The FLSA: Avoiding common pitfalls and costly mistakes

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2 Your panel Linda Ulrich Principal Buck Consultants Compensation Practice Don Berman Principal & Professional Services Leader HRTMS Nancy Vary, JD Director Buck Consultants Knowledge Resource Center Julia Zuckerman, JD Director Buck Consultants Knowledge Resource Center The information contained in this presentation and any accompanying documents does not constitute legal advice; consult with your legal and tax advisors before applying this information to your specific situation. 2

3 Agenda Given the current litigious landscape, it is important for organizations to ensure they are in compliance with federal, state, and local wage and hour laws Today, we will focus on key FLSA compliance challenges Determining exempt and nonexempt status Tracking hours worked & calculating wages correctly What about our assistant s use of a company smartphone to respond to s after work? Is our programmer/ analyst exempt or nonexempt? Understanding the role of job descriptions The job description lists technology that doesn t even exist anymore! What about bonuses that nonexempt employees receive? 3

4 FLSA compliance challenges Federal laws State laws Lawsuits Penalties IT S COMPLICATED! 4

5 FLSA basics: federal minimum standards The Fair Labor Standards Act (FLSA) establishes federal standards for: minimum wage overtime pay recordkeeping youth employment 5

6 FLSA basics: coverage The FLSA covers: o o full-time and part-time employees (excludes independent contractors and volunteers) working for: businesses involved in interstate commerce with $500k or more in sales/revenue annually hospitals, nursing homes, residential care facilities, schools/preschools, and government agencies The FLSA requires employers to pay: covered employees no less than the federal minimum wage (currently $7.25 per hour) for all hours worked one and one-half times their regular rate of pay for all hours worked > 40 hours in a workweek 6

7 Compliance failures pose major liabilities for employers: The DOL s watchful eye The Department of Labor (DOL) is strengthening its outreach and enforcement The DOL estimates that almost 70% of employers are not in compliance Over the past few years, the DOL has increased the number of wage-hour investigators and taken other steps to encourage employees to report violations We can help program DOL timesheet app In FY2013, the DOL recovered nearly $250 million in back wages from employers The Administration s budget proposal for FY2015 shows a continued emphasis on workplace pay issues Aggressive enforcement efforts are expected to continue throughout 2014 and beyond The impact Employers time, distraction, reputational damage, litigation costs and potential $$$ liability 7

8 Compliance failures pose major liabilities for employers FLSA litigation is on the rise Wage and hour lawsuits are up over the past 5 years, with a particular surge in collective and class actions 10% increase in FLSA cases filed in Employers can incur enormous costs to defend even unproven claims FLSA regulations are intricate and case law is ever evolving, and complying with the FLSA can be confusing and challenging, particularly as: technology alters how, when, and where work can be performed job responsibilities shift and market pressures affect staffing and budgets 8

9 Reported 2014 FLSA settlements A long line of well-known, sophisticated companies have reportedly agreed to pay large sums to settle wage-hour lawsuits (some settlements still awaiting court approval). Most recently: Walgreens - $23M Wells Fargo - $15M JP Morgan Chase - $16M Tyson Foods $18.8M Roto-Rooter $14.2M PetSmart $10M How are such sizeable numbers possible? Is any relief on the way? 9

10 Obama s directive to the DOL: change overtime rules March 13, 2014 Presidential Memorandum orders DOL to: update existing protections in keeping with the intention of the FLSA address the changing nature of the American workplace simplify the overtime rules to make them easier for both workers and businesses to understand and apply Expected to narrow executive, administrative, and professional employees exemptions (so-called "white collar" exemptions) by: raising salary threshold of $455 per week changing current job duties tests Bright-line overtime test (requiring a certain % of work time be spent on exempt duties) a possibility Changes unlikely for some time if DOL pursues normal rulemaking process 10

11 Exempt or nonexempt: that is the question! Statutory exemptions from minimum wage and overtime pay for: executive employees administrative employees professional employees outside sales employees computer employees highly compensated employees Job titles do not determine exemption status! 11

12 Exempt or nonexempt: qualifying for an exemption To qualify for one of the FLSA s white-collar exemptions, an employee generally must satisfy the following 3 tests: salary level test Must be paid on a salary basis of at least $455 per week $100,000 for highly compensated employees Excludes outside sales, doctors, teachers, lawyers, certain computer-related jobs salary basis test Must receive a set amount of compensation each pay period regardless of variations in quantity or quality of work Must be paid a full salary for any workweek but need not be paid when no work is performed during the entire workweek Excludes outside sales, doctors, teachers, lawyers, certain computer-related jobs job duties test Distinct job duties for each exempt classification that depend on actual duties performed Percentage of time spent performing exempt duties v. non-exempt duties does not necessarily determine exemption status 12

13 Webinar poll outside sales exemption #1 - A field technician sells an HVAC system while out on a call to service a customer s heating system. Does this position qualify for an exemption? 13

14 Outside sales exemption To qualify for this exemption: the employee s primary job duty must be making sales, obtaining orders or contracts for services or for the use of facilities for which the client will be paid the employee must customarily and regularly work away from the company s place of business 14

15 Webinar poll computer employees exemption #2 - A programmer analyst meets with internal clients to identify issues in their computer system and then programs a modification to rectify the issues. Does this position qualify for an exemption? 15

16 Computer employees exemption To qualify for this exemption, the employee must: be engaged in systems analysis and consulting with users design, analyze, and test computer systems design or test computer programs perform a combination of the above receive either a salary or fee of at least $455 per week or $27.63 per hour 16

17 Counting time accurately: overtime rules Unless an exemption applies, employees working more than 40 hours a week must receive time and one-half for all overtime hours The activities below present challenging circumstances in determining whether time should be counted toward overtime: Waiting and on-call time Breaks and meal periods Travel time Sleeping Donning and doffing Lectures, meetings, training Vacation, sick time, holidays Telecommuting 17

18 Counting time accurately: challenges of modern technology Alternative work arrangements and technology create compliance challenges Telecommuting can expose an employer to FLSA liability when employees perform work, such as sending a work-related or text message, outside normal working hours A very important issue related to vacation time and holidays is the use of smartphones and home computers for work-related s and text messages by nonexempt employees during vacation or holidays Employees must be compensated for time spent for responding to s and text messages during this time even if the employer has not requested that they perform this work If an employer does not want to compensate employees for this time, it should inform them that they are not to use home computers or smartphones for work purposes during scheduled vacations or holidays; otherwise, the employees need to record and report this time 18

19 Webinar poll counting time accurately #3 - A retail associate has to wait in line to have her bag checked before leaving for lunch and at the end of the day. Does this count as time worked? 19

20 Counting time accurately Busk v. Integrity Staffing Solutions On March 3, 2014, the US Supreme Court agreed to decide whether time employees spend in security screenings is compensable under the FLSA Busk is a class action lawsuit brought by warehouse workers who fill orders placed by Amazon.com customers Employer instituted security screenings (including walking through metal detectors and bag searches) to prevent employee theft Workers were required to undergo security screenings at the end of their shifts, but were not paid for their time to clear security The high court is expected to hear oral argument in the fall, and decide the case by June

21 Webinar poll on-call time #4 An organization is implementing a new IT system and a key technician is required to be available by phone after working hours in case any issues arise. Does this on call time count as hours worked for purposes of receiving overtime? 21

22 On-call time: restrictions on employee s time On-call time qualifies as hours worked under the FLSA if the employee is unable to use his/her time freely Simply being required to carry a cell phone or pager or leave word where he or she can be reached does not constitute working unless there are additional constraints on the employee's freedom However, if work calls received during on-call time are frequent enough to interrupt the employee s activities, the time may be compensable When an employee is on-call, any time spent responding to calls is hours worked and the employee must be paid overtime 22

23 Webinar poll regular rate of pay? #5 A customer service rep has done an exceptional job on a difficult project and his manager decides to give him a $250 spot bonus. Does this have to be included for purposes of overtime calculation? 23

24 Regular rate of pay: calculating overtime pay the FLSA way! The FLSA defines overtime pay as one and one-half times an employee s regular rate of pay for all hours worked beyond 40 hours per workweek To calculate overtime pay, an employer must first determine an employee s regular rate of pay The regular rate of pay includes: non-discretionary bonuses cost-of-living adjustments shift differentials commissions (although certain retail and service industry exceptions apply) fair market value of non-cash payments in the form of goods or facilities 24

25 Regular rate of pay: calculating overtime the FLSA way! (cont.) Each work week stands alone; hours can t be averaged over a period of two or more weeks Weekly earnings may be determined on a piece-rate, salary, commission, or other basis, but must be calculated in hourly terms by dividing total pay by the number of hours worked Shift differentials must be included in determining regular pay Regular rate exclusions include: expense reimbursements premium payments for overtime weekend / holiday work discretionary bonuses and gifts 25

26 Common mistakes: don t fall into these traps! Improperly applying an exemption Assuming managers are not entitled to overtime Assuming all salaried employees are exempt Treating employees as independent contractors Making employees perform work before they clock in or after they clock out Failing to consider non-discretionary bonuses in calculating overtime pay Making improper wage deductions Failing to comply with applicable state and local laws, in addition to the FLSA 26

27 Best practices in today s environment Regularly review job classifications Ensure that job titles accurately reflect the nature of the job Maintain up-to-date job description that reflect employees actual duties Review job descriptions with employees Periodically audit all positions to determine if properly classified Determine whether pay ranges satisfy salary thresholds necessary to maintain many exemptions Keep abreast of state and local laws on minimum wage and overtime States and local governments can enact more stringent wage-hour laws in which case, employers must follow the stricter provisions Maintain an effective internal complaint procedure Establish an easily-accessible employee complaint mechanism Ensure prompt reimbursement of any inadvertent or mistaken pay deductions 27

28 Best practices in today s environment (cont.) Implement an accurate timekeeping system and educate / train managers on compliance issues Have a clearly communicated policy on after-hours work, working from home, telework, and smart phone use Instruct managers about compensable time and no off-the-clock work Be sure to include non-standard work such as orientation and waiting time Consider requiring employees to sign off on adjustments to their time records Audit pay practices regularly Have a clearly communicated policy on permissible pay deductions Ensure that all necessary elements of compensation (e.g., non-discretionary bonuses, shift differentials) are included in the employee s regular rate for calculating overtime pay Ensure prompt reimbursement of any mistaken pay deductions Don t forget to review your employee handbooks 28

29 Tools Presented by Don Berman, HRTMS

30 Quick overview We asked our clients these questions What benefits do you get from using a job description repository? What job description elements do you use to classify jobs? What process do you use in determining FLSA status? How do you control job description content? 30

31 Clients reported these benefits Provides written documentation of company s efforts to be in compliance with FLSA regulations Conducts legally defensible job analysis that is consistent regardless of individual conducting the review Assists in writing accurate job descriptions by providing examples that meet compliance Creates a central location for documentation for job description, including FLSA testing and scope Database that is searchable and allows reporting to find missing data, gaps and/or overdue evaluations Provides mass updates to ensure consistency Provides an audit trail for changes and approvals Explain FLSA decisions internally 31

32 What job description elements are used to classify jobs Job descriptions are not required, BUT provide useful input for job duties test may be helpful in an FLSA dispute Organizations use these elements of the job description to complete an FLSA questionnaire about the exemption: job summary essential functions scope 32

33 What job description elements are used to classify jobs Job summary 33

34 What job description elements are used to classify jobs Essential functions 34

35 What job description elements are used to classify jobs Scope Freedom to act Problem complexity Impact Supervision exercised/ received Financial responsibility Budget responsibility 35

36 What process is used in FLSA determination Exemption tests delivered via FLSA questionnaires Types of FLSA questionnaires Most use DOL standard Some use state questionnaires as well Few use a custom or combined set Pick the appropriate questionnaire for the job Complete the questionnaire Validate via collaborative workflow 36

37 What process is used in FLSA determination FLSA Exemption Test 37

38 How our clients control job description content Use reporting/features to identify: missing job descriptions stale, outdated content incomplete, inaccurate or missing content vague, confusing or acronym/jargon laden verbiage 38

39 How our clients control job description content Collaboration Allow stakeholders to collaborate under HR/compensation aegis 39

40 How our clients control job description content Workflow Routing JDs to stakeholders Hiring Managers, HRBPs, Compensation and Others Include legal or those with FLSA expertise when necessary 40

41 How our clients control job description content Content Choose from standard/existing content 41

42 How our clients control job description content Guidelines Help bubbles point stakeholders in the right direction 42

43 In summary Although job descriptions are not a requirement of the FLSA, they are the a widely accepted exhibit that can prove the essential functions of a job Accurate job descriptions are essential when determining whether an employee is exempt of non-exempt Since duties/responsibilities change often, it s important to periodically review job descriptions to verify if they are still current Job Descriptions are also key for evaluating employees, creating equitable salary structures, career pathing and succession planning Maintaining job descriptions manually is difficult 43

44 Buck resources

45 Latest For Your Information publications on FLSA Supreme Court will consider the compensability of employee security screenings (March 7, 2014) Obama directs DOL to change overtime rules (March 14, 2014) FYI In Depth - The Fair Labor Standards Act: Are you sure you re in compliance? (April, 2014) If you are not on our mailing list and would like to receive a copies, please send us your address and we will forward them to you 45

46 Resources on Buckconsultants.com Free and available to the public! Go to: Research and insights > Publications > FYI Research and insights > Publications > Legislate Research and insights > Ideas> Health care reform Research and insights> Multimedia > On-demand webinars Get personalized access to the latest HR news and events from Buck via the Subscription Center 46

47 FLSA audit checklist Answer the following questions to determine if you are in compliance with the Fair Labor Standards Act: YES NO YES NO 1. Have you properly classified your employees as exempt vs. nonexempt? Classifying an employee is not as simple as looking at the employee s title. You must review each employee s salary and duties. Exempt employees must fit into one of the following categories: executive, administrative, or professional employees; highly compensated white-collar employees; and outside sales, or computer personnel. In addition, exempt employees must generally be paid a minimum salary of $455 per week. 2. Are you paying your nonexempt employees for all hours worked? Make sure that you are counting and combining all hours whether or not worked at more than one location. Do you have a system for auditing time records? Do your employees record training time? Travel time? Time spent working at home? On-duty waiting time? Time spent after hours reading and responding to s? Do your employees work before or after regularly scheduled shifts? Do your employees work during their meal or break periods? Have you clearly communicated to employees whether or not you want and/or expect them to read and respond to s after hours or on vacation? If you answered No to any of these questions, you may be violating the Fair Labor Standards Act. 47

48 FLSA audit checklist YES NO YES NO YES NO 3. Are you paying your nonexempt employees the correct amount of overtime? Overtime is calculated based on an employee s regular rate of pay. This includes performance-based bonuses, cost of living adjustments, shift differentials, non -cash payments, and some commissions. Also, in general, overtime may not be calculated based on hours worked over more than one week. 4. Are you keeping complete and accurate records of wages, hours, age, names, social security numbers, pay rates, specific hours worked, overtime versus straight-time earnings, pay dates, week beginning and ending dates, and additions to or deductions from wages? These records are required by the FLSA and must be available for inspection by the Wage and Hour Division. Failure to keep such records can lead to penalties either for the failure itself or because you cannot then prove compliance with minimum wage and overtime requirements without them. 5. Are you in compliance with state and local wage-hour requirements? The FLSA does not supersede any state or local laws that are more favorable to employees. Rather, state or local law may require you to pay a higher minimum wage or comply with more stringent exemption requirements. If you answered No to any of these questions, you may be violating the Fair Labor Standards Act. 48

49 Questions? The information contained in this presentation and any accompanying documents does not constitute legal advice; consult with your legal and tax advisors before applying this information to your specific situation.

50 Contact information Linda Ulrich Principal, Compensation Buck Consultants, A Xerox Company 500 Plaza Drive Secaucus, NJ (C) Linda.Ulrich@buckconsultants.com Don Berman Principal and Professional Services Leader HRTMS 3434 Edwards Mill Rd., Ste Raleigh, NC Don@hrtms.com Nancy Vary, JD Director, Knowledge Resource Center Buck Consultants, A Xerox Company 485 Lexington Avenue, 10 th Floor New York, NY p nancy.vary@buckconsultants.com Julia Zuckerman, JD Director, Knowledge Resource Center Buck Consultants, A Xerox Company 1800 M St, NW, Suite 700 Washington, DC p Julia.Zuckerman@buckconsultants.com 50