There are certain areas of wage and hour law that cause more confusion for employers than most other areas. Following is a brief outline of those pitfalls and some suggestions for avoiding or dealing with them.
"We're Not Covered - We're Too Small"
Some employers assume that because their business is small, they are not covered by the FLSA. Unlike most other state and federal employment laws, the FLSA does not depend directly upon the number of employees. The FLSA covers individual employees whose work affects interstate commerce, or it can apply to all employees working for an employer that is covered as an enterprise that is involved in interstate commerce. The U.S. Department of Labor (DOL) and the courts have attached broad meaning to the term "interstate commerce". For instance, it is generally assumed that businesses situated along U.S. and interstate highways are involved in interstate commerce, simply because they can easily get customers from out of state by virtue of their easy access from the highway. Similarly, any employee who routinely orders materials or supplies from out of state vendors, or who sells to out of state customers, is assumed to be involved in interstate commerce. In a very real sense, practically anything in connection with our modern, networked economy is going to be sufficient to be considered involvement in interstate commerce. The vast majority of businesses can save themselves a lot of time and legal expenses by going ahead and assuming they and all their employees are covered under the FLSA.
"All Our Managers Are Exempt - They're Salaried"
Some employers make the mistake of assuming that simply because an employee is paid a salary, or is called "salaried" or "exempt", or has a high-ranking job title, the employee will be considered exempt from overtime pay. Few things could be further from the truth. Many non-exempt employees are paid a salary, such as receptionists, secretaries, file clerks, and technicians. In a similar vein, giving an employee a high-sounding job title such as "director of production" or "sales manager" will make no difference, if the employee's job duties do not satisfy the criteria found in the DOL's "duties" test for an exemption category. In short, the DOL looks right past what a person is paid or called, instead focusing on the nature of the job and how the employee does the job.
"We Don't Owe Overtime Because the Salary We Pay Covers All the Time They Work"
A problem similar to the one immediately above occurs when an employer recognizes that an employee is non-exempt and eligible for overtime pay, but assumes that paying the employee a fixed salary that is meant to cover both straight-time and overtime pay will be sufficient to meet the overtime pay requirements. Unfortunately, that assumption is wrong. Regardless of the amount of the salary, and regardless of whether the employee agrees that the salary covers both overtime and non-overtime hours, the DOL and the courts will rule that the employer owes extra overtime pay, since the salary at most can cover only straight-time pay for all hours worked. There are some little-known overtime pay methods that to one extent or another can give the appearance of a set salary that includes overtime pay (and such methods should be attempted only with the assistance of a wage and hour law expert), but upon closer analysis, even those methods fail to fully insulate an employer from the duty of paying extra pay for extra hours worked.
"There's No Overtime Around Here - Our Employees Just Volunteer Some Extra Time"
There is no such thing as "voluntary unpaid overtime" or "donated" time under the FLSA. Any manager who expects or allows his or her staff to put in unrecorded work time, otherwise known as working "off the clock", is a wage claim or lawsuit waiting to happen. It is simply impossible under the FLSA for an employee to waive the right to receive at least minimum wage and applicable overtime pay for all hours worked. An agreement to the contrary (other than a wage claim settlement supervised and approved by the DOL) is null, void, and completely unenforceable. Employers must ensure that all non-exempt employees properly record all time worked and that they are paid for all such time. More information on this topic is found in the article on "Hours Worked" in this book. If an employer has true volunteers (generally accepted as possible only with governmental entities and non-profit charitable organizations), it should have all such individuals sign a volunteer agreement (for a sample, see the "Volunteer Agreement" near the end of the section titled "The A-Z of Personnel Policies").
"We Let Our People Keep Their Own Time Records"
Some employers fail to strictly follow the FLSA's recordkeeping requirements, found in Part 516 of DOL's wage and hour regulations (Title 29, Code of Federal Regulations). Among other things, those regulations require employers to maintain detailed records of hours worked by each non-exempt employee. An employer that allows employees to keep their own time records is only asking for trouble. For instance, if an employee files a wage claim for unpaid overtime, and the employer has no time records to dispute the employee's own records showing that overtime was worked, the DOL and the courts will accept the employee's records as valid under what is known as the "best evidence" rule, unless there is a good reason to doubt the credibility of such records. Another problem will occur if the DOL audits the employer for compliance with the FLSA; part of any compliance audit is an inspection of the required records, and non-existent records may be cause for further DOL action.
"We Don't Need to Pay Overtime, Because We Give Our Employees Comp Time"
Compensatory time off in lieu of overtime pay is something that governmental employers may use, but private sector employers may not make use of compensatory time. Private employers may use an informal variety of compensatory time by adjusting the schedule within the same workweek to ensure that total hours worked do not exceed 40. However, overtime hours may not be averaged out over a longer period of time except in exceedingly narrow cases of certain employees of residential care facilities, and in the case of certain police, firefighting, and EMS employees. Otherwise, any overtime worked within a workweek must be paid for that workweek.
"They Don't Get Overtime - They're Contract Labor"
The difficulty here is not that independent contractors should be getting overtime pay for excessive hours they might put in on a project - they do not get overtime pay, regardless of how many hours they work, since independent contractors are not "employees" and are thus not covered under the FLSA. Rather, the problem occurs when an employer fails to understand that it takes a lot more than a contract to make a worker an independent contractor. Independent contractor status does not depend upon the existence of a contract specifying that the worker is an independent contractor, or upon what the parties might call the relationship, but rather on the underlying nature of the work relationship. Some employers hire temporary workers to help them with a rush period and think that they are "contract labor" or "contract employees", when in reality such terms are practically meaningless under wage and hour laws and payroll tax laws. If such workers are truly employees, and they work more than 40 hours in a workweek, the employer must pay them overtime pay if they do not qualify for some sort of overtime exemption. There is no way to contract around that; no piece of paper and no amount of explanation will overcome the evidence of an employment relationship if the DOL or the IRS, or a state employment security agency, is examining the situation. For this reason, employers must be very familiar with the various tests for determining whether a worker is an employee or an independent contractor. The IRS test criteria are outlined in Appendix D of the article titled "Independent Contractors / Contract Labor" that appears in the Hiring section of this book.
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