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work week

Employers trying to find alternatives to the traditional 9-to-5, 40 hour work week may want to consider a fluctuating work week schedule. A fluctuating work week schedule may lessen the financial burdens of personnel who are not exempt from overtime pay requirements. It may also increase productivity and enhance work/life balance, while meeting the operational needs of the office.

Administrative personnel and office workers are generally non-exempt employees, as defined by the Fair Labor Standards Act (“FLSA”), earning overtime at one and one-half times their regular rate of pay. The FLSA sets the standard work week at 40 hours. Employers are required to pay non-exempt employees no less than 1.5 times their regular rate of pay for hours worked in excess of 40 hours. However, there is an exception allowed to employers properly utilizing a fluctuating work week as an alternative method of satisfying the FLSA’s overtime pay requirement.

To take advantage of the fluctuating work week exception, specific conditions must be met. An employee employed on a salary basis may have hours of work which may change from week to week and the salary may be paid pursuant to an understanding with the employer that the employee will receive a fixed amount as straight time pay based upon the hours called upon to work in a particular work week.   Importantly, this arrangement must be previously agreed to by the employee. It cannot be claimed after the fact. It should be in writing and included in a written employee manual or policy. The amount of the salary must be sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those work weeks in which the number of hours worked is the greatest. For overtime hours, the employee should receive additional compensation beyond the fixed salary at a rate not less than 1.5 times the regular rate of pay. Currently, minimum wage is set at $7.25 an hour.

For example, an office worker has a fixed weekly salary of $500.00 and works 55 hours in a single workweek. Under the fluctuating work week exception, the employer must divide the $500.00 fixed salary by the 55 hours worked to determine the regular hourly rate of pay for that work week, or $9.09 an hour. In this example, the office worker actually earned $9.09 an hour straight time rate for all the hours including the hours worked in excess of forty (40) hours. To comply with the fluctuating work week exception, the employer must also pay the employee the .50 time rate for all hours worked in excess of 40. In this example, the amount of overtime hours worked is 15. Note that the overtime rate is a “time and a half rate” and the employee in this example has already received the “time rate” and is now due the “half rate” for the overtime hours worked in excess of 40. So, the employer divides the $9.09 rate in half ($4.55 an hour) and then multiplies the half rate by the 15 overtime hours worked, or $68.25 ($4.55 an hour x 15 hours = $68.25). The employer then pays the employee an additional $68.25 gross wage for the 15 hours overtime worked in the work week for a total gross wage of $568.25.
It is important to always remember that that the regular rate of pay calculation can go all the way down to the minimum wage ($7.25), but no lower. Also, the additional half-time pay cannot be included as part of the fixed salary and must be paid for all hours in excess of 40 that are worked in any week.   Continuing with the example of a fixed salary of $500.00 a week, in order to qualify for the fluctuating work week exception, the most the employee can work in any particular week is 68 hours ($500.00 divided by $7.25 an hour = 68.96 hours). Care must be taken not to set the fixed salary and/or the number of hours which can be worked in a particular week to produce a regular rate below the federal minimum wage.

Proper use of the fluctuating work week exception may be a good way to provide a benefit to employees and reduce an employer’s risk of extensive overtime pay. Care has to be taken that all provisions of the fluctuating work week exception are followed and include written policies which evidence a clear understanding between the employer and employee that this method of compensation is being used. Finally, never allow the fixed pay rate and/or the weekly hours worked reduce the employee’s regular pay rate below the federal minimum wage.

Special thanks are due to Hugh Coleman for his contributions to this article

Scott Alagood is board certified in Residential and Commercial Real Estate Law by the Texas Board of Legal Specialization and can be reached at alagood@dentonlaw.com and www.dentonlaw.com.

 

OvertimeOverhead.  It’s a challenge facing employers and employees.  For many businesses, labor cost is the single greatest overhead expense.  Unfortunately, many employers try cutting corners that they should not, in particular in the area of overtime wages.  The Fair Labor Standards Act (or FLSA) is a federal labor law that requires employers to pay overtime compensation (at time-and-a-half) to employees who are not exempt under the Act for all hours worked over a prescribed threshold period (typically, 40 hours per week).  Most employees are non-exempt, meaning that they are entitled to overtime pay.  The most common exceptions to this rule involve some administrative, executive and professional employees, computer professionals, outside sales employees, and certain retail employees.  Liability exists under the FLSA even for unintentional violations.

But what if a business only employs a few people?  Is the business exempt from paying overtime?  The answer is no. Unlike many other federal laws, the FSLA does not depend upon the number of persons employed.  Instead, the FLSA covers businesses engaged in commerce or in the production of goods for commerce (i.e., handling, selling, or otherwise working, on goods or materials that have been moved in or produced for commerce).  The FLSA’s coverage is very broad, and the courts typically interpret it that way.

But what about salaried managers and individuals that have really important sounding, executive job titles?  Are they exempt?  If the manager’s/executive’s salary is less than $100,000.00, then the inquiry typically focuses on the nature of the job and how the employee performs it.  For example, if the employee cannot hire or fire other employees, or does not regularly direct the work of at least 2 employees, overtime must usually be paid.

But what about salaried employees?  Does overtime get factored into their pay?  The answer is typically yes, in most instances overtime is still required.

Is it acceptable for an employer to get around overtime by allowing the employee to volunteer their time?  No.  The FLSA does not recognize “voluntary unpaid overtime” or “donated time” as legitimate exceptions to avoid paying overtime.

What about a signed, written agreement with the employee waiving any claim they might have to overtime?  Is that acceptable?  Under the FLSA, such agreements are null, void and completely unenforceable.

Is comp time an acceptable alternative to paying overtime?  For a governmental employer, probably so.  In the private sector, comp time is generally not permissible.  It should be noted that a private employer may adjust an employee’s schedule within the same week to ensure that their total hours worked do not exceed 40 hours.  However, overtime hours may not be averaged out over a longer period of time except in exceedingly narrow cases of certain employees of residential care facilities.   Otherwise, any overtime worked within a workweek must be paid for that workweek.

Is overtime required to be paid to an independent contractor?  If a worker is truly an independent contractor, then overtime may be avoided.  The problem is that too often employers get cute, slap an independent contractor label on the worker, but then treat them as if they are employees.  If workers are truly employees, regardless of the title they hold, and if they work more than 40 hours in a workweek, the employer must pay the worker overtime pay if they do not qualify for an overtime exemption.  There is no way to contract around that.  There is no piece of paper and no amount of explanation that will overcome the finding of an employment relationship if the Department of Labor or the IRS, or a state employment security agency, determines that an employer/employee relationship exists.  For this reason, employers must be very familiar with the various tests for determining whether a worker is an employee or an independent contractor.  The controlling factor is whether the employer controls the details of how the person’s services are performed.

At the end of the day, uncertainly under the FLSA can cause serious problems.  Court’s may award an affected employee damages, including unpaid base wages, overtime pay (at time-and-a-half), liquidated damages of an amount equal to all of the employee’s unpaid wages and overtime pay, attorney’s fees, and court costs.  So for both employers and employees, care should be taken to make sure that the FLSA is followed and overtime is paid where required.

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