Managing Risk in Employment Decisions: Wage and Hour Challenges and Opportunities Amie Flowers Carmack Daniel J. Palmieri K&L Gates LLP Wage and Hour Issues � Proper Classification of employees—exempt vs. non-exempt � Calculation of work time—what counts? � Wage reductions and furloughs to reduce expense � Wage payment requirements � Deductions from wages 2 Why Wage and Hour Issues Are Challenging � The laws are arcane � Every business is at risk � The risks are high � Claims are increasing � Employers rarely have a sympathetic argument 3 1
Wage & Hour Laws � The federal Fair Labor Standards Act (FLSA) and NC state laws set forth requirements for minimum wage and overtime. � Federal minimum wage is $7.25/hr as of July 24, 2009. � State laws impose a myriad of other requirements on top of FLSA. Employers must follow both. 4 The White-Collar Exemptions � “Exempt” employees are not entitled to minimum wage or overtime � Exemptions for executive, administrative, and professional workers � Must satisfy a minimum compensation requirement and both a duties test and a salary basis test 5 Executive Exemption � Must be paid $455 per week on a salary basis � Primary duty must be management � What is a primary duty? � What is management? � Must customarily and regularly direct 2 or more other workers � Must have the authority to hire or fire other employees, or make suggestions on employee status that are given particular weight 6 2
Administrative Exemption � Must be paid $455 per week on a salary basis � Primary duty must be non-manual work directly related to the management or general business operations of the employer or the employer’s customers � Must exercise discretion and independent judgment with respect to matters of significance � An employee who leads a team of other employees assigned to a major project generally meets this requirement 7 Professional Exemption � Usually must be paid $455 per week on a salary basis � Must be a learned professional, artistic professional, teacher, doctor, or attorney � Learned professionals do work requiring advanced knowledge in a field of science or learning customarily acquired through prolonged instruction and must consistently exercise discretion and judgment 8 Professional Exemption � Creative professionals do work that is original and creative in nature in a recognized field of artistic endeavor � Exempt teachers must be engaged in the imparting of knowledge and work within a school system or educational establishment 9 3
Combination Exemption � May combine work duties that qualify under the executive, administrative, professional, computer, and outside sales exemptions � Must still satisfy the minimum compensation and salary basis requirements 10 Other Exemptions � Computer professional exemption � Outside sales exemption � Retail sales and service exemption � Recreation and amusement exemption � Motor Carrier Act exemption � Domestic worker exemption � Seamen exemption � Law enforcement and fire protection exemption 11 Minimum Compensation Requirement � Must be paid a minimum of $455 per week ($23,660 per year) on a salary basis � The minimum may not be prorated for part-time workers � Workers who are paid $100,000 or more per year in total compensation and who perform any one or more exempt duties can qualify for the highly compensated employee exemption 12 4
The Salary Basis Test � Must be paid full salary for any work week during which employee works � Need not be paid salary if employee performed no work during a work week � Common issues –reducing salary, using accrued leave time, correcting improper deductions, paying extra compensation, and tracking time 13 Reducing Salary for time not worked � General rule – a salaried exempt employee is entitled to his or her full salary in any week during which he or she performs any work. 14 Reducing Salary for time not worked � An exempt worker’s salary may be reduced when: � The worker performs no work during the relevant work week. � The worker works less than a complete week during his or her initial or terminal week of employment. � The employer reduces the worker’s salary for hours taken as intermittent or reduced FMLA leave. 15 5
Reducing Salary for time not worked � An exempt worker’s salary may be reduced by whole days only when: � The worker is absent due to sickness or disability lasting one day or longer and the employer maintains a bona fide plan, policy, or practice of providing compensation for loss of salary occasioned by sickness or disability � The worker is subject to an unpaid disciplinary suspension of one or more full days imposed in good faith for infractions of workplace conduct rules � The worker takes a personal absence from work for a day or longer 16 Reducing Salary for time not worked � An exempt worker’s salary may not be reduced when: � The employer does not provide work � The worker misses work for civic responsibilities � BUT, employer can reduce a worker’s salary to offset amounts received for jury duty, witness fees, or temporary military service � The worker is absent for a partial day 17 Furloughs under FLSA � Non-Exempt Employees � No FLSA problem. Employees only paid for time worked � Exempt Employees � Caution! Can only avoid paying if no work performed for entire week � Make sure employees don’t work while on furlough � Employees who violate furlough rules can be disciplined, but must still be paid. 18 6
Using Accrued Leave Time � Department of Labor draws a distinction between salary and leave banks (e.g., PTO, sick leave) � Even though salary deductions can only be in whole day increments, law allows incremental or hourly use of accrued leave time � Critical question – what happens when leave is exhausted? 19 Hypothetical � Employer wants exempt employees to stay home for whole days when work is light. � Employer plans to deduct non-work time from employees’ PTO accounts, so they still get paid. � If an employee is out of PTO, employer will deduct whole days of salary. � How would DOL deal with this issue? 20 Hypothetical—DOL Response � First part of employer’s policy is fine: � Employers can force employees to use PTO � No salary basis issue because employee still ends up getting paid for whole week � Issue arises when PTO is exhausted � Now employee won’t get paid for whole week � Reductions in compensation mean that employee is not paid on salary basis “without regard to the quantity of work performed.” � Fact that it is whole days doesn’t matter because time off is at employer’s direction. 21 7
Hypothetical—Bad Weather � Where employer closes the office: � Can force employees to use PTO � Cannot deduct from pay if no PTO available � Where office is open but employee chooses to stay home: � Can deduct from PTO account � Can deduct whole day of pay if employee misses whole day � If employee works partial day, must pay for whole day, unless PTO used. 22 Correcting Improper Deductions � The federal regulations establish a “window of correction” that provides two avenues for employers to avoid the loss of exempt status � First, if improper deductions are isolated or inadvertent and the employer reimburses the employee for any improper deductions � Second, if the employer has a policy prohibiting improper deductions (including a complaint procedure), reimburses the employee, agrees to comply in the future, and has acted in good faith 23 Paying Extra Compensation � Federal law draws a distinction between base salary (which is used to satisfy the salary basis test) and additional compensation paid to exempt workers � Additional compensation may be paid as bonuses or commissions, or may be paid on an hourly basis � Critical question is whether the compensation structure is being used to evade the requirements of the FLSA 24 8
Tips to Avoid Salary Basis Issues � Do not focus on compensation issues or “hours worked” when a salaried exempt worker is taking excessive time off � Instead, focus on whether the worker is accomplishing his or her tasks and objectives � Deal with the issue through appropriate counseling and discipline � Establish appropriate policies that implement the window of correction 25 Tracking Time � Tracking work hours is acceptable, even for exempt employees � What is the purpose of tracking? � Assuring coverage � Accountability � Allocating work � Collateral benefits of tracking time 26 Typical Work Time Issues � Potential work at home (or elsewhere) � Commuting and travel time � Security screening � Clothes changing and equipment donning/doffing � Walking and waiting time � The impact of computers, equipment, and tools � Orientation and training � On-call time 27 9
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