Misconceptions About the FLSA
Many employers operate with certain misconceptions regarding the applicability and provisions of the Fair Labor Standards Act (“FLSA”). These misconceptions can result in significant liability for back pay, liquidated damages and attorneys’ fees and costs. Here are some of those misconceptions.
“Our business is too small to be covered by the law.”
Many employment laws apply only to businesses which employ a minimum number of employees – such as Title VII, the ADEA, the ADA and the FMLA. This is not the case with the FLSA. The FLSA covers individual employees whose work affects interstate commerce (“individual coverage”), or it can apply to all employees working for an employer that is an enterprise engaged in interstate commerce (“enterprise coverage”). The Department of Labor and courts have broadly interpreted individual and enterprise coverage under the FLSA. For example, businesses that order supplies or materials from out-of-state vendors, or who sell to out-of-state customers, are assumed to be involved in interstate commerce. Also, businesses situated along interstate highways are assumed to be involved in interstate commerce, simply because they can easily get customers from out-of-state. The bottom line is that virtually all businesses are covered by the FLSA. In addition, many states, including Colorado, have state laws with provisions similar to the FLSA that apply to all businesses (unless specifically exempted).
“Our employees are not entitled to overtime because they are salaried.”
A common misconception is that, if an employee is paid a salary or called “exempt,” he or she is not entitled to overtime pay. As a result, some employers fail to pay employees overtime based upon their “salaried” status – regardless of the duties they perform. Simply because an employee is paid on a salaried basis does not mean the employee is exempt from overtime. Instead, the employee must meet specific criteria, established by law, to be considered exempt.
“Our Company pays employees a salary that covers both regular and overtime hours.”
Some employers understand that employees are non-exempt and entitled to overtime, but assume that the employees can be paid a fixed salary that covers regular and overtime hours. This assumption is incorrect. Regardless of the amount of the salary, and regardless of whether the employee agrees to this arrangement, the Department of Labor and courts will find that the employer owes extra overtime pay, since the salary at most can cover only straight-time pay for all hours worked. The salary will help set the “regular rate of pay” for all straight-time hours worked, and any overtime hours will be paid at one and one-half the regular rate of pay. There are some overtime pay methods that give the appearance of a set salary covering regular and overtime pay, but those are subject to strict requirements and may be used in only limited circumstances. Employers are strongly encouraged to consult with counsel in developing any such pay program.
“Our Company does not authorize overtime – any extra work is unauthorized or voluntary.”
Some businesses assume that, unless they expressly authorize overtime, employees are not entitled to payment for it, even if the business knows that it is happening. Some employers rationalize that an employee is working overtime only because he or she was not productive during regular working hours. These assumptions and rationalizations, however, are wrong. There is no such thing as voluntary overtime. An employee may not waive the right to overtime pay for hours worked. Under the DOL’s regulations, any agreement to waive the right to overtime pay is null and void unless approved by the DOL.
“Our business compensates employees for overtime hours by providing time off.”
Under the FLSA, a non-exempt employee is entitled to one and one-half times the employee’s regular hourly rate for overtime hours. Some employers and even employees would prefer “time off” in lieu of overtime pay. While this arrangement may be acceptable in the public sector, is it impermissible for private companies to compensate employees for overtime hours by giving them time off. Any overtime worked within a workweek must be paid for that workweek. A private company may, however, avoid overtime pay by giving an employee time off during a workweek so he or she does not work more than forty (40) hours.
“Our workers are independent contractors and, therefore, not entitled to overtime.”
Some businesses classify workers as “independent contractors” and, therefore, assume that they are not entitled to overtime pay. A worker is not an independent contractor, however, simply because an employer has classified the worker as an independent contractor or entered into an “independent contractor” agreement with the worker. Instead, independent contractor status depends upon the nature of the work performed by the employee and control exerted by the employer over the work.
“Overtime pay needs only be calculated using an employee’s hourly rate of pay.”
Under the FLSA, an employer must pay overtime at the rate of one and one-half times the employee’s regular rate of pay. The regular rate of pay, however, may be different than the employee’s hourly rate. An employer’s regular rate of pay should be calculated by diving the total pay for employment (without amounts excluded by statute) in any workweek by the total number of hours actually worked. So, for example, the “regular rate of pay” would include the hourly rate of pay and any commissions paid in the workweek.
“An employer need not include rest breaks in calculating overtime hours.”
Rest breaks are considered hours worked and therefore must be paid and included when determining overtime. The Department of Labor defines a rest break as any non-work period lasting 20 minutes or less. Bona fide meal periods, on the other hand, are not considered work hours and need not be included in determining an employee’s work hours for overtime pay calculation purposes. States may have slightly different rules and regulations relating to rest breaks and overtime periods that must also be followed.
“Our business deducts cash shortages, uniforms and lost equipment from overtime pay.”
Employers are prohibited from making any deduction that would reduce an employee’s overtime pay. In certain circumstances, deductions are permitted to be made to non-exempt employee’s regular wages to the extent that the employee still receives at least the minimum wage for all hours worked – but in no case may such deductions cut into overtime pay.
COMPLIANCE AND LITIGATION ASSISTANCE AVAILABLE
More detailed information about the FLSA, including copies of explanatory brochures and regulatory and interpretative materials, is available from the Department of Labor or the Denver labor and employment attorneys at Baird Quinn LLC. Baird Quinn LLC’s Colorado FLSA Lawyers are also available to assist clients in evaluating wage and hour issues, and litigation. You may obtain additional information about Baird Quinn’s Denver wage and hour lawyers at the following link. Contact Us