FAQs ABOUT FEDERAL OVERTIME PAY REQUIREMENTS

by Employment Law Attorney Leslie Lockard
The Law Office of Leslie Lockard, P.C.
Norwood Corporate Center
1500 Providence Highway, Suite 33
Norwood, MA 02062
(781) 551-0800
Llockard@leslielockard.com
www.leslielockard.com

For about 20 years, I have specialized in assisting employers and human resources people with personnel issues, drafting employment documents such as contracts, non-competition agreements, handbooks and affirmative action plans, and representing them during governmental audits or in lawsuits brought against them in court or at the MCAD.

One area of the law on which employers often need assistance is compliance with federal overtime pay requirements. Unfortunately, the regulations are very complex, and include a number of provisions which may seem counterintuitive. To make matters worse, a small compliance error by an employer can give rise to an extremely expensive award of back pay, double damages and other financial penalties.

There are law firms which specialize in bringing lawsuits against employers who allegedly failed to correctly apply this area of the law. Moreover, any employer can be subject to an audit by the Department of Labor. The Department of Labor sometimes targets certain industries or conducts random audits, and an audit may also result from a question or complaint from an employee or a competitor.

It is therefore critical that every covered employer correctly comply with federal overtime pay requirements.

WHICH EMPLOYERS ARE COVERED BY FEDERAL OVERTIME PAY REQUIREMENTS?

Most employers are covered by the FLSA, if they have two or more employees engaged in interstate commerce, producing goods for interstate commerce, or handling, selling or otherwise working on goods or materials that have been moved in or produced for interstate commerce.

The term “interstate commerce” is very broadly defined. For example, cleaning personnel using cleaning products that were produced in another state is generally sufficient to make the employer subject to the FLSA. Almost all employers will be deemed engaged in interstate commerce.

In addition, to be covered, the employer must have annual gross sales or business of not less than $500,000. Even if the employer is not itself a covered business, its employees – or even just one employee – may still be covered if they are individually regularly engaged in interstate commerce or in the production of goods for interstate commerce or in any closely-related process or occupation directly essential to such production. Such employees include those who

• work in communications or transportation;

• regularly use the mails, telephones or telegraph for interstate communication;

• keep records of interstate transactions;

• handle, ship or receive goods moving in interstate commerce; or

• regularly cross state lines in the course of employment.

The federal Fair Labor Standards Act (FLSA) essentially requires that covered employees receive a minimum hourly wage and receive 1-1/2 times their regular rate of pay for all hours worked in excess of 40 hours in a work week. The Fair Labor Standards Act does not, however, require:

• paid vacation,

• time off on holidays,

• severance or sick pay,

• meal or rest periods,

• premium pay for weekend or holiday work,

• a limitation on the number of hours in a day or days in a week that an employee may work;

• Even if both the employer and the employee might wish to do this, it is generally not legal for an employer to enter into an agreement with the employee by which the employee would not receive overtime pay for hours worked in excess of 40 per week.

• Employers also are required to consider each work week standing alone. That is, if an employee works 50 hours in one week, and 30 hours the next week, the employer would not be permitted to fail to pay overtime on the grounds that the employee had worked in the aggregate only 80 hours during the two week period. Instead, the employer would be required to pay 10 hours worth of overtime for the first week.

• Employers also are not permitted to offer comp time to covered employees in lieu of overtime pay. This is a common error. Many employees would like to receive comp time in lieu of overtime, and if both the employer and the employee want to use a comp time system, many employers have not realized that this is illegal. It is permissible though, to provide comp time within one work week. For example, an employee who works 12 hours on Monday can be given four hours off the next day, on Tuesday.

The FLSA defines employee very broadly as any individual employed by an employer. Therefore, if a person is employed as opposed to being an independent contractor, and does not fall within one of the specific exemptions set forth in the FLSA, the employee is entitled to overtime pay.

In addition to the exemptions for “administrative”, “executive” and “professional” employees and other similar exemptions (which will be discussed more fully below), there are employees of certain types of businesses who are not covered by the FLSA.

For example, motion picture theater workers do not need to be paid overtime nor do cabdrivers or some sales people primarily engaged in selling or servicing automobiles.

Employers need to be very careful in classifying a worker as an independent contractor rather than an employee. There is a multifactor test set forth in the regulations which must be satisfied for an employee to be deemed an independent contractor. There is also a very restrictive state statute which makes it extremely difficult to lawfully classify a worker as an independent contractor.

In addition, under state law, for a worker to be classified as an independent contractor, there must be a written contract or job description reflecting that the worker is free from direction and control by the employer. Before classifying a worker as an independent contractor, it is very advisable to obtain advice and assistance from an employment law attorney. An employment attorney can also assist in drafting the written independent contractor contract, which needs to be very carefully drafted.

HOW IS OVERTIME PAY CALCULATED?

Overtime compensation is required to be paid at the rate of 1-1/2 times the regular hourly rate of pay. In general, an employee’s regular rate is the hourly rate plus certain additional types of compensation.

The regular hourly rate of pay is determined by dividing the total of the covered types of compensation by the total number of hours actually worked in the work week for which overtime pay is due. Among the additional types of compensation that would likely be includable in the regular rate are the following:

• Non-discretionary bonuses, such as for good attendance or excellent work;

• Commissions;

• Quality or production incentives;

• On-call pay;

• Paid rest periods;

• Shift differential pay;

• Contest prizes for attendance, cooperation, courtesy, efficiency, production, quality of work;

• Extra pay an employee is given for carrying a beeper in off hours.

• Discretionary bonuses, such as Christmas bonuses;

• Time spent in jury service or on bereavement leave;

• Pay provided for holidays, vacation or sick days.

Employers are required to pay covered employees for not only scheduled work time, but for hours that they “suffer or permit” employees to work. Sometimes employees may wish to work longer at the end of their shift to finish an assigned task, or may work through some or all of their lunch period. In addition, some employees may take work home to complete. If an employer knows, or has reason to know, that employees are working extra time, the employer is required to compensate them for that time. If the employer does not wish to pay overtime compensation, it is required to see to it that its employees do not work more than 40 hours per week.

This part of the law would generally be interpreted generously in favor of the employee. It is therefore advisable to make sure that supervisors do not allow employees to work overtime without compensating them. To prevent unwanted overtime work, it is often advisable to establish a clear rule stating that covered employees are not permitted to work more than 40 hours without obtaining permission from appropriate management employees. Including such a policy in a written handbook, and regularly reinforcing it with employees and supervisors, may also be advisable.

Employees should be required to punch in on the time clock at, or just slightly before, their scheduled starting times. Similarly, employees should be required to punch out at, or just slightly before, the end of their scheduled shifts. For example, if employees routinely punch in a half hour early or 15 minutes late, they may be working during that time without your knowing it. And even if they are not, the Department of Labor may well believe that they are.

Under federal law, it is permissible to round starting and stopping times to the nearest five minutes, tenth of an hour or quarter hour, if it can be shown that over time this results in employees being paid for all the time they actually work. (However, the state Attorney General’s Office has reportedly been considering taking some action against this practice.)

ARE BREAKS AND LUNCH PERIODS COMPENSABLE WORK TIME?

Breaks

Short breaks, running between 5 and 20 minutes, must be counted as hours worked. Thus, covered employees are entitled to be paid for breaks of 20 minutes or less.

Meals

In general, mealtimes that last at least 30 minutes during which the employee is not using his time predominantly for the benefit of the employer are not compensable time. It is not required that the employee be allowed to leave the building during lunch in order for the time not to be compensable. However, if a receptionist is required to be available to answer the phone while eating or if construction workers are required to sit near their materials while they eat so that no one will steal them, the employer will likely be required to pay for this mealtime.

The safest practice is to have employees punch in and out for lunch, or otherwise have good records which reflect that employees are actually taking their meal breaks.

HOW ARE “ON DUTY” AND “OFF DUTY” DEFINED?

Waiting time while the employee is on duty is generally considered compensable work time, especially when the periods of waiting are brief and unpredictable. This is so because employees are considered to be unable to use such time for their own purposes. Employees are generally entitled to be paid for waiting time whether it occurs on or off the employer’s premises, and even if they are doing such leisure activities as reading a newspaper or playing cards while waiting.

An employee will generally be deemed to be engaged in off duty non-compensable time if he is completely relieved from duty during a period of time which is long enough to permit the employee to use the time effectively for his or her own purposes. The employee must be advised in advance that he may leave the job, or that he will not have to start working until some specific time.

For example, if a truck driver arrives at a destination, and is told that he can leave for six hours before returning to commence another trip, that six hours would likely be non-compensable. However, if the employee were required to stay with his truck, the employee would probably be entitled to compensation for that period of time.

WHEN IS PRELIMINARY AND “POSTLIMINARY” WORK COMPENSABLE?

Employers are generally required to compensate employees for preparatory and concluding activities which are an integral part of their principal work activity. An example would be a lathe operating employee who needs to remain at the end of his work shift to oil or clean his machine or insert a new cutting tool.

Another example would be an employee in a textile mill who reports to work 30 minutes before other employees to distribute clothing to employee workbenches and get machinery turned on and ready for operation.

If employees need to put on and remove protective clothing to protect them from caustic or toxic materials, that time is likely to be compensable. They would also likely need to be paid for their time walking from the changing room to their workstation. On the other end of the scale, if an employer provides uniforms for employees in a business which does not involve dangerous substances, and it would take employees perhaps 5 or 10 minutes to put on and remove their uniforms, this time would more likely be deemed not compensable.

WHEN IS ON-CALL TIME COMPENSABLE?

An employee who is required to stay on call at a worksite, or so nearby that he can’t effectively use the time for his own purposes, must be compensated for that time. However, an employee who is merely required to leave a number where he can be reached, or to carry a cell phone pager, but is otherwise free to use his time for how own purposes, does not have to be paid for his time.

IS COMMUTING/TRAVEL TIME COMPENSABLE?

In most circumstances, routine commuting time from and to the employer’s place of business is not compensable.

However, if the employee’s job involves driving, such as making calls on clients or customers, time spent driving to and from clients/customers would generally be compensable. Similarly, if a construction worker is asked to work part of his day at one site, and then travel to another site, his travel time would usually be compensable.

In addition, if an employee has completed his shift of work, and is then called to the home/business of a client/customer to perform emergency work, the time commuting to that place would generally be compensable.

The Department of Labor has not taken a position, however, on whether commuting time to attend to an after-hours emergency at the employer’s workplace would be compensable time.

Another example of compensable travel time would be if an employee is required to travel first to a meeting place to pick up his tools or receive instructions before going to another place of work. The travel time from that first place to the next place would generally be compensable.

Travel to Another City Which Falls Within One Day

An employee who usually works in Taunton from 9 to 5 could be given a special assignment to travel to New York City. The employee may need to travel to Boston to take the 8:00 a.m. shuttle to New York, arriving there ready for work at 10:00 a.m. He may complete the assignment at 5:00 p.m., and arrive back at Logan at 7:00 p.m. Most of this time would need to be compensated. Travel between the employee’s home and the airport maybe deducted from compensable time, as well as a deduction for the employee’s usual mealtime.

Travel That Keeps the Employee Away Overnight

Employees who engage in travel which will require them to stay away from home overnight are generally entitled to be paid for all travel that falls within their normal work hours. They are also usually entitled to be paid for travel time which falls within the corresponding hours on Saturdays, Sundays and holidays. For example, if an employee generally works 9 to 5, Monday through Friday, and travels between 11:00 a.m. and 4:00 p.m. on Saturday, the employee would be entitled to paid for that time because the 11:00 to 4:00 p.m. time period would fall within their usual weekday 9:00 to 5:00 p.m. hours. Even if the employee is still traveling for the benefit of the employer during times which fall outside of their regular work hours, or their corresponding work hours on Saturdays, Sundays or holidays, the time is not compensable. Regular meal period times which fall during such travel are also not compensable.

TRAINING TIME

For employee training time NOT to be compensable, all 4 of these factors must apply:

• attendance must occur outside of employee’s regular working hours;

• attendance must be voluntary;

• the employee must not do productive work for the employer while attending;

• the training should not be directly related to the employee’s job.

Time spent by an employee waiting for and receiving medical attention is compensable if it occurs at the employer’s premises or at the direction of the employer during the employee’s normal working hours on days when he is working. If an employee sees a company doctor outside of working hours, or chooses on his own to see an outside doctor during working hours, however, the time is not compensable.

WHAT RECORDKEEPING IS REQUIRED UNDER THE FLSA?

Among the records employers are required to keep, and make available for inspection by the Department of Labor, are the following records with regard to hourly employees who are entitled to overtime pay:

• Employee’s name and social security number;

• Employee addresses;

• Employee birth dates if they are younger than age 19;

• The employee’s sex;

• The employee’s occupation;

• The time and day of the week when the employee’s work weeks begin;

• The hours the employee works each day;

• The total hours an employee has worked in each work week;

• The basis on which employee’s wages are paid;

• The employee’s regular hourly rate of pay;

• The employee’s total daily or straight time earnings;

• The employee’s total overtime earnings for a work week in which overtime was earned;

• All additions to or deductions from the employee’s wages;

• The total wages paid to each employee during each pay period;

• The date of payment and the pay period covered by the payment.

WHICH EMPLOYEES ARE EXEMPT FROM OVERTIME PAY REQUIREMENTS?

There are several categories of employees who are exempt from the requirement of overtime pay. It is critical that employers consider carefully whether an employee is actually correctly classified as exempt. An error can result in a finding that a misclassified employee, as well as other similarly situated employees, are entitled to years of back overtime pay. This can amount to hundreds of thousands of dollars.

An employer in such a situation has a difficult time defending itself because it often will not have kept good records of the hours worked by employees it considered exempt. Therefore, it can be hard for an employer to prove that the overtime hours these employees claim to have worked were not actually worked.

To be exempt from overtime pay requirements, it is not sufficient that the employee be paid a salary. The employee’s work duties must also fall within one or more of the following categories: executive, administrative, professional, outside sales or certain computer-related positions. The rules relating to exemptions are very complex. If you have a question as to whether a certain employee can be safely classified as exempt, you should speak to me or another competent employment attorney.

For more information about exemptions, please see my “FAQs ABOUT WHICH EMPLOYEES ARE EXEMPT FROM FEDERAL OVERTIME PAY REQUIREMENTS”.

WAGE AND HOUR/OVERTIME COMPLIANCE AUDITS BY THE DEPARTMENT OF LABOR

If you should be the subject of a Department of Labor audit, the investigator will likely both review the employer’s records and interview employees. Among the things the investigator will likely focus on are the following:

• Have you properly classified your employees? Do you have independent contractors who should actually be classified as employees? Do all employees classified as exempt in fact qualify as exempt according to the applicable regulations? One way employers can go wrong here is by failing to keep their job descriptions current. An employee’s job duties may change over time. If an employee originally correctly classified as exempt takes on new duties which mean, for example, that his time is no longer predominantly spent on executive functions, the employee may no longer be exempt. For the same reason, it is critical to understand and correctly apply the rules concerning exemptions, and to understand and correctly apply the rules with regard to who would be considered an independent contractor.

• Are covered employees being paid for all time which is compensable, such as for breaks, covered preliminary time, travel time, etc.? Is a covered employee’s regular rate of pay being correctly determined, such as to include attendance bonuses, shift differential pay, etc?

• Are you keeping the records which are required?

• Are you complying with child labor laws?

• Are you complying with immigration law requirements, e.g., are you obtaining proper documentation from new employees evidencing authorization to work in the U.S.?

• Family and Medical Leave Act compliance (for covered employers of 50 or more employees). Have you posted the required notice of FMLA rights? If you have an employee handbook, does it contain information about employee FMLA rights and responsibilities? Are you providing employees with appropriate required notices concerning the FMLA? Are you segregating in a confidential place medical information obtained about your employees and their families in relation to determining their need for FMLA leave?

• Are you illegally offering comp time instead of overtime pay?

• Are you compensating your employees for all of the time that is showed on your pay clock, or on the written records that are submitted of employee work time? For this reason, do not allow employees to punch in early, before they actually begin work!

• Do you describe exempt employees in your records as earning an hourly rate? That is, have you described an exempt worker as earning $40/hour, rather than $75,000 per year, or $2,500 per pay period? Do not make this mistake! This will likely be considered by the Department of Labor as strong evidence that the employee is actually an hourly employee who is entitled to overtime pay.

If you receive notice that you are being audited by the Department of Labor, it would be very advisable to immediately seek assistance from me or another competent employment law attorney. Because the rules relating to compensation and overtime pay are so complex, it is also very advisable to have an experienced and competent employment attorney audit your wage and hour policies to be sure you are in compliance, and are not at risk of expensive litigation or governmental prosecution.

THIS MEMORANDUM IS FOR GENERAL INFORMATION ONLY, AND IS NOT INTENDED TO PROVIDE LEGAL ADVICE AS TO ANY PARTICULAR SITUATION. EMPLOYMENT LAWS ARE CONSTANTLY SUBJECT TO CHANGE. QUESTIONS ABOUT PARTICULAR SITUATIONS SHOULD BE DIRECTED TO A KNOWLEDGEABLE EMPLOYMENT ATTORNEY.

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