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Big overhaul of overtime and wage law may be coming

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in Human Resources

That little old law that employers love to hate may be in for a shake-up, one that you just might enjoy.

Political winds seem to be blowing strong enough, and in the right direction, to make long-needed improvements to the Fair Labor Standards Act (FLSA).

Business groups say the FLSA, enacted in 1938, is too complex and no longer relevant to the workplace. Here's a look at the issues Congress may tackle this year and the continuing problems employers face in trying to comply with the law.

Comp time

Only public-sector employees now have the option to choose compensatory time off instead of overtime pay, but a push to extend that right to the private sector has a good chance of passing.

Just as with cash payments for overtime, public workers who have this benefit are entitled to an hour and a half of comp-time off for every hour of overtime worked.

The Labor Department and several courts say current law allows comp time for private sector employees who are exempt from the overtime law. But applying this can be tricky. If you give an hour of comp time for every hour of overtime worked, the employee begins to look like an hourly worker and you may lose the exemption.

Exemption rules

Look for the Labor Department this year to take a crack at updating the rules governing who is exempt from overtime, specifically, the definitions for executive, administrative and professional workers.

The exemption rules have been on Labor's review agenda for a while, and the General Accounting Office agrees that the standards are out of date. If you worry that you're misclassifying workers, you're not alone. It's one of employers' biggest FLSA-related mistakes.

The bottom line: You can't rely on job titles and earnings alone to decide if a worker is exempt from overtime. You must take time to analyze the actual work being performed.

Even if you properly classify a worker, you can lose the exemption from overtime if you fiddle with his weekly salary.

In any week an exempt employee performs any work, he must receive his full salary. You may, however, require him to draw from leave time, which doesn't change his salary.

Bonuses for hourly staff

Under current law, if you want to give a bonus to an hourly worker, you often have to include the bonus amount in his "regular rate of pay" when calculating his overtime rate. There's one exception to this rule that applies only to discretionary bonuses, and business groups want to extend the exemption to all such bonuses.

To qualify for the exemption now, a bonus must be totally at the discretion of the employer. If you've promised a bonus to a worker based on whether he meets a certain quota or standard, that isn't discretionary and, under current law, must be counted in calculating overtime rates.

Multiweek overtime

Federal law requires you to calculate overtime based on a single workweek, defined as a fixed 168-hour period. Employers want to be able to pay overtime based on a multiweek period, say, after 80 hours over two weeks.

Example: An employee who puts in 30 hours one week and 50 the second week no longer would be entitled to 10 hours of overtime pay for the second week.

Even if Congress doesn't make this change, you still have ways to rein in overtime costs using fluctuating workweeks.

For example, federal law doesn't require a workweek to start on Sunday or Monday morning. Some companies have found a way to grant workers every other Friday off without extra overtime costs by starting the workweek at midday on Friday.

You also may set an agreement with a worker who is not exempt from overtime to pay a salary for fluctuating workweeks. The base salary would be the same whether she worked 40 hours or 50, but overtime can then be calculated at half the regular rate, a system that can net significant savings for the employer.

One note of warning: No matter what changes may occur at the federal level, your state may have further restrictions and mandates. It pays to check.


Get educated: 3 FLSA resources


  • To request our free, two-page checklist, Exempt vs. Nonexempt:




  • Where to Draw the Line, call us at (800) 543-2055 or send an e-mail to customer@nibm.net with "Exempt vs. Nonexempt" in the subject line.



  • The U.S. Labor Department's Web site offers details on how to comply with the FLSA, including a breakdown of each state's wage and hour law. Visit www.elaws.dol.gov/flsa.



  • Our newest book, You and the FLSA, lays out your wage-and-hour responsibilities in easy-to-understand language. Cost: $29.95. To order, call (800) 543-2055 or visit www.nibm.net.


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