Requirement
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Administrative Duties

• Whose primary duty is the performance of office
  or non-manual work directly related to the
  management or general business operations of the
  employer or the employers customers and
• Whose primary duty includes the exercise of
  discretion and independent judgment with respect
  to matters of significance.

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Discretion and Independent Judgment

• The comparison and evaluation of possible courses
  of conduct, and acting or making a decision after
  the various possibilities have been considered.
• Must be exercised with respect to matters of
  significance, which refers to the level of
  importance or consequence of the work performed.
• Decisions and recommendations may be reviewed at
  a higher level and, upon occasion, revised or
  reversed.

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Discretion and Independent Judgment

• Discretion and independent judgment does not
  include
• Applying well-established techniques, procedures
  or specific standards described in manuals or
  other sources
• Clerical or secretarial work
• Recording or tabulating data
• Performing mechanical, repetitive, recurrent or
  routine work.

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Unauthorized Work

• Unauthorized work is compensable if employer
  knew, or had reason to know that work was being
  performed suffered to work
• Misapplication of no overtime rules often
  misinterpreted to mean we do not pay overtime

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Meal/Rest Periods

• Non-compensable time
• Meal breaks of 30 minutes if completely
  relieved of duty.
• Compensable
• Rest periods of 5 to 20 minutes

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Lectures/Meetings/Training

• Compensable time
• On-the-job training
• Work-related meetings
• Required attendance at lectures, meetings,
  training

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Fluctuating Workweek Method

• Advantages
• Reduces overtime costs
• Provides less fluctuation in earning
• Discourages unnecessary overtime
• Disadvantages
• Employee must be paid the full base salary for
  every week in which any work is performed
• Difficult to explain

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Fluctuating Workweek Method

• How it works
• Employee is paid straight-time compensation for
  all hours worked, not just for 40 or fewer hours
• Overtime is still owed at half the regular rate
  for hours worked beyond 40
• Example Employee is paid salary of 400 per week
  and works 50 hours. Regular rate of pay is
  400/50 8.00 per hour. Half-time overtime
  would be paid at 4.00, so employees total pay
  that week is 440
• Flat Rate Method (a variation of the Fluctuating
  Workweek Method)

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Jim Mulroy 6410 Poplar Avenue Suite 300 Memphis,
Tennessee 38119 Phone [phone] Fax (901)
767-7411 jrmulroy_at_lfhc.com www.lfhc.com