PROFESSIONAL SERVICES: Wage and hour laws – rules of engagement

Most employers are acutely aware that under the Federal Fair Labor Standards Act, a minimum wage of $5.15 an hour must be paid to all employees, and any hourly employee must be paid overtime if the employee works more than 40 hours per week. But, there are many twists and turns in the FLSA which can serve as a trap for the unwary. Did you know that…

1. Those who are salaried are not always exempt. Just because an employee is salaried, does not mean he or she is exempt from overtime requirements. Under the FLSA, the division is not between hourly and salaried employees, but rather “exempt” and “non-exempt” employees.

The FLSA’s definition of an employee exempt from overtime is someone “employed in a bona fide executive, administrative, or professional capacity.” The Department of Labor’s Regulations, and resulting lawsuits, that define this definition could paper an entire building.

2. An exempt employee cannot be “docked” pay for any reason for part of a day. Exempt employees can be “docked” full days of pay for only very specific reasons, including: personal absences not counted as sick time, sick time only if the employee is otherwise compensated for sick time by the employer and work missed due to industrial accidents only if otherwise compensated by the employer.

Pay cannot be “docked” for disciplinary suspensions unless the suspension is for a violation of “safety rules of major significance.” Leave under the Family and Medical Leave Act may also be cause to suspend the pay of an exempt employee.

3. A non-exempt employee must be paid for time he or she is “on-call” if the employee’s freedom to come and go is restricted. An example of restricted freedom is if the employee must stay at home while “on call.”

4. Employee breaks of less than 20 minutes cannot be deducted from a non-exempt employee’s pay. Meals of one-half hour or longer can be deducted if the employee is free to leave the premises for lunch.

5. Travel time to and from work is not compensable. However, time to travel between work sites must be paid to a non-exempt employee. Out-of-town travel is compensated by adding the actual travel time plus the actual hours worked at the remote location.

6. Most employers calculate overtime by multiplying the hourly employee’s hourly rate by 1.5. However, this is not entirely accurate if the non-exempt employee receives profitability bonuses and/or stock options. The value of the profitability bonuses and stock options must be factored into the “base rate” from which overtime is calculated.

As these examples illustrate, the wage and hour laws can be tricky to navigate. Beware in making general assumptions about how you pay your employees.

The Secretary of Labor possesses the power to impose civil penalties, as well as criminal penalties of up to $10,000, or six months imprisonment for those who wilfully violate the FLSA.

Rachel Y. Brochert Roe, Esq., practices in the business and property law department of Smith Haughey Rice & Roegge, PC, in Traverse City. BN

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