Fair Labor Standards Act:
What You Need to Know
Jeffrey N. Jensen
Senior Associate General Counsel
Legal Symposium
October 16, 2014
Office of Legal Affairs
Opening Questions
1. Should all University employees understand the basics
of the Fair Labor Standards Act (FLSA)?
2. Are there negative consequences if we fail to comply
with the FLSA?
3. Are there regulatory changes on the horizon that could
result in some University employees being reclassified
so they become eligible for overtime under the FLSA?
HISTORY OF THE FLSA
• President Franklin D. Roosevelt signed the Fair Labor
Standards Act into law in 1938.
• In its initial form, the FLSA applied only to about 20% of
the country’s industrial employers.
• It banned oppressive child labor, set the minimum hourly
wage at 25 cents, and the maximum workweek at 44
hours.
ORIGINAL PURPOSE
FDR signed the FLSA in 1938 to “end starvation wages and
intolerable hours.”
FDR’S three goals • End child labor abuses
• Establish a minimum wage
• Cap the number of work hours per week
TODAY’S FAIR LABOR STANDARDS ACT
• Establishes minimum wage, overtime pay, recordkeeping,
and youth employment standards affecting full-time and parttime workers in the private sector and in Federal, State, and
local governments.
• The U.S. Department of Labor’s Wage and Hour Division
administers and enforces the FLSA with respect to private
employment and State and local government employment.
WAGE & HOUR LAW’S BASIC TENETS
• Minimum wage
• One and one-half times regular hourly rate of pay for all
hours worked over 40
Employers must pay all nonexempt employees at least the minimum wage
for all hours worked, and at lease one and one-half times their regular
hourly rate of pay for all hours worked over 40 in a singe week.
MINIMUM WAGE
• Since July 24, 2009, covered, nonexempt workers are
entitled to a minimum wage of not less than $7.25 per
hour.
• In April of 2014, Senate’s Minimum Wage Fairness Act
would have increased the minimum wage to $10.10 per
hour.
• Last week DOL published a rule that requires federal
contractors to pay at least $10.10 per hour beginning in
January 2015.
COMPENSEATION TIME IN LIEU OF OVERTIME PAY
• Tool available to public sector employers
• Maximum accrual limit under law/policy
• Employee must have a reasonable opportunity to
use comp time
• When must the employer pay out?
COMPENSATION TIME
1. Public sector employers may provide comp time in lieu of
overtime pay as long as there is an understanding prior to
the performance of the work in question.
2. Public sector nonexempt employees in North Carolina may
accrue up to 240 hours of comp time (160 hours straight
time). Any overtime worked above this amount shall be
paid in the employee’s next regular paycheck.
COMPENSATION TIME
3. An employer must honor requests to use comp time within
a reasonable period of time, as long as the time off does
not unduly disrupt operations.
4. Pursuant to North Carolina policy, the University should
allow overtime compensation to be taken as soon as
possible.
COMPENSATION TIME
5. Pursuant to North Carolina policy, nonexempt employees
shall take their compensatory leave within twelve months
from the date the work was performed.
6. Moreover, if comp time is not taken within 365 days, the
time shall be paid out in the employee’s next paycheck.
EXEMPT or NONEXEMPT
Employees whose jobs are governed by the FLSA are either
“exempt” or “nonexempt.”
• Nonexempt employees are entitled to overtime pay.
• Exempt employees are not.
Which employees are exempt?
With few exceptions, to be exempt an employee must
(a) be paid at least $455 per week ($23,600 per year), and
(b) be paid on a salary basis, and also
(c) perform exempt job duties.
Most employees must meet all three “tests” to be exempt.
The “White Collar” Exemptions
The most well-known and commonly used of the
dozens of FLSA exemptions are the so-called “white
collar” exemptions for three categories of employees:
• Executive
• Administrative, and
• Professional.
Test #1
Salary Level Test
• must be paid a minimum of $455/week
($23,600/year)
• employees paid less are nonexempt
Test #2
Salary Basis Test
An exempt employee is paid on a salary basis …
• For any week in which work is performed
• Employee receives a fixed, guaranteed amount of
pay
• Pay not subject to reduction regardless of the quality
or quantity of work, or of the hours worked
Test #3
Duties Tests by Job Category
• Executive
• Administrative
• Professional: Learned and Creative
There are typical job duties for each of these white
collar categories.
EXECUTIVE EXEMPTION
• Primary duty of managing the enterprise, department or
division
• Regularly directs two or more employees
• Must possess the authority to hire, fire, or otherwise
affect the status of other employees or to recommend
such action
ADMINISTRATIVE EXEMPTION
• Primary duty of non-manual or office work
• Directly related to the management or general business
operations of the employer or the employer’s customers
(i.e., the University’s students)
• Primary duty includes the exercise of discretion and
independent judgment with respect to matters of
significance
PROFESSIONAL EXEMPTION
“Learned Professional”
• Primary duty is performing work that requires advanced knowledge
in a field of science or learning, customarily acquired by a
prolonged course of specialized intellectual instruction
• Work requires consistent exercise of discretion and judgment
• Fields of science or learning from which degreed professionals
qualify for this exemption: accounting, engineering, medicine, law
architecture, teaching, etc.
PROFESSIONAL EXEMPTION
“Creative Professional”
• Primary duty requires invention, imagination, originality, or talent in
a recognized field of artistic or creative endeavor
• Work requires consistent exercise of discretion and judgment
To review …
Most employees must meet all three “tests” to be exempt.
With few exceptions, to be exempt an employee must:
(a) be paid at least $455 per week ($23,600/year), and
(b) be paid on a salary basis, and also
(c) perform exempt job duties.
Highly Compensated Employee Exemption
• Established pursuant to the FairPay Amendments of
2004 regarding the white collar exemptions under the
FLSA.
• Employee paid $100,000 or more will be considered
exempt from overtime if has one identifiable white collar
duty that is customarily and regularly performed.
RECORDKEEPING
• The FLSA requires employers to keep accurate time records for all
nonexempt employees.
• Federal law does not require any particular method of record
keeping.
• A method which requires nonexempt employees to clock in or write
in their own time, or at least sign off on their time is strongly
preferred, as this limits the employees ability to later say the time
recorded is not accurate.
• Records of hours worked must be preserved for at least three
years.
How do we count “hours worked”?
As the FLSA does not prescribe a method, an employer can use:
• a time clock
• manual time sheets, or
• computerized timekeeping tool
Most nonexempt employees at UNC Charlotte are required to fill out
weekly time sheets that are signed by their supervisor.
A computerized timekeeping tool is being piloted on campus.
Time Clocks & Computerized Timekeeping
• Many employers utilize time clocks and computerized timekeeping
systems, in an effort to increase efficiency, decrease cost, and
eliminate some of the human error that goes along with time
keeping.
• Caution: No system is foolproof!
• U.S. Department of Labor can factor in work time not reflected on
an employee’s official time records, if there is evidence work is
being performed but not recorded.
Calculating Arrival and Departure Times
• Issues might arise during transition from time sheet to computer
timekeeping system
• DOL allows use of 7-minute rule
• Must pay if nonexempt employee regularly clocks in more than 7
minutes early
• Establish clear punch-in and punch-out policy and expectations
Meal Periods
• A meal period of at least 30 consecutive minutes (never less) during
which a nonexempt employee is completely relieved of duty and
free to use the time for her/his own purposes.
• It is not counted as hours worked or paid time.
• Any so-called “meal period” of less than 30 consecutive minutes
must be paid as hours worked.
Meal Periods
Q. If an employee is merely asked to sit by a telephone during lunch,
is that passive activity compensable?
A. Yes, the employee is not relieved of duty if he or she is required to
perform any duties, including passive activities such as sitting by a
phone.
Employees who “volunteer” to work through meal breaks should either
be prohibited from doing so or paid for their time. Otherwise, you may
end up with claims for unpaid wages and overtime.
Rest Periods
Although the FLSA does not require that employees
receive rest periods, University supervisors have the
discretion to permit a rest period of up to 15 minutes during
each four-hour period of work.
Rest periods are compensable time.
Training
Time spend at a conference, meeting or seminar is compensable if:
1. Attendance is during normal work hours;
2. Attendance is required by the university;
3. Event is directly job-related; or
4. University work is performed
Note: Meal breaks, sleeping, and voluntary social events that are part
of a training event are not compensable work time.
Travel by Nonexempt Employees
All travel time within a single day is compensable work
time.
Overnight travel not compensable if:
• Outside of normal working hours (not working days)
• Employee does not drive
• Employee does not work while traveling
Nursing Mothers’ Breaks
The Patient Protection and Affordable Care Act (PPACA)
amended the FLSA in March of 2010:
• to require employers to grant reasonable breaks for an
employee to express breast milk for up to one year after
giving birth, and
• to provide a private location (other than a bathroom) for
the employee to do so.
See UNCC’s Lactation Policy, UP 101.20
Email, Texting & Twitter as working time?
Q. If nonexempt employees are using electronic devices to receive
and reply to work-related messages during nonworking hours, is
that time compensable under the FLSA?
A. It depends.
Best Practice - Supervisor should establish a clear expectation,
preferably advising all nonexempt employees to not use their home
computer, laptop, smartphone, PDA or tablet to perform work outside
of working hours or during their unpaid meal breaks.
Email, Texting & Twitter as working time?
Best Practice - Supervisors should be careful not to encourage nonexempt
employees to check or respond to work-related emails during nonworking
hours.
Best Practice - If such work is permitted or expected, however, supervisors
should carefully manage and record all such work by requiring nonexempt
employees to record all time spent checking, sending, or receiving workrelated emails, and then compensate the employee for that time.
• In the spring of 2011, the U.S. Department of Labor launched “DOL –
Timesheet,” a free application for smart phone with an easy-to-use
electronic timesheet.
De Minimus Doctrine
• FLSA’s general rule is that all work is compensable.
• The de minimus doctrine permits employers to treat very
small increments of time as non-compensable (e.g., 10
minutes or less).
• This means that if an nonexempt employee occasionally
works for a few minutes “off the clock” either at home or
before clocking in at work, the employer does not need
to track this time.
Email, Texting & Twitter as working time?
1. Use 10-minute (de minimus) rule as guideline
2. Consider regularity and aggregate amount of time spent
3. Establish clear expectations regarding use of electronic devices
outside of normal work hours
4. When possible, prohibit nonexempt employees from using
electronic devices to work outside of their normal business hours
5. Be prepared to record and pay for compensable working time
FLSA Enforcement Mechanisms
• Wage and Hour Division investigations and lawsuits
• Private lawsuits
To enforce the minimum wage and overtime provisions of the FLSA, the
U.S. Department of Labor’s Wage and Hour Division (WHD) has the
authority to investigate and gather data from employers regarding wage,
hours, and other conditions and practices of employment; to enter and
inspect an employer’s place of business and its records; to question
employees; and to investigate all facts, conditions, practices and matters
the investigator deems necessary to determine whether the FLSA has
been violated.
Wage and Hour Division (WHD) Enforcement
Recent increase in enforcement activity – since 2009 WHD has hired 40%
more investigators and annually completed 40% more compliance actions
A WHD investigation can be trigged by a complaint of an employee or a
former employee
WHD may commence a lawsuit on behalf of impacted employees seeking:
• unpaid minimum wages,
• overtime,
• liquidated damages (equal to the unpaid wages), and
• injunctive relief
Private Lawsuits Under the FLSA
• An employee may sue an employer for violating the FLSA’s
minimum wage or overtime provisions
• Private lawsuits to enforce non-willful violations of the FLSA
must be brought within two years whereas the limitation period
for willful violations is three years
• The damages available to employees in FLSA actions are
potentially huge
Why are FLSA claims potentially so expensive?
Available civil remedies include:
1. All unpaid compensation for time worked but not paid, or time
paid at an incorrect amount
2. Mandatory liquidated damages (equal to the amount of unpaid
compensation) that effectively doubles unpaid wages for a
period of up to three years back (for willful violations, two
years for non-willful)
3. Interest
4. Attorneys’ fees
Why are FLSA claims potentially so expensive?
Collective Actions
• Multiply the total exposure for one employee by the total
number of similarly-situated employees
Recent collective FLSA actions have concerned:
• Misclassification of workers
• Working on work-related matters during non-work time
• Deducting time for breaks without ensuring that employees
were not, in fact, working
Obama Administration Proposal to Narrow
White Collar Exemptions
Goal = Narrow exemptions so more workers qualify for overtime pay by
raising salary threshold level and changing the primary duties test
The salary threshold has been changed only eight times in the 75 years
since the FLSA passed in 1938.
• In 1975, the weekly salary threshold was set at $155/week and in 2004
it was raised to $455/week.
• The Obama Administration proposes adjusting the threshold for
inflation since 1975, thereby raising the salary level to $970/week
($50,440/year).
Obama Administration Proposal to Narrow
White Collar Exemptions
New FLSA rule may also require performance of a minimum percent of
“executive” work before an employee can be exempted from qualifying for
overtime pay.
For example, in California the duties test for white-collar exempt
employees requires exempt employees to spend more than half their time
engaged in exempt work. If less, they would be classified as nonexempt.
Obama Administration Proposal to Narrow
White Collar Exemptions
There are approximately 400 UNC Charlotte employees who earn at or
below the $50,000 annually, the proposed new salary level, who are
currently classified as exempt from the FLSA.
There are University employees in the “executive” White Collar exemption
category who may not spend at least 50% of their time on exempt work.
Under the new rule, they may need to be reclassified as nonexempt.
Bottom Line - The proposed new FLSA regulations could require the
University to reclassify dozens of employees as nonexempt, making them
eligible to earn comp time for all overtime hours they work.
Self-Audit
The best way for an employer to be prepared for a DOL
audit or investigation is to conduct periodic reviews or
self-audits.
As DOL audits focus on record-keeping, overtime pay,
and ensuring that all employees are being paid for
hours worked, a self-audit should ensure compliance
with these targeted areas.
Issue #1
Exempt v. Nonexempt Classifications
It is wise to audit the exempt classifications of the workforce periodically to
ensure that employees are properly classified as exempt or nonexempt.
Remember that the job duties attached to a particular position may
change over the years, and a position that was exempt ten years ago may
no longer be exempt today. Realistically analyze the actual duties
performed by the employee to determine whether the employee is
properly classified as exempt. Carefully consider what the employee
actually does on a daily basis. If appropriate, modify the job title or revise
the job description to reflect changes of job duties.
Issue #2
Close Calls
During a self-audit, employer should be especially wary of any
close cases. The employer has the burden to prove an exemption
applies.
Just because an employer could treat a position as exempt,
doesn’t mean it is required to do so. Paying a nonexempt
employee overtime pay may be the least risky approach in some
difficult classification cases.
Issue #3
Supervisors
Before determining that an employee falls within the
executive exemption, ensure that the employee has
actual supervisory duties and management is her/his
primary duty.
Issue #4
Power to Hire or Fire
To fall within the executive exemption, the employee
must have actual authority to hire or fire or to have
his/her suggestions given particular weight.
Consider whether the person has ever been involved in
the hiring or firing of any employee. If not, then the
employer may want to reevaluate the employee’s
exempt status.
Issue #5
Discretion and Independent Judgment
Carefully analyze the significance of the employee’s
decisions and how much independence the employee
has.
Issue #6
College Degrees
Possessing a college degree is not enough to be
exempt as a learned professional. The employee must
actually use the knowledge gained from her/his
advanced, specialized degree. A general four-year
degree is not an advanced degree.
Issue #7
Working Time
Ensure that all working time is compensated.
Implement and enforce policies requiring all nonexempt
employees to document all working time, including time
spent out of the office on a cell phone, home computer,
PDA or tablet on anything work-related.
Employers should also verify that no work is occurring
during unpaid meal periods.
Issue #8
Recordkeeping
Ensure that the University maintains the appropriate documents,
either on paper or electronically, to substantiate classification and
payroll practices.
Audit payroll practices periodically to ensure that time is tracked
and that overtime worked is allocated as comp time or paid out
correctly. Pay special attention to units or departments where
there is a spike or sudden drop off in the comp/overtime hours
worked by nonexempt employees.
Issue #9
Comp Time and Overtime
Confirm that compensation (“comp”) time is allocated to
employees at one and a half times the number of overtime hours
worked.
Confirm that nonexempt employees who accrue 240 hours of
comp time are paid time and a half for any additional overtime they
might work in their next regular paycheck.
Confirm that any earned comp time that is not taken by an
employee within 365 days is paid out as overtime in their next
paycheck.
Issue #10
Termination
When terminating an employee, make sure that the
employee is paid properly for all time worked.