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3/25/2015
Shortchanging Your Employees?
Common FLSA pitfalls employers make
and how to avoid them
Daniel N. Ramirez
Partner
Labor & Employment
Agenda
• Introduction
• Common Minimum Wage & Overtime Pitfalls
• Classifying Employees
• U.S. Department of Labor
• Employer Under Siege: Collective Actions Lawsuits
• Planning for the Future
• Best Practices for Wage & Hour Compliance
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Introduction
U.S. DOL—Wage & Hour Division
• In 2014, the DOL Wage & Hour division
recovered $240 million in back wages in the
course of almost 22,557 cases covering
270,000 workers
• Since 2009, the Wage & Hour Division has
recovered $1.3 billion of back wages covering
1.5 million workers
• In 2014, over 922 wage and hour lawsuits were
filed in Texas
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FLSA Lawsuits Here We Come!
http://www.wagehourinsights.com/FLSA%20Charter.JPG
Ads Targeted at Employees“Get the overtime pay you deserve!”
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Common Minimum Wage &
Overtime Mistakes
Pitfall #1
• Misclassifying employees
as exempt from overtime:
– Employee agreed to receive
salary
– Salary, non-exempt employees
– Nobody works over 40 hours
– Office/Clerical jobs are salaried
– Employee is exempt because
their work is “important”
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Pitfall #2
• Not Paying Overtime to
Non-Exempt Employees:
https://www.youtube.com/v/GjJCd
CXFslY
– Compensating employees
straight time instead of OT rate
– Giving comp time off instead of
paying OT
– Hours reduced based on
performance issues
– Using schedules instead of
accurate clock in/out records
• Off-the-Clock Work
Pitfall #3
– De Minimus work—no bright line rule
– When an employee is required to give
up a substantial measure of his time
and effort that compensable working
time is involved
– Employees required to clock out at
5:30 p.m., but continue working off
the clock
– Employee trying to “catch-up” on
work, but not paid
– Employee working from home, but not
paid
– Pre- and Post-job requirements
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Pitfall #4
• Waiting Time
– Counted as hours worked when
• Employee is unable to use the time
effectively for his or her own purposes;
and
• Time is controlled by the employer
– Not counted as hours worked when
• Employee is completely relieved from
duty; and
• Time is long enough to enable the
employee to use it effectively for his or
her own purposes
– On-call time
Pitfall #5
• Rest and Meal Breaks:
– Rest Period less than 20
minutes must be compensated
– Meal Break less than 30
minutes must be compensated
– These periods must not be
interrupted
– Care should be taken to ensure
such a period is entirely
uninterrupted from work
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Pitfall #6
• Misclassifying
Employees as
Independent Contractors:
– Employers improperly classify
employees as independent
contractors
– Among other factors, if an
employer has control or the
right to control the worker, the
worker may be misclassified
as an independent contractor
Pitfall #7
• Incomplete & Inaccurate
wage and hour records:
– An employer’s records must be
thorough and complete. If it is
your word against the
employee, you will lose every
time
– Must be accurate
– Conduct frequent audits
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Pitfall #8
Unpaid Interns
•
•
•
•
•
Internship for college credit?
Using interns instead of regular employees?
Do interns benefits from the experience of this internship?
What type of training or guidance is provided?
Day-to-day tasks expected of an intern?
Fair Labor Standards Act (FLSA)
• The FLSA establishes:
•
•
•
•
Minimum wage
Overtime pay
Recordkeeping
Youth employment standards for full-time and parttime employees
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FLSA Does Not Require
• Vacation, holiday, severance, or sick pay
• Meal or rest periods, holidays off, or vacations
• Premium pay for weekend or holiday work
• A discharge notice, reason for discharge, or immediate
payment of final wages to terminated employees
• Any limit on the number of hours in a day or days in a week
an employee at least 16 years old may be required or
scheduled to work
• Pay raises or fringe benefits
The Hourly Worker:
Non-Exempt Employee
Minimum Wage—Up to 40 Hours
$7.25 per hour
Over 40 hours = $7.25 (or other pay rate) x
1.5 = overtime compensation
Proper Hourly Compensation
Hourly + Overtime Compensation
Remember to Pay during Workweek
i.e., Monday through Sunday, 8am to 5pm
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Types of Wages
• Wages (salary, hourly, piece rate)
• Commissions
• Certain bonuses
• Tips received by eligible tipped employees (up to $5.12
per hour)
• Reasonable cost of room, board and other “facilities”
provided by the employer for the employee’s benefit
Discretionary Bonus
• Discretionary bonuses are
not included in regular rate
– the "fact" of payment and
"amount" of payment "are
determined at the sole
discretion of the employer at
or near the end of the period
…”
• Non-discretionary bonuses
ARE included in regular
rate
• How to keep a bonus
discretionary:
– Employer must retain
• Discretion as to $$$
• Discretion as to timing of
payment
– Cannot pay bonus
pursuant to any prior
contract, agreement or
promise
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Example of Non-Discretionary
•
The types of incentive and
production bonuses which must be
taken into consideration when
figuring overtime pay “because of a
contract, agreement, or promise” are
those based on:
– Production by individual or groups or
employees;
– Attendance;
– Accuracy of work;
– Quality of work;
– Length of service;
– Efficiency;
– Courtesy; and
– Number of overtime hours worked.
•
Hourly Employee’s Production Bonus
– Total Hours = 48
– Hourly Rate = $9.00
– Bonus = $10
48 hours x $9.00=
Bonus
$442.00 / 48 hrs
$9.21 x .5
$4.61 x 8 hrs
=
=
=
$432.00
+ $ 10.00
$442.00
$9.21 (Regular Rate)
$4.61
$36.88 (Overtime Due)
Paying 2 Different Hourly Rates
• An employee in a single workweek performs
two or more different types of at different
hourly rates (on call, shift pay differential,
etc.)
– Regular rate is the weighted average of both rates
– ((Rate 1 × Hours Worked) + (Rate 2 × Hours
Worked)) ÷ Total Hours Worked = Regular Rate
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Paying 2 Different Hourly Rates
•
Jason works on Machine A for 21 hours at a rate of $4.50 per hour and
on Machine B for 26 hours at a rate of $5 per hour. Jason's total
compensation will be figured as follows:
–
–
–
–
–
–
–
–
–
–
–
21 hours × $4.50 = $94.50 26 hours × $5 = $130.00 47 $224.50 regular pay
Regular rate = regular pay ÷ hours worked
Regular rate = $224.50 ÷ 47 hours
Regular rate = $4.78 per hour
Overtime pay = overtime hours × overtime rate
Overtime pay = 7 hours × ($4.78 × ½)
Overtime pay = 7 hours × $2.39
Overtime pay = $16.73
Gross wages = regular pay + overtime pay
Gross wages = $224.50 + $16.73
Gross wages = $241.23
Fluctuating Work Week
• An employee is on a salary for fluctuating hours if:
– Paid an agreed flat sum each week (excluding OT pay);
– Agreed that the flat sum amount excluding OT pay is for all
hours worked each workweek;
– Provided a bona fide sick plan;
– No deductions for part days; and
– Deducted whole day or greater absences if no accrued
sick pay or personal leave
• Recommendation:
– Draft a written memorandum or agreement signed by
employee confirming he understands how he will be paid
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Fluctuating Work Week
• Weekly salary = $500
– Week 1 = 40 hours
• Regular rate = salary ÷ hours 500 ÷ 40 = $12.50 (regular rate)
• Total pay received = $500
– Week 2 = 60 hours
• Regular rate = salary ÷ hours
• Overtime pay = regular rate × ½ × overtime hours $500 ÷ 60 = $8.33
(regular rate) $8.33 × ½ × 20 = $83.30 (overtime pay)
• Total pay received = $583.30 ($500 salary + $83.30 overtime pay)
– Week 3 = 30 hours
• Regular rate = salary ÷ hours 500 ÷ 20 = $25 (regular rate)
• Total pay received = $500
Day Rates
• What is a day rate?
• A flat sum for a day’s work, without regard to the
number of hours worked
• Under the FLSA, a day rate simply affects how an
employer must calculate an employee’s regular hourly
rate of pay for a work week
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Day Rates
– As with any non-exempt employee, the
regular rate cannot fall below minimum wage
– If an employee paid a day rate works more
than 40 hours in a given week, the employer
must pay time-and-a-half on top of the
regular rate for any hours worked over 40
Deductions
Requirements for Taking
Deductions from Paychecks:
•
Signed worker consent;
•
Employer may deduct the reasonable cost
of meals, lodging, and other facilities
furnished to worker in connection with the
employment, provided, among other
things, that the employer does not profit
thereby and only if these items are
customarily provided to employees in the
industry; and
•
Deductions must not put worker below
minimum wage.
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The Salaried Worker
Exempt From Overtime
• The most common exemption—often called the
“white collar” exemption—applies to certain
–
–
–
–
–
–
–
Executive Employees
Administrative Employees
Professional Employees
Creative Employee
Highly Compensated Employee
Outside Sales Employees
Computer Professionals
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Exempt: Executive Employees
• Duties of Executive Employees
– Primary duty is management of the
enterprise or of a customarily
recognized department or
subdivision;
– Customarily and regularly directs
the work of two or more other
employees; and
– Authority to hire or fire other
employees or recommendations as to
the hiring, firing, advancement,
promotion or other change of status of
other employees given particular
weight.
Exempt: Administrative Employees
• Job Duties:
– Primary duty must be
performance of office or nonmanual work directly related to
the management or general
business operations of the
employer or the employer’s
customers; and
– Exercise of discretion and
independent judgment with
respect to matters of
significance.
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Common General Exempt Employees
• Executive Employees
– Plant Manager
– Regional Manager
– Store Manager
– Office Manager
• Administrative Employees
– Human Resources
– In-House Accounting
– Public Relations
Exempt: Learned Professionals
Job Duties:
• Employee’s primary duty must be
the performance of work requiring
advanced knowledge, (intellectual in
character and consistent exercise of
discretion and judgment);
• Field of science or learning; and
• Advanced knowledge must be
customarily acquired by a prolonged
course of specialized intellectual
instruction (generally a degree).
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Exempt: Creative Professional
• Employee’s primary job duties:
– Must be the performance of work
requiring invention, imagination,
originality or talent in a recognized
field of artistic or creative endeavor
– Exemption as a creative professional
depends on the extent of the
invention, imagination, originality or
talent exercised by the employee
– Employees in such fields as, for
example, music, writing, acting and
the graphic arts
Exempt: Highly Compensated Professional
• Perform office or non-manual work
and paid total annual compensation
of $100,000 or more (which must
include at least $455 per week paid
on a salary or fee basis); and
• They customarily and regularly
perform at least one of the duties of
an exempt executive, administrative
or professional employee identified in
the standard tests for exemption
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Exempt: Outside Sales Employees
• Job Duties of Outside Sales Employees
– Making sales or obtaining orders or contracts for
services or facilities for consideration paid by customer
– Customarily and regularly engaged away from the
employer’s place(s) of business in performing such
primary duty
– No compensation test
Exempt: Computer Professionals
• Job Duties of Computer Professionals
– The application of systems analysis
techniques and procedures;
– The design, development,
documentation, analysis, creation,
testing, or modification of computer
systems or programs;
– The design, documentation, testing,
creation, or modification of computer
programs related to machine operating
systems; and
– A combination of the above requiring the
same level of skills.
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Permissible Deductions?
• Permissible Deductions-Exempt Employees
– Personal days of one day or more
– Sick days of 1 day or more, if pursuant to bona fide time off plan
– Setoffs for jury, witness or military duty
– Suspensions for violating “safety rules of major significance”
– Suspensions of one day or more for violating written workplace
conduct rules
– Prorations for initial or terminal weeks of employment
– Time missed due to FMLA leave
Consequences of Misclassification
• Errors result in employer paying more than is owed to
employee such as:
– Pay amount of unpaid overtime for past 2 to 3 years
(depending on statute of limitation)
– Liquidated damages equal to the amount of unpaid overtime
– Attorneys fees for employee’s attorneys
– Fines, interest, and possible criminal sanctions
– DOL Investigation
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U.S. Department of Labor
Wage & Hour Law
• Enforcement of Federal Labor Standards Act (FLSA)
• Objectives of U.S. Secretary Thomas E. Perez:
– Increased budget to focus on dealing with wage and hour
complaints
– Hiring of more investigators
– Coordinated investigations and regulatory actions with
federal and state enforcement agencies
• FY 2014, DOL collected $240 million in back wage.
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DOL Investigations
• Department of Labor (“DOL”) Investigations Begin
– Employee Complaint
– Competitor Complaint
– Follow-up Audit
• DOL Authority
–
–
–
–
–
Audit Wage and Hour Records
Interview Employees (~ non-management)
Calculate Back Wages Owed
Liquidated Damages
Civil Monetary Penalties
Employers Under Siege:
FLSA Collective Actions Lawsuits
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FLSA Collective Actions
• What is a FLSA Collective Action Lawsuit?
– Lawsuit alleging wage and hour violations.
– Worker’s (and plaintiff’s attorney) dream come
true:
• Similarly situated workers are invited to join
• Workers at same location and different employer
locations in Texas and throughout U.S.
FLSA Collective Actions
• How does it effect the employer?
– Former AND current workers for past 3 years;
– Court-approved written notice
– Pay back wages
– Liquidated damages = Back wages
– Attorneys’ fees = Generally 40% of damages
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The Cost of Wage & Hour
Collective Actions?
• Brinker Restaurant Corp.
– $56.5 million for 108,000
workers
• City of Los Angeles
– $26 million for 1,074 workers
• Walgreen Co.
– $23 million for 40,000
workers
• Wells Fargo
– $15 million for 4,500 workers
• Wal-Mart
– $21 million for 1,800 workers
• Kindred Healthcare
– $16.5 million for collective
action
• J.P. Morgan Chase
– $16 million for collective
action
• Verizon California
– $15 million for 6,800 workers
FLSA Collective Actions
• Employee A is owed $5,000 for OT error. There are 20 other
employees who are in the same positions as Employee A.
• Lawsuit filed:
– Court will generally permit written notice to be sent to these 20 employees to
join lawsuit
– If all 20 employees join, this claim is now $100,000
– The liquidated damages = $100,000
– Total damages $200,000 + Attorney’s Fees ~ $80,000 (approx. 40%)
• Total Liability = $280,000
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FLSA Collective Actions
• Employer Solution—Arbitration
Agreements
Arbitration Agreements in Texas
• What is an Arbitration Agreement?
– Workers can still sue
– Employers choose “location”… private room not a
courtroom
– Generally resolved quicker
– Experienced Decision Maker
– Make it a condition of employment executed by employee
• FLSA Collective Actions & Arbitration Agreements
– Arbitration Agreement for Employers in the 5th Circuit
• Worker can waives the right to receive notice of FLSA collective
action
• Worker can waive the right to participate in FLSA collective
action
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Employer Defense Strategies
• In case of wage and hour lawsuit:
– Retrieve all wage and hour records
– Analyze work weeks at issue
– Analyze employee by employee to assess risk/liability
– Isolate and eliminate wage and hour practices that pose
risk
– Prevent retaliation claims
– Apply any credits
Creating a Culture of Wage & Hour Compliance
BEST PRACTICES
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Best Practices
• Audit and enforce company policies
regarding wage & hour practices and issue
any disciplinary action
• Conduct routine internal and external audits
of pay practices
• Ensure exemption job positions have job
descriptions.
Best Practices
• Create a culture of compliance with wage & hour
policies, law, procedures
• Hold managers and supervisors accountable
• Accurate clock-in/out system
• Obtain signed, notarized affidavit if employer
enters into agreement with employee who
complains of wage and hour issues (for use in
future as credit)
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Daniel N. Ramirez, Partner
Labor and
Employment Law
Employment | Labor | Immigration
www.montyramirezlaw.com |
[email protected]
Disclaimer
ABOUT US. Established in 1998, Monty Ramirez, LLP is the largest Hispanic-owned labor,
employment and immigration law firm in the Southwest. The Firm is passionate about
representing the interests of companies with large Hispanic workforces. The firm offers a range
of corporate legal services to Fortune 500, publicly-traded companies, major industry
associations and governmental agencies (notably serving as Immigration Counsel for the
agencies). The Firm represents employers in investigations and audits conducted by the
National Labor Relations Board, Department of Labor, Bureau of Citizenship and Immigration
Service, Occupational Safety and Health Administration and Equal Employment Opportunity
Commission.
DISCLAIMER. This presentation is for informational purposes only and provides general
information concerning employment and immigration law to help you identify when you may
need additional advice. It is not an exhaustive treatment of the statutes, case law or regulations
that are involved with the subject. Please recognize that the law is developing rapidly in this
area and you will want to obtain current legal advice on your specific situation before taking
action. Employment and Immigration law liabilities are often highly dependent on the particular
facts and circumstances of the individual case or situation. As such, employers should seek the
advice of counsel prior to making their determinations. Monty Ramirez, LLP is available to
answer any employment or immigration related issue(s) with Your Company.
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Copyright Materials
• This presentation is protected by United
States and International copyright laws.
Reproduction, distribution, display and use
of the presentation without permission of
the Monty Ramirez, LLP is prohibited.
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