Part 2 of Wage and Hour Compliance in 2014 addresses three final issues that small employers should understand and review: compensation for non-exempt employees and the classification of exempt employees. Read Part 1 here
Part 2: Compensation For Non-Exempt Employees and Classification of Exempt Employees
3. Properly Calculating Overtime Compensation for Non-Exempt Employees
Most employers understand that non-exempt employees are entitled to overtime compensation at a rate equal to one and one-half times their regular rates for all time worked in excess of 40 in any work week.
Fewer employers are aware that an employee’s “regular rate” does not automatically mean the employee’s hourly rate. If an employee’s compensation includes more than a straight hourly rate (e.g., commission earnings, bonuses, profit-sharing payments, etc.), the employer may need to include such compensation in the regular rate for overtime compensation purposes. Depending on the timing of these additional payments, the employer may even need to do a deferred overtime calculation.
Employers who pay non-exempt hourly employees more than simply an hourly wage should review their compensation plans to determine whether the FLSA allows such payments to be excluded from the regular rate. If not, the employer may need to include them in the regular rate or face liability for unpaid overtime compensation. Regular rate issues are ripe for class-based claims, as they typically are systemic and affect many employees.
4. Tracking and Compensating All Hours Worked by Non-Exempt Employees
Fewer non-exempt employees simply punch a time clock at the beginning of the work day and punch out at the end of the day. As mobile devices become ubiquitous, employers increasingly are expecting or allowing non-exempt employees to carry devices like Smartphones and check e-mail, voice mail, and texts remotely.
Many exempt employees struggle to remember a time when they did not constantly check e-mail and voice-mail messages before, during, and after the workday. As more non-exempt employees begin to adopt a similar lifestyle, the risk of liability for unpaid hours worked has grown.
Employers are liable to pay non-exempt employees for hours worked if they “knew or should have known” that they were working. Note that this test does not ask or care if the employer actually asked the employee to work.
Two important points here are:
- Employers who give non-exempt employees remote access to e-mail or voice mail should put in place procedures to track the time spent by employees using such tools outside their normal work hours.
- Travel by non-exempt employees and time spent at meetings or training outside normal work hours also may constitute compensable hours worked.
5. Proper Classification of Exempt Employees
Overtime exemption misclassification is one of the primary sources of wage and hour liability and class-based claims.
The rules of the game remain the same. Non-exempt treatment is the “default” status under the FLSA. To establish an exemption, the employer bears the burden of proving that the employee qualifies for the exemption. Courts and the U.S. Department of Labor interpret exemptions narrowly, and close calls generally go the employee in overtime compensation claims.
An employer may treat an employee as non-exempt and pay him/her overtime compensation, even if the employee could qualify for exempt status. The reverse is not true. An employer may not treat an employee as exempt if the employee does not meet the requirements of any of the exemptions.
Employers should review all employees treated as exempt, and ensure that they could legitimately prove one or more recognized exemptions in the event of a dispute. Simply paying an employee a salary is not sufficient to qualify the employee as exempt. The employer must be able to prove that the employee’s job duties meet the duties test for one of the recognized exemptions.
Contact my office at 610-627-1010 if you’d like to schedule a consultation to discuss any of these issues in more depth.