Managing Risk in Employment Decisions: Wage and Hour Challenges and Opportunities
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Managing Risk in Employment Decisions: Wage and Hour Challenges and Opportunities Amie Flowers Carmack Daniel J. Palmieri K&L Gates LLP Wage and Hour Issues Proper Classification of employees—exempt vs. non-exempt Calculation of work time—what counts? Wage reductions and furloughs to reduce expense Wage payment requirements Deductions from wages 2 Why Wage and Hour Issues Are Challenging The laws are arcane Every business is at risk The risks are high Claims are increasing Employers rarely have a sympathetic argument 3 1 Wage & Hour Laws The federal Fair Labor Standards Act (FLSA) and NC state laws set forth requirements for minimum wage and overtime. Federal minimum wage is $7.25/hr as of July 24, 2009. State laws impose a myriad of other requirements on top of FLSA. Employers must follow both. 4 The White-Collar Exemptions “Exempt” employees are not entitled to minimum wage or overtime Exemptions for executive, administrative, and professional workers Must satisfy a minimum compensation requirement and both a duties test and a salary basis test 5 Executive Exemption Must be paid $455 per week on a salary basis Primary duty must be management What is a primary duty? What is management? Must customarily and regularly direct 2 or more other workers Must have the authority to hire or fire other employees, or make suggestions on employee status that are given particular weight 6 2 Administrative Exemption Must be paid $455 per week on a salary basis Primary duty must be non-manual work directly related to the management or general business operations of the employer or the employer’s customers Must exercise discretion and independent judgment with respect to matters of significance An employee who leads a team of other employees assigned to a major project generally meets this requirement 7 Professional Exemption Usually must be paid $455 per week on a salary basis Must be a learned professional, artistic professional, teacher, doctor, or attorney Learned professionals do work requiring advanced knowledge in a field of science or learning customarily acquired through prolonged instruction and must consistently exercise discretion and judgment 8 Professional Exemption Creative professionals do work that is original and creative in nature in a recognized field of artistic endeavor Exempt teachers must be engaged in the imparting of knowledge and work within a school system or educational establishment 9 3 Combination Exemption May combine work duties that qualify under the executive, administrative, professional, computer, and outside sales exemptions Must still satisfy the minimum compensation and salary basis requirements 10 Other Exemptions Computer professional exemption Outside sales exemption Retail sales and service exemption Recreation and amusement exemption Motor Carrier Act exemption Domestic worker exemption Seamen exemption Law enforcement and fire protection exemption 11 Minimum Compensation Requirement Must be paid a minimum of $455 per week ($23,660 per year) on a salary basis The minimum may not be prorated for part-time workers Workers who are paid $100,000 or more per year in total compensation and who perform any one or more exempt duties can qualify for the highly compensated employee exemption 12 4 The Salary Basis Test Must be paid full salary for any work week during which employee works Need not be paid salary if employee performed no work during a work week Common issues –reducing salary, using accrued leave time, correcting improper deductions, paying extra compensation, and tracking time 13 Reducing Salary for time not worked General rule – a salaried exempt employee is entitled to his or her full salary in any week during which he or she performs any work. 14 Reducing Salary for time not worked An exempt worker’s salary may be reduced when: The worker performs no work during the relevant work week. The worker works less than a complete week during his or her initial or terminal week of employment. The employer reduces the worker’s salary for hours taken as intermittent or reduced FMLA leave. 15 5 Reducing Salary for time not worked An exempt worker’s salary may be reduced by whole days only when: The worker is absent due to sickness or disability lasting one day or longer and the employer maintains a bona fide plan, policy, or practice of providing compensation for loss of salary occasioned by sickness or disability The worker is subject to an unpaid disciplinary suspension of one or more full days imposed in good faith for infractions of workplace conduct rules The worker takes a personal absence from work for a day or longer 16 Reducing Salary for time not worked An exempt worker’s salary may not be reduced when: The employer does not provide work The worker misses work for civic responsibilities BUT, employer can reduce a worker’s salary to offset amounts received for jury duty, witness fees, or temporary military service The worker is absent for a partial day 17 Furloughs under FLSA Non-Exempt Employees No FLSA problem. Employees only paid for time worked Exempt Employees Caution! Can only avoid paying if no work performed for entire week Make sure employees don’t work while on furlough Employees who violate furlough rules can be disciplined, but must still be paid. 18 6 Using Accrued Leave Time Department of Labor draws a distinction between salary and leave banks (e.g., PTO, sick leave) Even though salary deductions can only be in whole day increments, law allows incremental or hourly use of accrued leave time Critical question – what happens when leave is exhausted? 19 Hypothetical Employer wants exempt employees to stay home for whole days when work is light. Employer plans to deduct non-work time from employees’ PTO accounts, so they still get paid. If an employee is out of PTO, employer will deduct whole days of salary. How would DOL deal with this issue? 20 Hypothetical—DOL Response First part of employer’s policy is fine: Employers can force employees to use PTO No salary basis issue because employee still ends up getting paid for whole week Issue arises when PTO is exhausted Now employee won’t get paid for whole week Reductions in compensation mean that employee is not paid on salary basis “without regard to the quantity of work performed.” Fact that it is whole days doesn’t matter because time off is at employer’s direction. 21 7 Hypothetical—Bad Weather Where employer closes the office: Can force employees to use PTO Cannot deduct from pay if no PTO available Where office is open but employee chooses to stay home: Can deduct from PTO account Can deduct whole day of pay if employee misses whole day If employee works partial day, must pay for whole day, unless PTO used. 22 Correcting Improper Deductions The federal regulations establish a “window of correction” that provides two avenues for employers to avoid the loss of exempt status First, if improper deductions are isolated or inadvertent and the employer reimburses the employee for any improper deductions Second, if the employer has a policy prohibiting improper deductions (including a complaint procedure), reimburses the employee, agrees to comply in the future, and has acted in good faith 23 Paying Extra Compensation Federal law draws a distinction between base salary (which is used to satisfy the salary basis test) and additional compensation paid to exempt workers Additional compensation may be paid as bonuses or commissions, or may be paid on an hourly basis Critical question is whether the compensation structure is being used to evade the requirements of the FLSA 24 8 Tips to Avoid Salary Basis Issues Do not focus on compensation issues or “hours worked” when a salaried exempt worker is taking excessive time off Instead, focus on whether the worker is accomplishing his or her tasks and objectives Deal with the issue through appropriate counseling and discipline Establish appropriate policies that implement the window of correction 25 Tracking Time Tracking work hours is acceptable, even for exempt employees What is the purpose of tracking? Assuring coverage Accountability Allocating work Collateral benefits of tracking time 26 Typical Work Time Issues Potential work at home (or elsewhere) Commuting and travel time Security screening Clothes changing and equipment donning/doffing Walking and waiting time The impact of computers, equipment, and tools Orientation and training On-call time 27 9 Travel Time Basic rule: Normal travel to and from work is not work time. Exceptions: Emergency call back travel, at least if called to employer’s customer. DOL has no position on emergency call back to employer’s place of business. Travel “all in a day’s work,” i.e., between sites or between meeting point and work site. Work performed while traveling (e.g. on subway) 28 Travel Time, continued Exceptions: Travel time during one-day assignment in another city (but not the part that represents “normal” travel) Example: Employee usually works 9:00-5:00 in Raleigh, told to work in Charlotte at 10:00-3:00 one day. Leaves Raleigh at 7:00, returns at 6:00 Compensable time is 11 hours, less portion representing “normal” commute. Travel that goes overnight, but only counting travel during regular workday hours (on any day of week). 29 After Hours Work Something as simple as directing a non-exempt employee to check e-mails at night may create compensable work time. “If the employer knows or has reason to believe that the work is being performed [outside the office], he must count the time as hours worked.” Truly “insubstantial or insignificant periods” can be ignored if can’t practically be recorded. Could be risky to rely on this exception 30 10 After Hours Work, continued Very hard to track such hours Possible solution: “Homeworker Exception” Employee works at home AND “difficult to determine the exact hours worked” THEN “any reasonable agreement of the parties which takes into consideration all of the pertinent facts will be accepted.” Be reasonable—good faith approximation of work expected to be performed. 31 After Hours Work, continued Management can also bar after-hours work or limit it to prescribed amount If employee fails to comply, can discipline, but must still pay them for time worked. “It is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. It cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so.” 32 Properly Calculating Overtime Regular rate includes all compensation for time worked, unless an exclusion exists Virtually no bonuses can be excluded Must pay overtime for all hours worked over 40 in a workweek. Don’t count non-work hours (holidays, sick leave, etc.) 33 11 Controlling overtime expenses Primary way to control overtime is to use comp time within the same workweek. OK to have policy that requires advance authorization for overtime, but consider adding an exception for emergencies Train managers of the need to pay overtime worked and discipline them if they encourage, permit, or enable unpaid work Discipline OK if employee fails to follow the policy or works without reporting overtime, but do not withhold payment for violation of the policy 34 Controlling overtime expenses, continued “It is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. It cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so.” 29 C.F.R. § 785.13 35 North Carolina Wage and Hour Act “Wages” that must be paid include any compensation “for labor or services rendered by an employee” regardless of the computation basis, including vacation, sick pay, commissions, bonuses, “or other amounts promised when the employer has a policy or a practice of making such payments” 36 12 Timing of Wage Payments Wages are generally to be paid daily, weekly, bi-weekly, semimonthly, or monthly. Bonuses, commissions, or wages based off of other forms of calculation may be paid as infrequently as annually if prescribed in advance. Wage payments to separated employees shall be paid through regular pay channels or on the first regular pay day after the amount become calculable (bonus, commission, etc.). 37 Forfeiture of Wages Generally, once wages are earned, they cannot be forfeited. Bonuses, commissions, or wages based off of other forms of calculation may be forfeited upon termination if the employer has notified the employee in advance of the employer’s policy or practice resulting in forfeiture. If an employer provides vacation pay, the employee cannot forfeit any accrued vacation time unless the employer has notified the employee in advance of the employer’s policy or practice resulting in forfeiture. 38 Change in rate of pay Changes must be prospective only In North Carolina, at least 24 hours written notice Check for adverse impact…is policy being applied fairly across employee groups? Check employment agreements Don’t reduce below statutory minimum for exempt employees or below minimum wage for non-exempt employees If employee resigns after non-performance related pay cut of 15% or more, employee will be eligible for unemployment. 39 13 Withholdings from Wages (1) required or allowed by state or federal law (taxes); (2) authorized in advance by employee when amount or rate of proposed deduction is known in advance (e.g., health insurance premiums; equal installment charitable contribution); or (3) authorized in advance by employee. If amount under (3) not known at time authorization is given, the employee must be given reasonable opportunity to withdraw the authorization. Employer can also deduct for cash shortages and advances. 40 Withholdings, cont. Deductions generally cannot take employee below the minimum wage and cannot be from overtime wages. Overpayments, advances, and loans may be recouped by an employer through a withholding without authorization and notwithstanding the minimum wage or overtime provisions. Cash shortages, damage, or losses to employer property may be deducted upon 7 days’ notice if the notice and minimum wage requirements are met. 41 North Carolina Wage and Hour Act- N.C. Gen. Stat. sec. 95-25.1 et seq. Unpaid Wage Claims: Private claims or NC DOL (no need for exhaustion) Wages owed plus interest Liquidated (double) damages for amount found due unless employer can show good faith (discretionary for the Court) Attorneys’ Fees and costs (discretionary for Court) Employee can be required to pay fees and costs for frivolous claims 2 year statute of limitations 42 14 Managing Risk in Employment Decisions: Wage and Hour Challenges and Opportunities Amie Flowers Carmack Daniel J. Palmieri K&L Gates LLP 15
