Overtime. Most of us understand the concept of "overtime" in the context of sports competitions. Most of us also understand the concept of "overtime" in the context of the workplace. While both concepts involve the workplace, the precise nature of the job can spell the difference in how two employees are treated. In the former, a professional player continues to play past regulation time but expects no extra pay for his extra effort; in the latter, a secretary devotes extra work hours to her employer to complete a job assignment and expects to be paid for her extra work. The critical difference in how "overtime" in the workplace is treated by an employer for each employee can spell the difference between complying with the law, or an employer's liability for failure to comply with the federal wage and hour laws, being investigated for violation of the federal law, or being sued by an individual employee or a class of employees for significant monetary damages. The Federal Labor Standards Act ("FLSA"), enacted in 1938 to prohibit employers from taking advantage of employees, sets a minimum wage and hour requirement and requires overtime pay for any "covered" "nonexempt" employee. The presumption under the statute is that covered employees generally are not exempt from the minimum wage and hour requirements, but there are specific statutory exemptions for certain categories of employees. The statute provides the tests that an employee must meet to qualify as a covered nonexempt employee.
Covered, Exempt and Nonexempt Employees
To comply with the law and avoid liability, the starting point is to distinguish who is covered and who is exempt and nonexempt. This difference can cause a lot of confusion for employers.
The first major question an employer must answer is whether it is considered a covered enterprise. All employees of certain enterprises whose workers are engaged in interstate commerce, reproducing goods for interstate commerce, or handling, selling or otherwise working on goods or materials that have moved in or are produced for such commerce, are covered by the FLSA. That is a broad mandate in today's mobile and interconnected economy. A covered enterprise is one that is subject to the following general criteria: the annual gross volume of sales made or business done is not less than $500,000.00, or it is engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, aged or mentally or physically disabled children, or an activity of a public agency. The annual gross volume of sales is the typical test that covers most businesses in the private sector. An enterprise not covered by these criteria is not subject to the FSLA. An enterprise that was covered by the FLSA on March 31, 1990 and that ceased to be covered because of the $500,000.00 test, is still subject to the overtime and record-keeping provisions of the FLSA.
The second major question an employer must consider is whether the employee is classified in an exempt or nonexempt status. To make that determination, an employee must satisfy a three-part test: salary level test (employees who are paid less than $23,600.00 per year are nonexempt); salary basis test (an employee who is paid on a non-salaried basis is nonexempt); and duties test (the FLSA excludes "management" activities in order to be nonexempt). Stated another way, an individual is an exempt employee if he is paid at least $23,600.00 per year, is paid on a salaried basis, and performs job duties that require judgment and discretion and operates at a higher level. Misclassification of employees can lead to damages for back pay and monetary penalties. The typical confusion for most employers usually occurs on the third part of the test. As a rule of thumb, exempt employees tend to perform relatively high-level duties with respect to the company's overall operations, regardless of job title. Exempt job duties normally fall into three main categories under the FLSA: executive, professional or administrative. Executive duties include supervising two or more employees, where the primary duty of the position is management and the individual has input into other employees' job status (hiring, firing, evaluation, assignment). Professional duties require advanced education and training involving use of discretion and judgment, and include lawyers, nurses, doctors and teachers. This exemption also includes creative professionals such as athletes, writers, journalists, musicians, but does not include skilled tradesmen or mechanical arts. Finally, administrative duties involve the support of the business, such as human resource, payroll and accounting managers, and similar duties that involve a higher level of work than simple clerical duties. The title of the employee is not dispositive.
While it may be easier to classify some employees as exempt based on the executive and professional duties performed, it is a more elusive and imprecise definition with respect to administrative duties, which is typically where "misclassification" occurs and liability for wage and hour claims arises. The FSLA regulations contain a list of typical "management" duties that require a case-by-case evaluation in determining how to classify a particular employee as an exempt employee. An employee may qualify as performing executive job duties even if the individual performs a variety of "regular" job duties as well. For instance, a night manager at a fast-food restaurant who prepares food and serves customers is still engaged in managing and supervising duties. Likewise, the FLSA regulations define exempt "administrative" job duties for those relatively high-level employees whose main job is to "help run the business." A buyer for a department store in charge of inventory, who exercises discretion and judgment, in addition to performing clerical duties, is considered exempt. The seemingly obvious exemption for "professional" duties is not always that straight forward. For instance the scientist, but not the technician, is exempt. The journalist, but not the commercial artist, is exempt. Each case requires careful analysis of the actual duties of the employees.
Minimum Wage, Overtime Pay and Record-Keeping
A covered nonexempt employee is entitled to receive the federally mandated minimum wage of $7.25 per hour for 2015. Most states, including Texas, have adopted the current federal minimum wage, although some states, and some locales within states, may impose a higher wage than the federal standard. See Texas Workforce Commission website www.twc.state.tx.us. For covered nonexempt employees who do not receive medical coverage, the wage rate is $8.25 per hour. For employees who earn tips, the pay schedule formula varies even further under FLSA rules, but the employee is still entitled to receive minimum wage. There are other variations that apply under the "youth minimum wage" for employees under twenty.
The law requires that nonexempt employees be paid for overtime time hours worked at a rate 1 ½ times their regular rate of pay. Overtime is defined as more than 40 hours worked in a work week. It requires significant record-keeping in order to ensure compliance with the law. Record-keeping of nonexempt employee hours and wages paid is critical and must be maintained. Record-keeping includes the hours and days in a work week, total hours worked, regular rate of pay, overtime hours, overtime paid, payment records and other similar documentation. The Wage and Hour Division of the U.S. Department of Labor will require an employer to produce these records in the event a complaint is filed. The definition of hours to include in calculating the regular work week and overtime often leads to confusion among employers. In general, "hours worked" includes all the time an employee must be on duty, or on the employer's premises or at any other prescribed phase of work.
Complaints, Retaliation and Enforcement
The Wage and Hour Division of the U.S. Department of Labor ("DOL") enforces the wage and hour requirements under the FLSA. A covered nonexempt employee has a right to file a complaint with DOL if he believes he is not being paid properly. Investigators will gather record-keeping data on wages, hours and other conditions of employment. Once a complaint is filed, the FLSA prohibits an employer from retaliating against a complaining employee or any employee who participates in or is involved in the investigation. A finding of retaliation may be made independently of the merits of the underlying wage and hour complaint. Violations of the statute can lead to serious monetary penalties. In addition to the recovery of back wages, the DOL may impose changes in the conditions of employment. Willful violations may be prosecuted criminally with fines up to $10,000.00, or even imprisonment for a second conviction. Employers who willfully or repeatedly violate the minimum wage and overtime requirements are subject to a civil monetary penalty up to $1,000.00 for each such violation. The statute also imposes a limitations period.
Some covered enterprises tend to draw the most scrutiny by DOL: hospitals, healthcare, restaurant and service industries, retail, manufacturing and food processing. Workers include healthcare workers, exotic dancers, truck drivers, sales representatives and misclassified employees. Typical claims include "off the clock" hours, "donning and doffing" claims, failure to pay PTO and vacation pay and similar benefits. In recent cases, the court judgments rendered for such violations have been in the millions of dollars.
Evaluation of Your Claim
To properly evaluate whether your business is a covered enterprise or whether you are dealing with exempt and nonexempt employees, or if your company is facing a wage and hour complaint, you should call Jose L. Gonzalez at Friedman & Feiger, LLP at 972-788-1400 or email him at firstname.lastname@example.org.