Question:

We just made the switch to an electronic timekeeping system for our nonexempt staff, and we’ll be rounding off hours worked, for pay purposes. Is there a rule about how to go about doing that?

Answer:

There is a rule, and it’s a bit complicated, says employment-law attorney Molly DiBianca.

Under the Fair Labor Standards Act, you’re allowed to round off workers hours as long as the rounding doesn’t always favor the employer. In other words, over the course of time, the rounding should average out.

Specifically, the FLSA permits rounding employees’ “starting and stopping times to the nearest five minutes, or to the nearest one-tenth or quarter of an hour.”

A suggested approach: Round up and down based on a set increment. So, for instance, if a worker reports in at 8:38, start pay at 8:45. But if a worker comes on at 8:37, start pay at 8:30.

A group of retail sales associates and supervisors just filed a lawsuit against their employer, T-Mobile USA, for back wages and unpaid OT.

They claimed they were required to use company-provided mobile devices to log into computer systems and respond to e-mail and text messages at “all hours of the day.”

The employees also alleged they were required to answer and make work-related phone calls, participate in conference calls and work off the clock during lunch breaks.

Does every minute count?

The Fair Labor Standards Act does make an exception — saying companies aren’t required to pay employees for these types of activities as long as the time spent performing them is de minimis. But the court will decide if that applies in this case.

One way to protect your company from these claims: Make sure your company has an “off-the-clock” policy requiring non-exempt employees to report all work time — no matter when it’s done.

Cite: Agui v. T-Mobile USA.

Cutting salaries and adjusting work schedules for exempt and non-exempt employees just got easier, thanks to the Department of Labor.

The agency just answered the most frequently asked questions that have arisen when employers require employees to take furloughs and take reductions in pay and/or hours worked.

Here’s how to safely handle the six biggest challenges employers face:

Exempt employees

Q. Can an employer reduce an exempt employee’s salary due to a slowdown in business?

A. Yes. There’s nothing prohibiting employers from reducing salary, provided the change is not used to evade the salary basis requirements.

A salary reduction won’t cause a loss of exemption as long as it’s not related to the quantity or quality of work performed and the employee still receives a salary of at least $455 per week.

Caution: Deductions based on day-to-day or week-to-week determinations of work load are not allowed and would cause a loss of exemption.

In other words, reductions must reflect long-term business needs, not short-term goals.

Q. Can an employer reduce the leave of a salaried exempt employee when there’s an absence due to a lack of work?

A. Yes. If an employer directs an exempt employee to take a day off because of a lack of work, the employer can reduce the employee’s accrued leave (or run a negative leave balance), even if the absence is less than a full day.

The employee must still be paid his or her full salary in any week in which work is performed, even if the employee has no leave left.

Q. Can a salaried exempt employee volunteer to take time off work due to a lack of work?

A. Yes — and salary deductions can be made if an employee takes time off. But the employer must seek volunteers to take time off due to insufficient work, and the employee must volunteer to take time off for personal reasons other than sickness or disability.

Caution: To avoid a loss of exemption, the employee’s decision must be completely voluntary.

Non-exempt employees

Q. If an employer is having trouble meeting payroll, does it need to pay non-exempt employees on the regular payday?

A. Yes. Failure to do so constitutes a violation of the Fair Labor Standards Act (FLSA).

However, if the correct amount of overtime compensation can’t be determined until sometime after the regular pay period, FLSA will be satisfied if it’s paid as soon after the pay period as is practicable.

Q. Is it legal for an employer to reduce the wages or number of hours of an hourly employee?

A. Yes. The FLSA doesn’t prohibit employers from reducing the number of hours non-exempt employees are scheduled to work or lowering their regular hourly rate, as long as they are paid the minimum wage.

Q. Does an employer need to pay an hourly employee for a full day of work if he or she was scheduled for a full day but only worked a partial day due to a lack of work?

A. No. The FLSA doesn’t require employers to pay non-exempt employees for hours they didn’t work.

Info: Click here to view the DOL’s entire FAQ document on furloughs and pay reductions.

That’s what the courts are attempting to determine in a case involving three execs of the now-defunct Castaways Hotel, Casino and Bowling Center.

Here’s what happened:

After Castaways Hotel, Casino and Bowling Center filed for Chapter 11 bankruptcy, three former workers personally sued three Castaways managers (the chairman and CEO, the CFO and a third manager) for unpaid wages.

The three former employees filed a class action lawsuit on behalf of all Castaways’ employees who weren’t paid due wages under state and federal law.

A Federal Court of Appeals ruled that the managers did fit the FLSA definition of “employer” and, under that definition, they are required to pay the employees  their due wages.

The case has been remanded to a trial court for further proceedings. We’ll keep you posted on the outcome.

As a rule of thumb, FLSA doesn’t permit deductions from exempt employees. The regs state that the amount of money a salaried employee earns can’t be dependent on the number of days or hours he or she works. You also can’t deduct money based on the quantity or quality of work the employee produces.

But – no surprise here – there are several exceptions. What happens if your company accidentally makes an improper deduction? Nothing, so long as it’s an isolated incident and the company corrects it. But if there are repeat violations, entire departments of exempt workers can suddenly transform into OT-eligible ones by the magical powers of FLSA.

Permitted and prohibited deductions

Courts have said it’s legal to deduct pay from a salaried employee for any of the following reasons:

• Disciplinary suspensions. Unpaid disciplinary suspensions of one or more days may be imposed for salaried employees who violate workplace rules. The catch: Your company must have a written disciplinary policy that’s applied to all employees (e.g., sexual harassment) in order to legally dock someone’s pay.

• Offset jury fees or military pay. While an employer can’t dock pay for jury duty or temporary military leave, it’s OK to deduct the amount the employee receives as jury duty or military pay (although you’ll likely end up with a ticked-off employee and it’s rarely worthwhile financially to make the deduction), and

• Partial first or last week pay. You’re not required to pay an exempt staffers’ full-week salary in the first or last week of employment, unless the staffer worked the entire week.

Red flags

On the flip side, the following deductions are FLSA red flags These deductions can make a formerly exempt employee eligible to collect overtime:

• Business trips. You can’t deduct salary (or run the clock on paid time off benefits) for absences related to business trips, and

• Lack of work. If an exempt employee is ready, willing and able to work, you can’t deduct money for slow times when there’s little or no work assigned.

DOL recently issued a document — “Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues” — that’s designed to guide employers around the FLSA hassles associated with cutting a workforce or lowering wages.

Some of the issues covered:

• Q: If we’re having trouble meeting payroll, do we need to pay nonexempt employees on the regular payday?
  In general, an employer must pay covered nonexempt employees the full minimum wage and any statutory overtime due on the regularly scheduled pay day for the workweek in question. Failure to do so constitutes a violation of the FLSA. When the correct amount of overtime compensation cannot be determined until sometime after the regular pay period, however, the requirements of the FLSA will be satisfied if the employer pays the excess overtime compensation as soon after the regular pay period as is practicable.
• Q: Is it legal for an us to reduce the wages or number of hours of an hourly employee?
  The FLSA requires that all covered nonexempt employees receive at least the applicable Federal minimum wage for all hours worked. In a week in which employees work overtime, they must receive their regular rate of pay and overtime pay at a rate not less than one and one-half times the regular rate of pay for all overtime hours. The Act does not preclude an employer from lowering an employee’s hourly rate, provided the rate paid is at least the minimum wage, or from reducing the number of hours the employee is scheduled to work.
• Q: Do we need to pay an hourly employee for a full day of work if he or she was scheduled for a full day but only worked a partial day due to lack of work?
  The FLSA does not require employers to pay non-exempt employees for hours they did not work.
• Q: In general, can we reduce an otherwise exempt employee’s salary due to a slowdown in business?
  Reductions in the predetermined salary of an employee who is exempt under Part 541 of the Department of Labor’s regulations will ordinarily cause a loss of the exemption. Such an employee must then be paid at least the minimum wage and overtime required by the FLSA, as discussed above. In some circumstances, however, a prospective reduction in salary may not cause a loss of the exemption.  Section 13(a)(1) of the FLSA exempts from minimum wage and overtime pay “any employee employed in a bona fide executive, administrative, or professional capacity” as defined in 29 C.F.R. 541. An employee qualifies for exemption if the duties and salary tests are met. FLSA section 13(a)(1) requires payment of at least $455 per week on a “salary” basis for those employed as exempt executive, administrative, or professional employees.
  A salary is a predetermined amount constituting all or part of the employee’s compensation, which is not subject to reduction because of variations in the quality or quantity of the work performed.
  An employer must pay an exempt employee the full predetermined salary amount “free and clear” for any week in which the employee performs any work without regard to the number of days or hours worked. However, there is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek. Deductions may not be made from the employee’s predetermined salary for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. Salary deductions are generally not permissible if the employee works less than a full day. Except for certain limited exceptions found in 29 C.F.R. 541.602(b)(1)-(7), salary deductions result in loss of the section 13(a)(1) exemption.

To see the full document, in PDF format, and all 11 FLSA-related FAQs, go here.

You’re not imagining things if it seems like you read about more pay-related employee lawsuits and court awards than ever before.  

When the feds changed FLSA’s overtime rules, some experts said fears of a lawsuit explosion were unfounded. But there’s been a 77% rise in FLSA lawsuits tied to wage-and-hour disputes since 2004, according to the National Employment Lawyers’ Association.

Also, over the same period, there’s been an 11% increase in wage- and-hour enforcement actions by the DOL.  Here are the biggest problem areas to watch for:

• unpaid or underpaid overtime due to alleged job misclassification
• requiring employees to use their own money for company purposes (e.g., employees must buy their own uniform or equipment), and
• supervisors who fudge time reports.

Another factor: High-profile lawsuits against big companies – including Wal-Mart, Pep Boys and Dollar General – have brought attention to FLSA regs and have spurred copycat suits against smaller employers who’ve employed similar practices.

To date,  retail giant Wal-Mart Stores has paid an estimated $640 million to settle dozens of wage-and-hour lawsuits across the nation that accused the world’s largest retailer of forcing hourly-wage employees to work through breaks and off the clock.

Regardless of the business you’re in or your personal opinion of Wal-Mart’s pay and benefits policies, the company’s legal problems offer you an opportunity to grab the attention of supervisors and senior management to get serious about FLSA compliance.

Here are two key take-aways to hammer home in management training:

1. FLSA compliance starts upstairs

Unless senior management and supervisors in your organization realize that no firm is immune from OT lawsuits, there’s little you can do to safeguard the company from costly errors.

That’s because many OT payment errors stem from firms using outdated record-keeping systems that’ll take time and money to correct. It’s unfair for anyone to expect you – or Payroll – to singlehandedly find and fix every possible calculation glitch.

In the end, taking the time to review and upgrade your record-keeping system more than pays for itself compared to the risk of FLSA violations.

Roughly 85% of the U.S. workforce is OT-eligible. And since 2004, employers have had to pay out $1.5 billion in OT lawsuits. It hasn’t just been the Wal-Marts and Smith-Barneys that’ve been targeted, either. Small firms also get nabbed.

2. Start with record-keeping systems

By far, the biggest mistake employers of all sizes make is to over-rely on time cards or time sheets to record the hours worked by their non-exempt employees.

FLSA also requires employers to record (and pay any related OT for) certain off-the-clock work activities. These errors can occur either on the front or back end of your firm’s compensation system.

The biggest front-end danger area: FLSA requires employers to track and pay for time non-exempt employees spend logging onto computers or donning safety equipment. Another common slip-up: lack of a tracking system for work-related travel time by non-exempts.

On the back end of record keeping, FLSA requires your company to track total compensation (not just base pay) when calculating overtime rates. This includes bonuses, money from PTO buy-backs, wellness incentives with monetary value and other forms of compensation.

In an audit by the Justice Department, it was discovered that U.S. taxpayers were billed an average of $45,000  in overtime and extra pay for each FBI agent posted to Iraq between 2003 and 2007.

Dealing with sniper fire and mortar blast might make those amounts seem seriously low-balled, but the Justice Department’s audit found over $7.8 million of those wages were improperly billed.

Several agents noted they’d spent time during the week washing clothes — and they included those hours in their overtime requests. When asked whether agents should be paid for such activities, one agent said, “When you’re in that environment, anything you do to survive is work for the FBI.”

Other agents claimed they should be paid for important “liaison” meetings — which turned out to be regular Saturday night cocktail parties. In another case, dozens of agents claimed they were preparing evidence for Saddam Hussein’s court trial when they were taking part in a massive poker tournament.

The report also noted some misused overtime and extra pay allowances in Afghanistan and with agents in the Drug Enforcement Administration and U.S. Marshals Service, but those cases were far less severe.

Question
We have told our employees that overtime must be pre-approved. However, we still have some people who get in early or stay a little late each day, amounting to an hour or two of overtime per week.

Can we avoid paying overtime in those situations if employees didn’t get it pre-approved?

Answer
If employees work overtime, they must be paid for overtime, even if the overtime is unapproved and against company policy, according to Jane Dalton, an employment lawyer at Duane Morris LLP.

She suggests that you:
1. Reannounce your policy. Warn employees they will be disciplined up to and including discharge for violating the policy that overtime is not to be worked unless it is approved in advance. Then have supervisors follow through with discipline for infractions.

2. Instruct supervisors to keep track of time worked. If someone comes in early or leaves late and is working during that time, the supervisor can reduce the hours later in the same week. Otherwise overtime must be paid.

Wage and hour lawsuits are cropping up by the dozens these days — even in industries you’d least suspect.

Four female workers filed a suit against their company, claiming they were denied overtime pay.

Nothing out of the ordinary here — except that the employees were exotic dancers at clubs that offered “topless” or “totally nude entertainment.”

The nightclub said it didn’t have to pay the strippers overtime or minimum wage because their work fell under the “creative professional” exemption of the Fair Labor Standards Act. In other words, the company claimed the dancers’ primary duty was “the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”

That would be the “artistic endeavor” of dancing with no clothes on.

The dancers, on the other hand, were not so quick to identify their craft as art and sued for back wages.

Where did the court stand on this debate? Unfortunately, we won’t know just yet. Before the case could be heard, the judge dismissed it.

Why? The strippers filed the suit pseudonymously under the name “4 Exotic Dancers” — and the judge wouldn’t let the case proceed until the strippers publicly identified themselves.

The dancers were afraid they’d be retaliated against by the nightclubs they were suing in the form of harassment, termination and blacklisting. They also felt they’d be stigmatized if their identities were revealed publicly.

Courts do occasionally allow plaintiffs to testify under pseudonyms if it’s necessary to protect the person from injury or harassment.

Tough luck for the exotic dancers though — the court said that even though the strippers may “suffer some embarrassment or economic harm,” it’s not enough to warrant pseudonymity here. If they wish to file again, they’ll have to do it under their real names.

Still, what’s the lesson from this titillating case? Double-check who you’re classifying as exempt or non-exempt — problems can crop up where you least expect.

Cite: 4 Exotic Dancers v. Spearmint Rhino, et al., U.S. Dist. Ct. C.D. Cal, No. CV 08-4038 ABC (SSx)