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Fair Labor Standards Act: The basics of compliance

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in Compensation and Benefits,Employment Law,Human Resources

THE LAW: The Fair Labor Standards Act (FLSA) sets strict rules for how you pay employees, including setting a minimum wage and overtime. The basic concept is straightforward: You must pay employees for every hour they’re on duty, whether they’re actively working or not.

You must pay them at least the federal minimum wage (see box below) unless your state or local law provides for a higher minimum wage. And you must pay hourly workers overtime if they work more than 40 hours in a workweek.

The FLSA also allows employers to pay certain employees a set salary, instead of on an hourly basis. Salaried (exempt) employees don’t earn overtime pay no matter how many hours they work in a pay period.

So far, it all seems straightforward. But it isn’t. In fact, the FLSA is probably the most complicated of all the federal employment laws—and the most dangerous for employers. Adding to the problem is personal liability. If you make a mistake, both your organization and you personally can be held liable for unpaid wages, plus penalties.

WHAT’S NEW: Employees who think their employer has shortchanged them when it comes to minimum wage, overtime or exempt status can complain to the U.S. Labor Department’s Wage and Hour Division (www.dol.gov/esa/whd). The department will investigate. When it does, it will likely audit more than just the complaining employee’s wage payments—it’ll look at everyone in that employee’s classification. Or, worse, it will audit your entire work force.

You’re not innocent until proven guilty: The burden is on the employer to produce records to prove it paid hourly employees for every hour they worked. Plus, you’ll have to justify why you classified some employees as exempt by showing which exemption category the employee fit into.

Recently, the Wage and Hour Division has gone after employers aggressively, collecting millions in unpaid overtime and wages.

Plus, the number of FLSA-related private lawsuits and class-actions has jumped in recent years, especially since Labor’s 2004 effort to “clarify” the exemption categories.

HOW TO COMPLY: Prepare now to ward off (or defend) an investigation or FLSA lawsuit. You should be ready to substantiate how you calculated each and every employee’s exemption status, plus how many hours each employee worked and what you paid that employee. Issues to be aware of include:

Exempt or nonexempt? There are two basic requirements you must meet before you classify an employee as exempt: 1) You must pay the employee a set salary (regardless of how many hours he or she works in a pay period), and 2) the employee must fit into one of several categories designated by the Labor Department as “exempt.”  Exempt employees are typically “white collar” workers or outside sales employees. (Look for details on making the exempt/nonexempt decision in our September issue.)

Hours worked. You must pay hourly employees for all the time they worked. Sound simple? It isn’t. For example, you don’t have to pay for basic commuting time. But if the employee makes any work-related stop along the way, the pay clock starts ticking.

Pay employees for time worked, even if you didn’t ask them to work. Avoid asking them to perform even small amounts of work after they clock out. Off-the-clock work has been the focus of many class-action suits in recent years.

Break time/lunch time. Federal law says that if you give employees a break of 20 minutes or less, you must continue to pay them. If you provide a meal break of 30 minutes or more, then no pay is due even if the employee stays at his or her workstation (as long as the employee is completely relieved of his or her duties). But if the employee answers the phone or continues working while eating, it’s paid time.

Training time. If employees attend mandatory training sessions, you must pay for the time. The same goes for doing charitable work at the company’s request and attending work meetings.

Record-keeping: You must keep accurate and well-organized records, using any time-keeping method you choose, including letting employees keep track of their own time. For various reasons (including accuracy), that’s not recommended. The best method is to use a time clock to capture all hours worked.

In fact, it’s a good idea to record everyone’s time, even exempt employees. That way, if the government later says you misclassified the employee, you’ll have records to show how many hours he or she actually worked. Otherwise, the feds may take the employee’s (inflated) word over yours.

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