THE FAIR LABOR STANDARDS ACT IN TEN MINUTES

1. www.lfhc.com Jim Mulroy THE FAIR LABOR STANDARDS ACT IN TEN MINUTES

2. Why is this important? • Recently rediscovered by plaintiffs’ lawyers • Many reported large damage awards • In some jurisdictions, one-third of all federal lawsuits are wage and hour suits • Typically brought as class actions and can be expensive to resolve

3. Typical Lawsuits Involve • Misclassification of non-exempt employees as exempt • Off the clock overtime • Failure to provide uninterrupted lunch breaks • Preliminary and post work activity • Misapplication of “no overtime rules” • Failure to properly calculate “regular rate” and “overtime rate” • A lot of strategic consideration in defending these cases

4. Basic Standards • A “workweek” is defined as seven consecutive, 24-hour days • Employers should study overtime pattern of employees and establish a workweek which minimizes overtime • Overtime is computed on a weekly, not daily, basis

5. Minimum Wage & Overtime • Federal Minimum Wage: $5.15/hour • Overtime: 1 ½ times the regular rate of pay for hours worked over 40 in a work week • Determination of “regular rate”

6. “Regular Rate” Definition • The “regular rate” is the employee’s total compensation for the week, divided by the total number of hours actually worked • Employer must include most forms of compensation, including: base rate; non-discretionary bonuses; commissions; incentives; etc.

7. Regular Rate Exclusions • Payments excluded from the regular rate: • Gifts • Paid leave • Reimbursed expenses • Discretionary bonuses • Employer contributions to profit-sharing plans, trusts, savings accounts • Payments to third parties for insurance and pension plans

8. Exempt/Non-exempt Exempt - exempt from FLSA’s • Minimum wage • Overtime • Record keeping requirements as to hours worked Non-exempt – Subject to above requirements An employee may be “salaried exempt” or salaried “non-exempt” Salaried “non-exempt” still must be paid overtime

9. “White Collar” Exemptions • The two most often used in your industry: • Executive • Administrative • Note that if everyone in your organization is classified as “exempt” you have a problem

10. Three Tests for Exemption • Salary Basis (periodic payment of same amount) • Salary Level ($455 weekly) • Job Duties

11. Salary Basis Test • Receives predetermined compensation each pay period (on a weekly or less frequent basis). • The compensation cannot be reduced because of variations in the quality or quantity of the work performed. • Must be paid the full salary for any week in which the employee performs any work. • Need not be paid for any workweek when no work is performed.

12. Deductions From Salary • If deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the businesses, exemption may be lost • Deductions may not be made for time when work is not available and employee is

13. Permitted Salary Deductions • Seven exceptions from the “no pay-docking” rule: • Absence from work for one or more full days for personal reasons, other than sickness or disability. • Absence from work for one or more full days due to sickness or disability if deductions made under a bona fide plan. • To offset any amounts received as payment for jury fees, witness fees, or military pay.

14. Permitted Salary Deductions • Seven exceptions from the “no pay-docking” rule: • Penalties imposed in good faith for violating safety rules of “major significance”. • Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules. • Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment. • Unpaid leave taken pursuant to the Family and Medical Leave Act.

15. Executive Duties • Primary duty is management of the enterprise or of a customarily recognized department or subdivision; • Customarily and regularly directs the work of 2 or more other employees; and • Authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight.

16. Customarily and Regularly • A frequency that must be greater than occasional but which may be less than constant • Includes work normally and recurrently performed every workweek • Does not include isolated or one-time tasks

17. Two or More • The phrase “two or more other employees” means two full-time employees or the equivalent (must equal 80 hours weekly)

18. Staffing Meets the “Two or More” Requirement General Manager Assistant Manager Full-time Employee Half-time Employee Half-time Employee Full-time Employee Half-time Employee Half-time Employee Half-time Employee

19. Staffing Does Not Meet the “Two or more” Requirement

20. Administrative Duties • Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and • Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

21. Discretion and Independent Judgment • The comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. • Must be exercised with respect to “matters of significance,” which refers to the level of importance or consequence of the work performed. • Decisions and recommendations may be reviewed at a higher level and, upon occasion, revised or reversed.

22. Discretion and Independent Judgment • Discretion and independent judgment does not include: • Applying well-established techniques, procedures or specific standards described in manuals or other sources; • Clerical or secretarial work; • Recording or tabulating data; • Performing mechanical, repetitive, recurrent or routine work.

23. Unauthorized Work • Unauthorized work is compensable if employer knew, or had reason to know that work was being performed – “suffered to work” • Misapplication of “no overtime rules” often misinterpreted to mean “we do not pay overtime”

24. Meal/Rest Periods • Non-compensable time: • Meal breaks of 30 minutes if completely relieved of duty. • Compensable: • Rest periods of 5 to 20 minutes

25. Lectures/Meetings/Training Compensable time: • On-the-job training • Work-related meetings • Required attendance at lectures, meetings, training

26. Fluctuating Workweek Method • Advantages • Reduces overtime costs • Provides less fluctuation in earning • Discourages unnecessary overtime • Disadvantages • Employee must be paid the full base salary for every week in which any work is performed • Difficult to explain

27. Fluctuating Workweek Method • How it works • Employee is paid straight-time compensation for all hours worked, not just for 40 or fewer hours • Overtime is still owed at half the regular rate for hours worked beyond 40 • Example: Employee is paid salary of $400 per week and works 50 hours. Regular rate of pay is 400/50 = $8.00 per hour. Half-time overtime would be paid at $4.00, so employee’s total pay that week is $440 • Flat Rate Method (a variation of the Fluctuating Workweek Method)

28. Jim Mulroy 6410 Poplar Avenue Suite 300 Memphis, Tennessee 38119 Phone: (901) 767-6160 Fax: (901) 767-7411 jrmulroy@lfhc.com www.lfhc.com