Overtime Confusion Reigns in the Digital Age

The Fair Labor standards Act (FLSA) establishes minimum wage, overtime pay, child labor standards, and record keeping procedures, and applies to employees in both the public and private sectors.

While the Act regulates basic minimum wage, overtime pay, and the employment of minors, there are certain employment practices not affected by the FLSA. These include: vacation, holiday, severance, or sick pay; premium pay for holidays or weekends; and fringe benefits.

The most widely recognizable provision of the FLSA is its overtime provision. Generally, employers are required to pay overtime pay at a rate of not less than 1.5 times an employee’s regular hourly rate after an employee works 40 hours in a workweek. The provision protects all “nonexempt” employees not enumerated among the many exceptions to the Act.

Among the exceptions to the Act, the most frequently applied are the executive, the professional, and the administrative exceptions.

An employee who has supervisory authority over other employees and is paid a salary (that is, not on an hourly basis) is considered to be an executive. A professional employee is generally an individual whose work is based on an advanced degree, such as a lawyer or doctor. The administrative exception is relatively narrow, limited to the confidential secretaries of certain executive-level employees.

Individual employees who fall into one of these three exceptions are “exempt” from overtime calculations.

The problems faced by both employers and employees with respect to the FLSA fall into two broad categories: (1) the designation of employees as “exempt” or “nonexempt” based on job responsibilities, in this age of self-directed work groups and a growing force of white-collar technology workers; and (2) the determination and calculation of overtime hours, which has been complicated by telecommuting and on-line employment.

Many employers feel that the test for determining which employees are exempt from the overtime provisions of the FLSA are outdated, and should include more employees. They argue that technology has increased the number of exempt employees because it has created a class of workers who are more self-directed and are more often making decisions that affect company strategy, thereby falling into the executive or professional classifications.

Conversely, employees argue that the provisions of the Act are not broad enough to cover the growing high-tech workforce, and that many employers are misclassifying salaried employees in computer-related jobs as professional simply because the employees work at a desk or are responsible for their own work hours.

The Act’s provisions regulating exempt/nonexempt designations have been in place since 1954, and clearly have been outgrown by the modern workplace. In a report released in 1999, the General Accounting Office recommended that the Department of Labor, which administers and enforces the FLSA, should revise its regulations to more appropriately reflect the modern workplace.

Unfortunately, given the disparity in the positions advanced by labor advocates and management representatives, comprehensive changes will be slow to develop.

The FLSA requires employers to keep records on hours worked for nonexempt employees, to assure appropriate payment for overtime work. One of the current areas of dissatisfaction with the FLSA is the lack of clear direction regarding records with respect to telecommuters, or other home-office based employees.

Without a consistent method for tracking hours worked by individuals based in locations other than company facilities, employers face liability for miscalculation or inadequate record-keeping, and employees face possible under-calculation of their overtime hours.

Under the FLSA, employees who are entitled to overtime pay must be compensated for overtime worked, even if the employer did not directly require that the work be done, so long as that employer knew or should have known that the work was being done.

For example, an employer was required to pay overtime and attorney fees where evidence indicated that the employer knew that a nonexempt employee had worked overtime, even though the employer denied direct knowledge of that overtime work. Cunningham v. Gibson Electric Co., 43 F. Supp. 965 (1999).

At a minimum, employers should be aware of the following issues:

1. An employer’s designation of an employee as “exempt” is not necessarily final, and may be subject to review by the Department of Labor if a formal complaint is made by the employee.

2. Once a salaried employee is designated as exempt from FLSA overtime provisions, the employer cannot deduct wages for absences (for tardiness or partial-day absence, for example). To do so could invalidate the employee’s exempt status.

3. Under the FLSA, the legal burden of recordkeeping falls to the employer. Employees should be instructed to report all time worked, including mealtimes if, in fact, an employee is required to work through lunch.

4. If training is required to fulfill job responsibilities, employers may be required to pay overtime if the training causes a nonexempt employee’s workweek to exceed 40 hours.

Employers are obligated to conform with the recordkeeping requirements of the Act. In order to avoid liability for FLSA recordkeeping violations, employers must inform employees of the importance of complete and contemporaneous time records, should be vigilant in confirming that such documentation is made and kept in the regular course of business.

Additionally, unless and until the FLSA is clarified and updated, employers must understand that not all knowledgeable and highly skilled employees are exempt from the Act. Designations should take into account the skills and training of the employee, along with a full assessment of the employee’s job responsibilities, wages, need for supervision, and any supervisory duties required in the position.