• Dispelling Common Myths About the FLSA's Overtime Requirements
  • August 31, 2009 | Author: Matthew R. Almand
  • Law Firms: Troutman Sanders LLP - Richmond Office; Troutman Sanders LLP - Atlanta Office
  • The Fair Labor Standards Act (FLSA) is a more complicated statute than most employers realize. Yet, rather than taking the time to educate themselves about the intricacies of this complicated statute, particular its overtime provisions, many employers are relying on common myths and misunderstandings that are circulating about the Act to justify their pay practices. As a result, according to the Department of Labor (DOL), a staggering 70% of employers are not in compliance with the FLSA. Many of these employers are finding themselves defending against a costly DOL investigation and/or collective action lawsuit and, therefore, are facing unexpected, unbudgeted financial (and even criminal) consequences. In fact, statistics show that FLSA collective actions are now filed more frequently than all other types of federal workplace class actions, including claims under the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act (Title VII), and the Employee Retirement Income Security Act (ERISA).

    Most employers understand the basic tenet of the FLSA that requires employers to pay nonexempt employees overtime compensation for any hours worked in excess of 40 hours per workweek. Nonetheless, the most common complaints brought under the FLSA continue to be for violations of its overtime requirements. In 2007, the DOL reported that overtime violations represented roughly 90 percent of all collected FLSA back wages. So why are employers still finding themselves out of compliance with the FLSA? Well, all too often, employers inadvertently violate the FLSA because of simple misunderstandings of how the law works. Here are just a few of the most common myths and misunderstandings that have recently been at issue in lawsuits brought against employers under the FLSA:

    • “Our employees are all paid on a salary basis, therefore they are not entitled to overtime.” Just because an employee is “salaried” does not mean that he or she is exempt under the FLSA! If an employer could avoid having to pay overtime by placing everyone on a salary, hourly workers would disappear overnight. It’s not that easy. An employer must show not only that it pays its exempt employees on a “salary basis” (as defined in the DOL regulations) of at least $455 per week (or $23,140.00 annually), but also that the job duties of these employees bring them within one of the several statutory exemptions (e.g., executive, administrative, professional, computer professional, outside sales, highly compensated employees, etc.). Which leads to the next common myth . . .
    • “As long as our employees are given the job title of ‘manager’ or given at least some supervisory responsibility, we can classify them as exempt employees.” Wrong! Just as an employer cannot rely solely on the method of compensation to determine whether a group of employees are exempt from the FLSA overtime provisions, an employer also cannot ignore the job duties tests associated with each statutory exemption. The job duties test for determining whether an employee qualifies for one of the exemptions is a fact-intensive inquiry that must be applied on an employee-by-employee basis. For example, just because one vice president at a company qualifies as exempt does not mean that all other vice presidents are also exempt. Likewise, merely placing the word “manager” in their job title, or even granting them some supervisory responsibility, does not automatically mean that employees in that job classification are exempt. Instead, an employer must look to the precise definitions provided by the regulations to determine the appropriate classification.
    • “Our employees all signed an agreement stating that they waived their right to receive overtime pay.” Guess what? Your agreement is unenforceable. In addition, you may have just made it much easier for a plaintiff’s attorney to prove that your company intended to willfully violate the FLSA. An employee may not waive his or her right to overtime pay.
    • “Our employees may be at work for 45 hours a week, but we dock 1 hour a day to account for meal periods and other breaks.” Many employers dock 30 or 60 minutes a day for the time that employees are presumed to be taking breaks. Big mistake! It is the employer’s burden to show how many hours an employee actually worked when defending a claim for overtime. If every employee in your workforce claimed that they worked through every meal break and rest period, yet you failed to track their time, you have a big problem. Make sure that you track your employees’ actual hours by having them clock in and out for breaks if necessary. Even where the job lends itself to allowing the employee to keep up with his or her own hours, it is nevertheless important for the employer to implement a system that holds the employee accountable for keeping accurate records.
    • “We don’t have to pay for overtime unless it was approved in advance.” There is nothing wrong with requiring employees to receive approval prior to working overtime, but overtime cannot be denied because they failed to do so. The FLSA makes no distinction between “approved” and “unapproved” overtime.
    • “We pay overtime, but we average our employees’ hours over two weeks.” Be careful with this one. Most employers pay their employees every two weeks, but for purposes of calculating overtime, the FLSA looks at each workweek in isolation and requires that overtime be paid for any hours worked in excess of 40 hours in a single workweek (some states like California impose even more restrictive overtime requirements). Thus, if an employee works 60 hours in one week, but doesn’t work at all the next week, you can’t average the two weeks together to arrive at 30 hours for each week. The employee should be paid for 20 hours of overtime in the first week. Also, the FLSA expressly forbids employers from manipulating the regular rate to avoid paying overtime to employees. Thus, it is unlawful for an employer to impose a fluctuating hourly rate that decreases as the number of hours worked – particularly those over 40 in a workweek – increases.
    • “The seminar that our employees attended last Saturday was ‘off-the-clock’, so we don’t need to pay overtime.” The FLSA requires employers to pay for any “hours worked,” which has a very broad meaning under the FLSA. In fact, “off-the-clock” cases have lately been some of the most prevalent FLSA cases filling the federal court dockets. This is because many employers do not realize that under certain circumstances they are required to compensate employees for time spent in training, work performed away from the employer’s premises, waiting time, traveling time, etc.
    • “We conducted a worker classification audit five years ago, so I’m sure we’re in compliance.” Your business is constantly changing and so is the law. In 2004, the DOL revised the regulations relating to the exemptions for executive, administrative, professional, computer professional, outside sales and highly compensated employees. Moreover, courts often disagree, and even change their minds, as to whether certain job duties bring a position within one of the statutory exemptions. Conducting regular audits ensures that your company is doing everything possible to comply with the law and, in the worst case scenario, can be used in your defense if you are ever accused of willfully violating the FLSA.

    Throughout the 1990s, the number of lawsuits filed under the FLSA hovered between 1,000 and 2,000 each year. By comparison, this number skyrocketed to approximately 4,400 in 2006. These statistics should be especially alarming in light of the penalties available for violating the FLSA. The most common penalties are damages to employees in the form of injunctive relief, back pay, prejudgment interest, attorneys’ fees, court costs and liquidated damages (sometimes called “double back pay”) for willful violations. However, did you know that the FLSA allows claims to proceed against individuals such as corporate officers and, in some cases, supervisors who willfully violate the Act? Or that the government has the ability to prosecute individuals and fine them up to $10,000 per violation, and that violators could face a prison sentence after a second conviction?

    To help ease your mind, the above-discussed myths and misunderstandings are easily avoidable. Now that you are aware of some of the common myths about overtime, make sure that your company is not among the 70% that are not in compliance with the FLSA.