Fair Labor Standards Act
Fair Labor Standards Act
The Fair Labor Standards Act applies to all industries engaged in the production of goods and services for commerce. However, the main thrust of the Fair Labor Standards Act is to require that employees be paid at least minimum wage for their work, and employees are to receive overtime at time and one-half of the agreed upon hourly wage for all work performed beyond a threshold number of hours.
The Federal Labor and Standards Act (FLSA) requires that employers pay employees a minimum wage, and overtime for any hours worked beyond the 40 hour work week. The FLSA however does not apply to exempt workers who are usually paid a regular salary regardless of the number of hours of work and are not paid an overtime wage. The FLSA specifically exempts executives, administrative personnel, professionals, outside sales employees, and computer systems analysis/programming employees. See 29 U.S.C. Sec. 213. Thus, if the employee does not fit within one of these exceptions, then they should be paid overtime for any hours worked over 40. Employees are also not allowed to waive their rights under FLSA and any agreement by the employee to waive overtime would be null and void.
The FLSA also requires the employer to maintain certain basic payroll and other records for each employee. These can be found at 29 CFR Sec. 516. If an employer fails to keep proper records of work hours, an employee's testimony may be relied upon to establish the number of hours worked. Furthermore, it is management's duty to prohibit employees from working additional time if it does not want to pay for the work time. Merely having a rule against overtime is not enough. Management must also make every effort to enforce the rule. See 29 CFR Sec. 785.13.
For the exempt categories, there are several factors going into each particular category. A common factor attributed to these exceptions as "the exercise of discretion and independent judgment in the performance of the job." The criteria for executives is (1) the employee must be paid on a salary basis, (2) the employee must be paid a salary of not less than $250.00 per week, (3) the employee's primary duty consists of managing a department or subdivision of the enterprise, and (4) the employee regularly supervises two or more employees. The criteria for a professional generally focuses on the amount of judgment and discretion that an employee normally has and exercises. Despite the exemptions, the employee's actual job duties will be analyzed and the decision for the exemption will rest on the duties and not the job title. Thus, some accountants who are normally exempted under the professional employee exemption or under the administrative employee exemption, may be considered hourly employees if they perform a great deal of routine work which is not an essential part of and necessarily incident to any professional work which they may do. See 29 CFR Sec. 541.301(f).
In order generally for an employee to be considered exempt from the overtime pay requirements of FLSA, the employee generally must be paid on a salary basis as a bona fide executive, administrative or professional employee. A salary basis is defined as payment on a weekly or less frequent basis of a pre-determined amount constituting all or part of compensation, without reductions for variations in the quality or quantity of work performed. See 29 CFR Sec. 541.118. An employer may however risk the exempt basis of an employee by compensating an exempt employee for hours worked over 40 by providing extra pay to employees on the basis of hours worked in excess of 40. The federal courts have split on whether this removes them from the exempt status or not.
Addendum
The Fourth Circuit in West, et al. v. Ann E. Arundel County Maryland, et al., (CA-90-2281-B) (Fourth Circuit 1998), explained this circuit's view of the two prong test for FLSA exemption. This case is a case about whether certain firemen in Arundel County are exempt employees and therefore not entitled to overtime.
The court first started with the fact that the plaintiffs were paid more than $250.00 per week and the court therefore applied the regulatory "short" test citing as 29 CFR 541.1 and 541.2. Second, in examining the county's claims, regarding the plaintiffs being salaried executives, the court stated that "in order to fit this exemption, an employee must be compensated on a salary basis, and most of his duties must involve management." "An individual is employed on a salary basis if under his employment agreement he regularly receives each pay period . . . a predetermined amount constituting all or part of his compensation which amount is not subject to reduction because of variations in the quality or quantity of the work performed." Here, the court stated that the plaintiffs received a minimum predetermined amount every 2 weeks plus additional compensation in the form of overtime. These employees were paid for 50 hours of work each week even if they only worked 48 hours. The court stated that based on this evidence, the plaintiffs were employed on a salary basis. The court further noted "additional compensation does not alter the status of salaried employees, id. Sec. 541.118(b), so the receipt of overtime does not defeat the salary basis of plaintiffs' employment." Citing York v. City of Wichita Falls, 944 F.2d 246, 242 (Fifth Circuit 1991); Hartman v. Arlington City, 720 F.Supp. 1227 (EDVA.1989) affirmed on reasoning of lower court, 903 F.2d 290 (Fourth Circuit 1990).
There was previously a split among circuits on whether an employee who is subject to deduction (i.e., for missing a day) takes them out of the salaried prong. The Supreme Court recently interpreted the FLSA Regulations "to mean that employees lose salaried status if they 'are covered by a policy that permits disciplinary or other deductions in pay as a practical matter. That standard is met if there is either (1) an actual practice making such deductions or (2) an employment policy that creates a significant likelihood of such deductions.'"
In another part of the decision the Fourth Circuit court in West stated that "the administrative duties test is satisfied if (1) the employee's primary duty consists of 'office or nonmanual work directly related to management policies or general business operations of its employer, and (2) this duty includes work requiring the exercise of discretion and independent judgment.'" The court then states "the regulations indicate (29 CFR 541.2) indicate that the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct in acting or making a decision after the various possibilities have been considered."