WAGE & HOUR FAIR LABOR STANDARDS ACT (FLSA)

Transcription

1 WAGE & HOUR FAIR LABOR STANDARDS ACT (FLSA) The Fair Labor Standards Act (Wage and Hour) was enacted in 1938 as a remedy to the Great Depression. The purpose of the act was to place financial pressure on employers to more fairly compensate workers for the often-lengthy hours that they worked and the relatively low pay they received. The act also addressed the laws relative to child labor. Over the years, the law has been modified numerous times, and the federal minimum wage has been increased to $7.25 per hour (as of July 24, 2009). It is expected that the federal minimum wage will be increased in the near future. The law as it relates to the golf business has always been confusing. Addressing such issues as independent contractor status, teaching or playing golf on one s own time, are still debatable topics. To emphasize the scope of the Wage and Hour laws and their impact on employers in America, in one recent year, over 80,000 compliance investigations were completed, rendering nearly $200,000,000 in unpaid wages to about 290,000 employees nationwide. The PGA of America is pleased to publish the sixth revision to Wage and Hour Information for the Golf Professional. The objective of this booklet is to provide PGA golf professionals with the latest and most accurate information available on the Federal Wage and Hour laws, as they relate specifically to the golf business. Since some State Labor Laws vary and may differ from Federal regulations, it is advisable for the PGA professional to check with state labor officials. Labor experts agree that most golf professional employment arrangements are unique. Some golf professionals are truly independent contractors and some appear to be independent contractors. However, most golf professionals are considered by the Department of Labor to be employees. The laws of the Wage and Hour Division of the Department of Labor are extremely complex and confusing, and become even more so when applied to the many-faceted role of the golf professional. Last update November

2 Section I of this publication addresses issues concerning the calculation of hours worked for purposes of compliance with Federal Wage and Hour laws. The number of hours worked in each workweek is the starting point for determining what, if any, amount of overtime is due. Once hours worked have been determined, it is possible to calculate the employee s regular hourly rate. Depending on the method of payment by which the employer and employee have agreed, there are several different ways to determine the wage rate. As explained in Section II, there can be significant differences in the amount of overtime due depending upon which payment method is used. Section III addresses the issue of whether a golf professional is an employee or an independent contractor. As explained in this section, while a golf professional can operate the golf shop as his/her own business, independent contractor status cannot be claimed to avoid being covered and subject to the Fair Labor Standards Act. Section IV covers exemptions from the minimum wage and overtime provisions of the Wage and Hour laws. These exemptions do not favor the employer, but as demonstrated in this section, certain facilities may be eligible. Section V covers important information regarding the maintenance of records. In order to ensure compliance and take full advantage of the Wage and Hour laws, accurate up-todate records of relevant information must be kept. Section VI suggests additional sources of Wage and Hour information. Section VII charts Child Labor Laws and Coefficient Table for computing extra Half- Time for Overtime. Section VIII offers a list of Wage and Hour Regional Offices. We trust you will find this text a very useful tool in dealing with your employer and employees. As in any employment situation, however, it is advisable to seek assistance from the Department of Labor and /or from a competent attorney on questions pertaining to the Wage and Hour laws. As a suggestion, you may wish to share this booklet with your employers, so that they are fully apprised of the Wage and Hour Laws. NOTE: The PGA of America urges golf professionals with questions relative to the Federal Wage and Hour laws to seek competent legal advice concerning Wage and Hour issues. PGA professionals may contact the PGA of America Wage and Hour Consultant, Gerald Stefanick at (570) The PGA of America assumes no liability relative to actions or decisions made based on information contained in this booklet or from advice rendered by Mr. Stefanick. 2

3 TABLE OF CONTENTS SECTION I HOURS WORKED / WORKWEEK SECTION II THE WAGE RATE MINIMUM WAGE, REGULAR RATE OF PAY AND OVERTIME REQUIREMENTS SECTION III INDEPENDENT CONTRACTOR STATUS SECTION IV EXEMPTIONS FROM MINIMUM WAGE AND OVERTIME REQUIREMENTS SECTION V MAINTAINING RECORDS SECTION VI ADDITIONAL WAGE AND HOUR INFORMATION SECTION VII CHILD LABOR LAWS COEFFICIENT TABLE FOR COMPUTING EXTRA HALF-TIME FOR OVERTIME CHART-EXHIBIT I SECTION VIII WAGE AND HOUR REGIONAL OFFICES

4 Section I - Hours Worked / Workweek Q. What is the definition of a workweek? A. A workweek consists of seven consecutive 24-hour periods totaling 168 hours. A work week can begin and end on any day of the week, and does not necessarily have to begin on Monday. Once a workweek is established it remains fixed. However, different workweeks may be established for different employees. The regulations do not set paydays or pay periods, but do require records to be kept on a weekly basis. Q. Since a workweek consists of a seven-day period, must I pay my employees weekly, or can I still pay them semi-monthy? A. The Fair Labor Standards Act (FLSA) does not set pay periods. You may pay your employees using any reasonable period that is mutually agreeable between yourself and the employee. But, employee hours must be computed on a (weekly) workweek basis. Q. What are hours worked? A. Hours worked includes time when the employee is required to be on duty actually working for the employer. The hours worked does not have to include meal times, but does include brief (5-20 minutes, for example) rest periods or coffee breaks. Hours worked will include time spent playing golf with students, members, etc., and performing other regular duties, including teaching. An assistant professional who works 30 hours in the shop, plays golf with members an additional 10 hours and teaches 10 hours (even though he may be receiving compensation for teaching), totals 50 hours worked. Q. Do employees have to be paid for time when they are off-duty but still show up to hang around? A. No. Time when an employee is just hanging around while off-duty should not be counted as hours worked. This is a common problem for golf professionals. To prevent having to pay for hanging around time, you should strongly consider discouraging your employees from staying on the premises when not working. Also beware of employees who arrive and sign in 20 or 30 minutes before they are scheduled to start work. If employees are not actually working during that time, they should not be allowed to sign in on their time cards or sheets. Sign-in and sign-out time should be carefully monitored to ensure that they correspond to the actual work time. 4

5 Section I- Hours Worked/Workweek Q. I give free golfing privileges to a few college kids in exchange for their work as starters and also have a retired gentleman who works in the golf shop in exchange for free golfing privileges. This works out very well for me and for the individuals. Is this all right? A. No. The time put in by the college kids and retired gentleman is considered hours worked and must be paid at the legal minimum wage. You can avoid a Federal minimum wage violation by paying at least $7.25 per hour, processing the wages through payroll, withholding taxes and paying the individuals as employees. You can then charge the individuals for playing golf via a separate transaction. Except for the various employer and employee taxes, the payment of the minimum wage and charging for golf could amount to a washout. This exchanging of work for free golf privileges can have tax consequences as the Internal Revenue Service views such arrangements as a barter type of transaction subject to federal tax withholding. Q. Must employees be paid more than regular overtime pay for working on holidays or Sundays? A. No. This is not mandated by the FLSA although it may be required by an employment agreement or contract such as a union contract. Q. If any employee is off work on a paid holiday such as Labor Day, must those paid holiday hours be counted in calculating hours for over-time pay? A. No. Only hours actually worked must be counted. Holiday pay also is excluded in calculating the regular hourly rate for that week. Vacation and sick leave pay should be similarly excluded from these calculations. Q. If any employee s weekly hours worked fluctuated so that one week he works 60 hours and another week only 20 hours, can he be paid at his straight time rate per hour since the average hours for the two weeks is not more than 40 hours? A. Generally, no. Hours cannot be banked or averaged from one week to another. Each workweek is separate for Wage and Hour requirements. You cannot carry over from one week to another. Overtime pay is required for any workweek in which more than 40 hours are worked, regardless of preceding or following weeks. 5

6 Section I-Hours Worked/Workweek Q. My assistants sometimes volunteer for men s, women s and junior clinics. Frequently, this leads to the assistants making good contacts whereby they can generate extra dollars by giving lessons. Should I be concerned about the time put in by assistants giving clinics? A. Yes, such time is hours worked and must be counted when determining the hours that must be paid. Q. Is compensatory time off permitted? A. It is only permitted for employees of state and local governments at the rate of one and one-half hours for each hour of overtime worked instead of cash overtime payments. The maximum compensatory time to be accrued by any one state or local government employee for a seasonal activity such as a municipal golf facility is established at 480 hours (or 320 hours of actual overtime work). If, however, the municipal facility operates year round, the public employee would be limited to no more than 240 hours of compensatory time (or 160 hours of actual overtime worked). All employees who have accrued the maximum compensatory time shall be paid in cash for additional overtime hours until they have used some of their accrued compensatory time. Q. Is the time a Head Professional allows an assistant professional to play golf, to enhance his playing skills and or play rounds with the course members counted as part of the assistant s hours worked per week? A. Generally, all such time that occurs during the assistant s normal working hours, would be considered hours of work. Time spent by the assistant playing rounds of golf with club members would generally be considered hours of work. As this would be expected by club members, it would be primarily for the benefit of the employer. Time spent by the assistant devoted to developing or enhancing his personal skills would depend on when he did his practicing. If the assistant did this during normal work hours, the time would have to be counted. If the assistant simply came to the club during hours when not normally employed, such time need not be counted. This particular area is difficult to answer for all cases since individual circumstances could vary greatly. Q. Is there value in installing punch time clocks? A. A time clock is not necessary for keeping accurate records on employee s hours worked. It does, however, make the accounting for hour s worked more accurate. What is important is that accurate and verifiable records of hours-worked are maintained and are verifiable. 6

7 Section I- Hours Worked/Workweek Q. I don t spend much time monitoring the meal periods taken by my employees, and I automatically deduct a half-hour meal beak from each employee who works five or more hours per day. Is this permissible? A. The practice of automatically deducting a fixed half-hour meal break could be the basis for a substantial liability if a U.S. Department of Labor investigator determines through personal employee interviews that employees do not take the full half-hour each day. We recommend that you review and analyze the policies in effect with regard to meal periods. If an employee or group of employees are eating on the go or not taking off a full half-hour or more each day free and clear of duties, you are obligated to pay for the meal period. If you are going to continue to deduct a half-hour meal period each day, it is necessary that meal periods be free and clear of all duties for at least 30 continuous minutes. 7

8 Section II The Wage Rate-Minimum Wage, Regular Rate of Pay and Overtime Requirements Q. What is the minimum wage and what does it include? A. The federal minimum wage has been $7.25 per hour (as of July 24, 2009.) Minimum wage may incorporate: 1. Cash wages. 2. Value of meals 3. Allocated value of lodging. 4. Tip credits with an allowable maximum up to $ 3.02 per hour. However, the credit may not exceed the value of tips actually received. This credit is only allowed if the tipped employee customarily and regularly receives more than $30.00 per month in tips and the employee must be made aware of the FLSA s provisions governing tip credits. NOTE: Tip credit is not permitted under some state laws. Q. Does an employer have to pay the minimum wage? A. The federal minimum wage is applicable to most golf facilities. There are some states throughout the U.S. where the state minimum wage is higher than the federal. You are required to pay the higher minimum wage. In these cases, if you are audited and found to owe back wages, and have been paying the lower federal minimum wage, you may be required to pay back wages based on the higher state minimum wage. Effective October 1, 2009 thirteen states had a state minimum wage rate higher than the federal rate. Q. Does the minimum wage apply to casual help or contract labor? A. Yes. There are no exceptions for workers who are labeled casual help or contract labor. Q. May I pay certain employees less than the minimum wage? A. Yes. With advance written authorization from the U.S. Department of Labor, you may pay full time students, distributive education students, vo-tech students and handicapped employees less than the minimum wage. You may also need written authorization from your State Department of Labor. 8

9 Section II - The Wage Rate-Minimum Wage, Regular Rate and Overtime Requirements Q. How do you determine the regular hourly rate? A. Depending on how the employees are compensated, there are basically three ways to compute the regular hourly rate: 1. Hourly Rate Employees For persons compensated solely on the basis of a fixed sum per hour, the hourly rate is the regular hourly rate. 2. Salaried Employees For persons compensated solely on the basis of a fixed weekly sum for an agreed upon number of hours, the regular hourly rate is determined by dividing the weekly salary by the stated number of hours. EXAMPLE: An employee who receives $ per week salary for a 40- hour week has a regular hourly rate of $ Fixed Salary For Fluctuating Hours The employee whose hours of work fluctuate from week to week may be paid a fixed sum for whatever hours he actually works in a given week. The regular hourly rate varies from week to week and is computed by dividing the number of hours actually worked in a workweek into the agreed upon weekly salary. EXAMPLE: An employee receives $ per week regardless of how many hours he works. In the first week, he works 40 hours, giving him an hourly rate of $9.25. In the second week, however, he works 50 hours, which yields an hourly rate of $7.40. In all cases, the regular hourly rate can never be less than the required minimum wage. NOTE: The advantages of this arrangement are discussed in further detail in the overtime compensation portion of this section. California State law does not permit this type of payment and requires that an employee s rate of pay be calculated by dividing the weekly straight time salary by no more than 40 hours regardless of how many hours the employee works. 9

10 Section II - The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements Q. What are some of the exclusions from regular hourly rate? A. The regular rate does not include: 1. Sums paid as gifts. For example, payments in the nature of gifts made at Christmas or other special occasions is a reward for service, not productivity. 2. Payments made for periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work or other similar causes. 3. Sums paid in recognition of services performed if determined at the sole discretion of the employer or pursuant to a bona fide profit-sharing plan, etc. 4. Contribution to benefits plans. 5. Premium pay for hours in excess of daily or weekly standards, as may be provided by employment contracts. This extra compensation may be credited toward the overtime payments. (Example: payment of overtime after 8 hours per day, even in weeks when an employee worked fewer than 40 hours.) 6. Premiums (at least time and a half) for work on Saturdays, Sundays or regular days of rest, or on the sixth or seventh day of workweek. This extra compensation may also be credited toward the overtime payments. 7. Extra compensation (at least time and a half) pursuant to an applicable employment contact or collective bargaining agreement for work outside the regular workday or workweek. This extra compensation may also be credited toward the overtime payments. Q. When my assistant works a golf outing, I pay him a flat $100 which is more than time and a half. Will this payment satisfy the overtime requirements for hours worked over 40 in a week. A. No. A flat or fixed sum of money paid for overtime hours worked would be viewed as straight time pay. In order to qualify as proper overtime pay, the rate paid must be a specific amount paid for each overtime hour worked such as time and one-half, double time, or a definite amount of dollars per hour. 10

11 Section II - The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements Q. If the employee s regular hourly rate exceed the minimum wage, must overtime pay be based on the hourly rate? A. Yes. If an employee s regular hourly rate is $8.50 per hour, his overtime rate is 1.5 times the regular hourly rate of $8.50, not 1.5 times the minimum wage. Q. How should overtime pay be determined? A. The first step is to calculate the regular hourly rate as shown on the previous page. Next, the overtime rate must be determined and applied to the number of hours worked: 1. Hourly Rate Employees The overtime rate is 1.5 times the regular hourly rate, and all hours worked in a workweek in excess of 40 must be compensated at this rate. Example: An employee with a regular hourly rate of $8.00 works 45 hours in a week. For the first 40 hours he must be paid at this regular rate, for a total of $ He must be paid his overtime rate of $12.00 for all hours in excess of 40, in this case 5 hours at $12.00 per hour for $60.00 in overtime pay. Therefore, to comply with the overtime laws, this employee must be paid $ for his 45- hour workweek. 2. Fixed Salary for Fluctuating Hours The overtime rate is one-half times the hourly rate. This rate must be paid for all hours worked in excess of 40, and the employee must clearly understand and acknowledge this method of overtime compensation. Example: An employee is paid a weekly salary of $ regardless of the number of hours worked each week. In a particular week, he works 44 hours making his regular rate of pay $8.75. This employee must be paid ½ times his hourly rate - $4.38 for 4 hours worked over 40, for a total of $ Therefore, to comply with the overtime laws, this employee must be paid $ ($385 + $17.52) for his 44-hour week. The overtime can be computed much easier by using the DOL (Department of Labor) coefficient table. (Exhibit 1) If this employee works 50 hours in a subsequent week, his regular rate of pay would be $7.70 ($385 50). Overtime would be computed as follows: $7.70 x ½ time x 10 hours = $ For the 50-hour workweek this employee would be due $ ($385 + $38.50 = $423.50). 11

12 Section II - The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements Q. As a well-established golf professional, I know that I have to pay time and a half after 40 hours per week and I do pay time and a half. I have set up my assistants whereby I pay for 40 hours straight time pay and 10 hours at time and a half each and every week. Is there any problem with this type of pay plan? A. This is a very common pay plan that the DOL refers to as a fixed work week which generally is inherently flawed. An in-depth U.S. DOL audit generally reveals that employees are not, in fact, working exactly hours each and every week. If the hours of work vary, which is likely, the overtime pay and gross pay must vary. A DOL investigator will not buy a fixed workweek type of pay plan and the investigator will take the position that this is a scheme to avoid paying proper overtime. The result could be a back pay assessment for overtime hours worked over a two - or three-year period. Q. An assistant golf professional at a private club works 35 hours a week in the shop and teaches another 10 hours a week. His salary is $245 per week, plus he earns another $200 per week, (10 20/hour) teaching on his own time. Does this arrangement meet Wage and Hour guidelines? A. It s important to understand that there is no such thing as Teaching on One s Own Time. His straight time total earnings for the week in the example above would be $ All revenue derived from teaching would be included in total weekly earnings. His total hours worked are 45, not 35, even though he gave lessons and got paid additional money for 10 of those hours. Therefore, his regular rate of pay in this example would be $9.89 per hour (straight time earnings of $445 divided by 45 hours). Under the Wage and Hour regulations the assistant would be viewed as having been paid a straight time hourly rate of $9.89 for each of the 45 hours. Since he has already been paid the equivalent of $9.89 per hour in straight time pay, he would still be owed additional half time to satisfy the overtime requirements, if he has agreed in advance to the fluctuating workweek method of overtime compensation. The computation of overtime would be as follows: $9.89 x ½ time x 5 hours = $ Total compensation for the week would be $ ($ ) The DOL-approved coefficient table can be used to compute overtime pay. The simplified computation would be: total straight time earnings of $ x.056 (coefficient for 45 hours) = $ NOTE: California state law does not permit the paying of overtime at half time. 12

13 Section II- The Wage Rate, Minimum Wage, Regular Rate of Pay and Overtime Requirements Q. Must bonuses and commissions on sales, etc., be included in the regular rate of pay? A. Yes. Both commissions and bonuses (except Christmas-type service bonuses) such as attendance, production or quality bonuses must be included in the regular rate of pay when computing overtime at one and one-half times the hourly rate of hours worked over 40. Example: An employee who is paid $8.00 per hour works 10 extra hours (total of 50 hours) in the shop during the week before Christmas. His earnings might incorrectly be tabulated to be: 40 x $8.00 = $ straight time 10 x $12.00 = $ overtime Christmas bonus = $ paid by employer Sales percentage = $ commission $ TOTAL His regular rate has increased because of the $80.00 sales percentage commission. However, you may exclude the $ Christmas bonus. Correctly re-figure his pay to be: $80.00 (sales commission) divided by 50 hours = $1.60 per hour increase in regular rate His regular rate has increased because of the $80.00 sales percentage commission. However, you may exclude the $ Christmas bonus. Overtime hours (10) x ½ x $1.60 = $8.00 added overtime due new pay figures: 40 x $8.00 = $ straight time pay 10 x $12.00 = $ overtime pay 10 x 1/2 x 1.60 = $ 8.00 extra overtime pay Commission = $ sales percentage Christmas pay = $ bonus $ TOTAL The extra overtime due on the $80.00 sales commission can be computed simply by using the coefficient table ($80 x.100 coefficient for 50 hours worked = $8.00 extra overtime due). 13

14 Section II -The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements NOTE: The commission in the previous example was earned in the week paid. If a commission or bonus payment is paid in one week but reflects compensation for a longer period of time, the amount of the bonus must be allocated over the period of time it covered. To do this, divide the amount of the bonus by the number of hours worked by the employee in the period covered by the bonus. This yields an hourly bonus figure. Then, for each hour of overtime worked in the period, the employee is paid an additional amount equal to one-half the hourly bonus figure. Example: An employee who receives $8.00 per hour receives a quarterly bonus of 10 percent of his straight-time hour s earnings for the quarter. In one three-month period, he worked 40 hours a week in each of nine weeks and 50 hours in each of the other four - - a total of 560 hours. Therefore, his bonus for the period was $ To properly calculate the bonus for overtime purposes: 1. Ascertain the number of overtime hours worked by the employee during the period 40 (10 hours in each of four weeks). 2. Divide the amount of the bonus by the total number of hours worked in the period - $.80 (448/560). 3. Pay the employee one-half of the amount in Step Two ($.40) for each overtime hour worked during the quarter ($.40 x 40) = $ Therefore, to comply with the overtime laws, the employee must be paid $16.00 in addition to his $ quarterly bonus. Q How is overtime computed for employees who receive tips? A. A tipped employee is an employee engaged in an occupation in which he customarily and regularly receives more than $30.00 / month in tips. The employer may take up to $3.02 / hour as tip credit, but the credit may not exceed the value of tips actually received. When overtime is worked by a tipped employee, his regular rate of pay includes the amount of tip credit taken (never more than $3.02 / hour), the reasonable cost or fair value of any facilities furnished (i.e., meals, lodging, etc.), and cash wages paid. 14

15 Section II - The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements Example: A tipped employee s regular hourly rate is $5.10 per hour. He worked 50 hours and received $80.00 in tips. The tip credit permitted in this example for the straight time hours is $2.15, which is also the amount permitted for the hours worked over 40. The concept here is that no greater tip credit is permitted for overtime hours worked than is permitted during straight time hours worked. The employee would be due $ in straight time pay determined by multiplying 40 hours x $5.10. The amount due for overtime would be $87.30 ($8.73 x 10 OT hrs). The $8.73 rate is determined by multiplying the legal minimum of $7.25 x 1 ½ = $10.88 less tip credit of $2.15. It should be noted that state law in a number of states permits a lesser tip credit or no tip credit. Also, for a tip credit to be valid, employees must be notified of the tip credit being taken, preferably in writing. Q. Must employees be paid more than regular overtime for working on holidays or Sundays? A. No. This is not mandated by the FLSA, although it may be required by an employment agreement or contract, such as a union contract. Q. If an employee is off work on a paid holiday such as Labor Day, must those paid holiday hours be counted in calculating hours for overtime pay? A. No. Only hours actually worked must be counted. Holiday pay also is excluded in calculating the regular hourly rate for that week. Vacation and sick leave pay should be similarly excluded from these calculations. Q. At some facilities, employees regularly work for seven straight days and then have four days off. But averaged over a month s time, they don t put in any more hours than a 40-hour per week crew. Must the 7-on, 4-off employees be paid overtime for those weeks in which they work more than 40 hours? A. Yes. The workweek is composed of seven straight calendar days. Even though in a course of a month s time, these employees do not work a greater number of hours than if they worked a conventional 40 hour week, they must be paid overtime for those weeks in which they work overtime. NOTE: While it is true that overtime must be paid for all hours worked over 40, the amount owed under the law can be greatly reduced by using the fluctuating workweek formula previously described. 15

16 Section II - The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements Q. If an employee s regular hourly rate exceeds the minimum wage, is his overtime pay based on that higher rate? A. Yes. If an employee were to earn $8.00/hour, his overtime rate would be $12.00 / hour, not 1.5 x the minimum wage of $

17 Section II - The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements TEACHING INCOME Q. My assistants are on the clock for all of their work time including the time devoted to giving lessons. I pay $8.00 per hour and 1 1/2 times that for all hours worked over 40. The assistants receive all of the lesson income that they generate. Recently, an assistant worked 48 hours and received the following pay: 40 hours x $8.00 = $ hours x $12.00 = $ Have I paid the assistant correctly? Lesson Income = $ GROSS PAY = $ A. No. The additional lesson income affects and increases the assistant s regular rate of pay on which to compute overtime pay. The increase in the regular rate of pay is determined by dividing the hours worked, 48, into the $225 of lesson income to yield an increase in the regular rate of $4.69 per hour. The assistant s new regular rate of pay because of the lesson income becomes $12.69 ($ $4.69) and the computation of the assistant s pay is as follows: 40 hours x $12.69 = $ hours x $19.04 = $ GROSS PAY = $ The extra overtime pay because of the lesson income is about $18.92 ($ minus $641.00). Rather than re-figure the assistant s regular rate of pay at $11.69 per hour as illustrated above, there is an easier way to compute the additional overtime pay that is due because of the lesson income. The U.S. Department of Labor coefficient table can be used as follows: Multiply the $225 lesson income by.083 (coefficient for 48 hours) = $ The difference of 17 cents ($18.84 vs. $18.67) is because of the placement of the decimal and is insignificant. 17

18 Section II- The Wage Rate- Minimum Wage, Regular Rate of Pay and Overtime Requirements Q Do I have to pay my assistant professional his hourly rate while he/she is teaching and earning about $50 per lesson hour? A. No. For example, if the assistant worked 40 hours in the shop at $8.00 per hour and taught for 4 hours and earned $200 in lesson income, the computation of wages would be as follows: 40 hours x $ 8.00 = $ straight time 4 hours x $50.00 = $ straight time $ straight time Regular rate = $520.00/44 hrs=$11.82 $11.82 x 1/2 time x 4 hours = $23.64 overtime due. If you used the DOL coefficient table to compute the additional half time pay, the computation would be $520 x.045 (coefficient for 44 hours) = $ Total compensation due would be $ ($ ). If as the head professional-employer you do not want to absorb the additional overtime expense that is due on the teaching income, you can agree up front that you will retain a specific percentage of lesson income. In this example, about 11 percent would be equitable. The percentage, once established, cannot be changed from week to week or month to month. 18

19 Section III Independent Contractors Status The point of this section is to alert the PGA professionals to become aware of the Wage & Hour laws as they relate to their particular situations. As a manager of one or more employees in the golf operation, you will be assumed by the club to be knowledgeable of the Wage & Hour laws, and will be assumed to be paying your employees according to the law. Therefore, it is incumbent upon you to: Familiarize yourself and your employer with the Wage and Hour laws. Determine if you and /or the club is liable. Keep good records of your employee s wages and hours worked. While the courts have yet to determine clearly whether or not golf professionals working at private (and most daily fee) clubs are truly independent contractors, indications are most likely that a professional is NOT an independent contractor, if one or more of the following conditions applies at the facility: 1. The professional has a signed employment agreement with the facility or, in any written agreement it states something to the effect that club (or course) shall employ. This would clearly indicate an employment relationship between the professional and the facility exists. 2. The hours of operation are specified or determined by the club or course, including hours of operation for the golf shop, the course itself, the bag room and the cart operations, etc. 3. Such provisions as rent (for golf shop space) are paid by the facility, or otherwise provided for the professional and at no charge are: electric/utilities, meals, local (and/or long distance) telephone service, and any other similar amenity. 4. The club bills golfers for their account, collects and pays the revenue due to the professional Q. I have been operating a golf shop as a concessionaire at a private country club for the past 15 years and recently the general manager told me that I can no longer operate the golf shop as my own business. Is the general manager correct? A. No. Unfortunately, many general managers and others do not understand the independent contractor concept. There is no law to prevent the golf professional from operating the golf shop as a concessionaire, entrepreneur or what some people call an independent contractor. 19

20 Section III - Independent Contractor Status Q. Under the Wage and Hour law, what is meant by being an independent contractor? A. The term independent contractor, which is synonymous with business owner, is used merely to determine if a business owner is part of or related to another business for the purpose of being covered and subject to Wage and Hour requirement. It is understood or a given that a golf professional who operates a golf shop as his or her own business or has a golf concession at a golf facility, is part of the golf facility enterprise and takes on the characteristics of the golf facility for purposes of being covered and subjected to federal Wage and Hour requirements. If the combined gross annual revenue of the golf facility and the golf shop is over $500,000 per year, all employees are covered by the law and subject to federal Wage and Hour requirements. Even if the combined gross annual revenue is less than $500,00 employees can still be covered by the law on an individual basis by virtue of being involved in interstate commerce. The concept of being involved in interstate commerce is very broad. For example, employees who regularly order or receive merchandise from out of state are considered to be involved in interstate commerce for the purpose of being covered by the Wage and Hour law. As a practical matter, the safest policy is to assume that the employees of the golf club as well as all employees of the golf professional are covered under Wage and Hour regulations. Q. Can golf professionals qualify as independent contractors under the Wage and Hour regulations? A. As indicated in the previous two answers, a golf professional can be considered to be a business owner in business for himself with his own employees, but he cannot claim independent contractor status to escape or get around being covered and subject to Wage and Hour requirements. 20

21 Section III - Independent Contractors Status Q. I operate the golf shop as my own business at a private country club. I consider myself to be the employer and employ as many as 20 employees in season, incur the various expenses of running the shop, have about $100,000 invested in merchandise and equipment, and file an IRS form schedule C to report my income to the IRS. The club also pays me an annual retainer of $40,000, which is shown on a 1099 form that I receive from the club. Do these circumstances indicate any type of noncompliance? A. You certainly may continue to operate the golf shop as your own business and you are viewed as the employer of the approximately 20 employees, which means that you have the responsibility (the club also shares joint responsibility) of paying the employees in accordance with Wage and Hour regulations and abiding by the IRS regulations with regard to tax withholding for your employees. Although you are considered to be a bona fide business owner by both the Wage and Hour Division of the U.S. Department of Labor and the Internal Revenue Service, you also have characteristics of being an employee of the club for the purpose of the $40,000 retainer. An employment tax audit by the IRS would probably result in the IRS taking the position that the $40,000 retainer should have been viewed as W-2 employee income subject to Federal Income Tax withholding and social security taxes. The club would probably be assessed back taxes, interest, and penalties for failure to withhold taxes. There would be no liability on your part with regard to the retainer provided that you reported the $40,000 retainer on you IRS Schedule C. In this hypothetical situation you are viewed in a dual capacity both as an employee for the $40,000 retainer and as a business owner who takes on the risks of running a business for the sake of making a profit. As an employee receiving $40,000 per year, your status should not be an issue in the Wage and Hour area as you probably qualify as a managerial/administrative employee exempt from Wage and Hour regulations. Q. I operate the golf shop at a golf facility as my own business, have gross revenue of less than $100,000 and employ one assistant. Must I abide by federal Wage and Hour regulations? A. Even though you operate the golf shop as your own business, your business is considered part of the golf facility and takes on the characteristics of the golf facility for purposes of being covered and subject to federal Wage and Hour requirements. If the golf facility is subject to federal Wage and Hour requirements; your golf shop is also subject regardless of the volume of business in the golf shop. 21

22 Section III - Independent Contractors Status Q. I own a golf facility where I employ about 30 employees and use the services of three teaching professionals who are not on my payroll as I consider them to be independent contractors. There are few or no restrictions on the teaching professional and they come and go as they please. Am I correct in viewing the teaching professionals as independent contractors? A. When you, as an employer, are saying that teaching professionals are independent contractors, in essence, you are saying that the teaching professionals are self-employed and operating their own businesses at your golf facility. Both the U.S. DOL and Internal Revenue Service would find it difficult to accept your position that three teaching professionals at the same facility are operating three separate businesses. Although a teaching professional, who teaches exclusively, has many characteristics of being in business for himself or herself than does a golf professional who works in the golf shop and also teaches, both the Wage and Hour and IRS auditor would lean toward viewing the teaching professionals as employees. As the employer, you would be at risk if you considered teaching professionals as independent contractors. Q. Two of my assistant professionals, who are paid on an hourly rate and time and a half the hourly rate for all hours worked in excess of 40 in a week, also teach at their own discretion. As the head golf professional operating the golf shop as my own business, I record all teaching income as part of gross revenue and all of the teaching income that is generated by the two assistants is paid to the assistants once per month. Since I believe this is independent contractor income, I provide an IRS form 1099 to each assistant in order for them to report such on their tax returns. Am I handling the teaching income correctly? A. No. A 1099 is provided by an employer to a bona fide business owner or independent contractor who performs work for your golf business. For the teaching income to be considered as 1099 income, the two assistants would have to be viewed as being self-employed and in business for themselves. Neither the U.S. DOL nor the IRS would consider the assistants as self-employed and in business for themselves. The time devoted to teaching is considered work time and must be recorded and added to the other hours worked by the assistants. The teaching income and work time will have an effect on the way overtime pay is computed. 22

23 Section III - Independent Contractors Status Q. Why should the government be so concerned about whether a golf professional is an employee or an independent contractor? A. The government feels that independent contractors do not report all income, which means that federal and state taxes are not paid on all income. Also, the government wants to protect workers. Unemployment compensation, workman s compensation, social security programs, and Wage and Hour regulations were designed to protect employees. The government does not want business owners to circumvent these programs simply by calling their workers independent contractors. Q. A municipal golf operation claims that the golf professionals are independent contractors and uses this as an excuse to not provide the typical fringe benefits. I looked at the 20 common law factors that are used to determine independent contractor status and feel that the golf professionals are clearly employees. Are there any special rules that apply to a municipality which allows them to avoid treating golf professionals as employees? A. There are no special rules that govern whether a worker is an employee or independent contractor at a municipality. If the golf professionals are receiving compensation from or through the municipality, such compensation should probably be viewed as W-2 employee compensation and not 1099 independent contractor income. Q. Neither my golf facility nor I view caddies as employees. Is our position correct? A The U.S. Department of Labor generally views caddies as non-employees since caddies are directed by and benefit the needs of the golfer. To strengthen the position of caddies not being employees, management should distance themselves as much as possible form exerting controls over the caddies. 23

24 Section IV Exemptions from Minimum Wage and Overtime Requirements Q. Can an assistant be paid a salary in lieu of overtime under the executive exemption? A. Generally speaking, an assistant professional, especially at private country clubs, is not exempt from the minimum wage and overtime requirements. He should be compensated at least the minimum wage rate, plus time and a half for all time worked over 40 hours in any workweek. Neither a title alone nor a high salary will qualify the assistant as being exempt. Q. Since it is unlikely that I can continue to pay an assistant golf professional a flat salary, is there a practical alternative, as I do not like the idea of having to pay by the hour? A. A very workable pay plan is to pay an assistant a Guaranteed Base Straight Time Salary (GBSTS) each week for all hours worked (fluctuating hours method) plus additional half-time pay via the coefficient table. Example: If an assistant averages about 50 hours of work per week and the intent is to pay the assistant $375 per week, you can back into the $375 per week by paying the assistant a GBSTS of $ (Rounded off to $341.00). The $ GBSTS is determined by making a one-time division. The $375 targeted weekly salary is divided by 1 plus a coefficient for the average or typical workweek; in this example, 50 hours ($375/1.100)= $ (rounded off to $341.00). The following amounts would be due for varying workweeks: Hours Base ST X Coeff. = Q.T. Due Gross Pay Time Salary 40 $ $ $ x.065 $22.17 $ $ x.083 $28.30 $ $ x.100 $34.10 $ ½ $ x.119 $40.58 $ As can readily be seen, if the assistant s hours vary, which in practice they should, there is only a slight fluctuation in overtime pay due. 24

25 SECTION IV-Exemptions from Minimum Wage and Overtime Requirements Extreme caution must be exercised when paying an assistant via a GBSTS for fluctuating hours. You still must accurately record the assistant s daily and weekly hours of work to the nearest quarter of an hour, and it is an absolute necessity that the employee s hours fluctuate to some extent. When the assistant s hours vary, the overtime pay and gross pay must vary. Generally, you cannot pay an assistant the same gross pay if the assistant works over 40 weekly hours. Also, the GBSTS must yield at least the legal minimum wage for all hours worked. Q. May I pay my assistant a daily rate of pay? A. Yes, however you must still maintain an accurate record of daily and weekly hours of work, and if the assistant works over 40 weekly hours, overtime pay is due. Paying a daily rate may be even more advantageous and equitable than the payment of a GBST weekly salary. Using the previous example, if your assistant typically works six days, you can pay a daily rate of about $70. If the assistant works a five day, 45-hour week, you would legally have to pay $350 in straight time earning ($70 x 5) plus $19.60 in overtime ($350 x.056) coefficient for 45 hours. Gross pay would be $ For a six day 50 hour week, you would pay $420 in straight time earnings ($70 x 6 days) plus $42.00 in overtime ($420 x.100 coefficient for 50 hours). Gross pay would be $ You can make some variations in the pay plan and fine tune it whereby you may want to create some incentives for assistants to work additional hours. Example: You could offer to pay an hourly rate such as $8.00 per hour for each hour worked over 50 per week. If the assistant worked 56 hours, you would pay and extra $48 in straight time pay which would result in straight time earnings of $468 ($420 + $48). The overtime due would be $67.86 ($468 x.143 coefficient for 56 hours). Gross pay would be $ Q. Since I have been viewing my assistants as independent contractors and furnish them with IRS forms 1099, I do not withhold federal or state taxes. Is the legal? A. No, the DOL would view the assistants as employees and the IRS would probably take the position that you would be obligated to pay the employer s share of FICA taxes, penalties, and interest. Many assistants are shocked when it comes time to file their federal tax returns and their accountant informs them that there is a liability to pay the various taxes. 25

26 Section IV-Exemptions from Minimum Wage and Overtime Requirements Since many assistants do not realize the extent of the tax liability, it is unwise to put assistants in such a dilemma. The Fair Labor Standards Act (Wage-Hour Law) provides an exemption from the Act s minimum wage and overtime requirements for any employee employed in a bona fide executive, administrative, or professional capacity. General Rule for Executive Employees The term employee employed in a bona fide executive capacity shall mean any employee: (1) Compensated on a salary basis at a rate of not less than $455 per week exclusive of board, lodging, teaching income or other facilities; (2) Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department; (3) Who customarily and regularly directs the work of two or more other employees; and (4) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing are given particular weight. General Rule for Administrative Employees The term employee employed in a bona fide administrative capacity shall mean any employee: (1) Compensated on a salary basis at a rate of not less than $455 per week exclusive of board, lodging, teaching income or other facilities; (2) Whose primary duty is the performance of office and non-manual work directly related to the management of general business operations of the employer or the employer s customers; and (3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. General Rule for Professional Employees The term employee employed in a bona fide professional capacity shall mean any employee: (1) Compensated on a salary or fee basis at a rate of not less than $455 per week exclusive of board, lodging teaching income or other facilities; and (2) Whose primary duty is the performance of the work; SECTION IV- Exemption from Minimum Wage and Overtime Requirements (i) Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or (ii) Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. NOTE: Most golf shop employees other than the top management person in the golf shop do not meet the primary duty test. 26