Human Resources News & Insights

Pay and the FLSA: Avoiding 3 legal pitfalls

Tight times have caused many employers to cut overtime, salaries and work hours to stay afloat. That’s understandable — and legal. But those actions can bite you back if you don’t fully understand the trickier points of the law.

However, thanks to some guidance from the feds, adjusting pay and work schedules for exempt and non-exempt employees just got a little easier.

We’ve broken down all the government-speak and compiled this list of legal do’s and don’ts to help make sure your company stays safe.

What to avoid

Here are three common mistakes employers make:

Mistake #1. Considering everyone who’s paid a salary as an exempt employee. Just because an employee is paid a regular salary doesn’t make that person exempt from OT.

To be exempt, employees must:

  • be paid at least $455 per week
  • be paid on a salary basis, and
  • perform exempt job duties.

Note: There are three categories of exempt job duties — executive, administrative and professional.  For a breakdown of what’s included under these duties, click here.

Mistake #2. Giving non-exempt employees comp time instead of OT. Employers cannot award comp time instead of OT pay for non-exempt employees.

OT-eligible employees must always be paid one and one-half times their regular hourly wages for all hours worked beyond 40 in a workweek.

Mistake #3. Cutting exempt employees’ pay due to a lack of work. Generally, if an exempt employee is ready willing and able to perform his or her job, an employer can’t dock pay because business is slow.

Note: If an exempt employee does any work during a workweek, the person must receive his or her full salary.

However, there are two exceptions that allow employers to reduce exempt employees pay when business dies down:

  • If work is cut in full-week increments because there’s no work available. This usually occurs during holidays or common slow periods. But it’s important to announce the schedule as far in advance as possible so it doesn’t look like cuts are being made haphazardly.
  • If a formal short-week schedule is created. For example, it’s OK for employers to announce that for the four weeks in December, the company will be closed on Fridays and pay will be cut commensurately. But exempt employees must make at least $455 per week and receive advanced notice of the cuts.

Warning: Some state laws are tougher than federal laws when it comes to making these types of cuts. It’s always wise to check with your state department of labor to make sure your cost containment strategies don’t violate state law.

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  1. The first bullet point under “Mistake #1” reflects the FLSA requirement for an exempt person of at least $455 a week. If an employer is located in Califorania, is that employer supposed to adhere to California’s minimum requirement for exempt employee’s since it’s a higher minimum than the FLSA requirement? My understanding for California is that the minimum requirement is twice the minimum wage amount.

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