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Calculating Overtime Correctly under the Fair Labor Standards Act (FLSA)

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Speaker: Susan Fahey DesmondShareholderJackson Lewis P.C.

Moderator: Jim ManfieldSolution ConsultantKronos Incorporated

Calculating Overtime Correctly under the Fair Labor Standards Act (FLSA)

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Jim ManfieldSolution ConsultantKronos Incorporated

Calculating Overtime Correctly under the Fair Labor Standards Act (FLSA)

#WFwebinar

Susan Fahey DesmondShareholderJackson Lewis P.C.

Calculating Overtime Correctly under the Fair Labor Standards Act (FLSA)

10© KRONOS INCORPORATED February 2, 2015© KRONOS INCORPORATED February 2, 2015

Calculating Overtime Correctly Under the Fair Standards Labor Act (FLSA)

Jim Manfield, Product Marketing ManagerKronos Incorporated

Susan Fahey Desmond, Shareholder,Jackson Lewis P.C.

11© KRONOS INCORPORATED February 2, 2015

About Your Speaker

• Susan Fahey Desmond is a shareholder in the New Orleans office of Jackson Lewis P.C. Jackson Lewis is a labor and employment law boutique firm with offices in over 54 cities across the country. In addition to being a frequent speaker and author, Ms. Desmond is listed in Best Lawyers in America and has been named by Chambers USA as one of America’s leading business lawyers. The National Association of Professional Women recently named her as a VIP Woman of the Year.

Calculating Overtime Correctly

Presented by:Susan Fahey Desmond

Jackson Lewis PC650 Poydras, Suite 1900New Orleans, LA 70410

(504) 208-1755

© Jackson Lewis LLP 2011

Disclaimer

• This presentation and its accompanying materials are for informational purposes only and should not be used as a substitute for legal advice on a particular. Ms. Desmond specifically does not intend to create an attorney-client relationship by presenting this material and/or answering questions from attendees.

What is Working Time?

• Time spent for the employer's benefit;

• Time controlled by the employer;

• Work time that is “suffered or permitted” by the employer; or

• Time spent doing an activity requested by the employer.

Unauthorized Overtime

• Employers must compensate employees for unauthorized work when an employer "suffers or permits" employee to work;

• An employer suffers or permits an employee to work where the employer knew or had reason to believe the employee was performing work.

• Note: Employers are free to discipline employees for unauthorized work.

Rest or Meal Periods

• A rest period of more than twenty minutes will not be considered compensable if:

• The employee is free to leave the job site;

• The rest period is long enough to allow the employee freedom to do as he pleases; and

• There is no attempt to evade the FLSA.

Breastfeeding Breaks

• Under the Affordable Care Act, all employers must provide reasonable breaks to female employees who need to express milk until her child is one year old.

• Breaks for the purposes of expressing milk is not compensable working time – even if it is under 20 minutes.

• Only applies to non-exempt employees.

Sleeping Time

• Two general FLSA policies regarding the compensability of sleeping time. Sleeping time is considered to be compensable working time for employees who work shifts of less than 24 hours.

• Time spent sleeping is not considered compensable time for employees whose shifts last 24 hours or longer if:

• An express or implied agreement excluding sleep time exists;

• Adequate sleeping facilities are furnished; and

• At least five hours of sleep is possible during the scheduled sleeping periods.

Medical Examinations

• Time spent by an employee waiting for and receiving medical attention on the premises or at the direction of the employer during the employee's normal working hours constitutes hours worked.

Training and Meeting Time

• Included in working time unless:

• Attendance is outside the employee's regular work hours;

• Attendance is voluntary;

• The training or meeting is not directly related to the employee's job; and

• The employee does not perform any productive work during such attendance.

On Call Time

• An employee who is required to remain on-call on the employer’s premises or so close thereto that he/she cannot use the time effectively for his/her own purposes is working while “on-call.”

• An employee who is not required to remain on the premises but is merely required to leave word at his/her home or with company officials where he/she may be reached is not working while on-call.

Overnight Travel

• Travel time during employee's normal working hours is compensable.

• Travel time on Saturdays, Sundays and holidays which corresponds to an employee's normal working hours is compensable.

Off the Clock Work

• Starting work before clocking in.

• Clocking out but continuing to work.

• Working during meal periods.

• Unauthorized overtime "off the clock."

• Working at home.

• "Make-up" time.

Donning and Doffing Principles

• Preparatory activities are generally not compensable unless:

• The work being performed is an integral and indispensable part of an employee’s principal duties or required by the employer, CBA, industry, or laws.

Donning and Doffing Principles

• Franklin v. Kellogg Co. (6th Cir. 2010) -- "[B]ecause the uniform and equipment ensures sanitary working conditions and untainted products," donning and doffing primarily benefited the employer.

• Helmert v. Butterball (E.D. Ark. 2011) -- “No reasonable jury could find that an activity essential to prevent food contamination in a poultry processing plant primarily benefits the employees of the plant rather than the employer.”

Collective Bargaining Agreements

• Exclusion from “hours worked” – CBA agreement or practice can exclude time spent “changing clothes and washing” at “beginning and end of workday”

• Issues:

• Define “clothes” – Sandifer v. U.S. Steel (2014) (broad)

• Define “washing” (just the person, or other items too?)

• Define “workday” – Mitchell v. JCG (7th Cir. 2014) (split)

• Does excluded D&D time still render the walking compensable?

• Franklin v. Kellogg (6th Cir. 2010) (yes)

• Adair v. ConAgra (8th Cir. 2013) (no)

Sandifer v. U.S. Steel (Supreme Court 2014)

• Defined “clothes” broadly – the fact that an item has a protective purpose does not exclude it from “clothing.”

• Announced new way of assessing excluded time, when employees don both clothing and non-clothing items: is “vast majority” of the D&D time spent donning clothes?

• Requires review of existing assumptions under CBAs.

Telecommuting

• The FLSA contemplates remote work arrangements where recordkeeping is a problem.

• Since remote employees can often engage in “private pursuits” such as eating, sleeping and other non-work related activities, the DOL will allow the employer and employee to negotiate “any reasonable agreement” of working hours in light of all relevant facts.

Determining the Workweek

• “Workday” is a consecutive 24 hour period beginning at the same time each calendar day. It must be defined and POSTED

• “Workweek” is a fixed and regularly recurring period of 168 consecutive hours (seven 24 hour periods). It must be defined and POSTED.

7(k) Agreements

• Public employers may pay police officers and fire detail employees by a 7(k) arrangement.

• Under the 7(k) exemption, the public entity looks at a 28 day period rather than the traditional seven day period.

• Police officers: 171/28

• Fire detail employees: 212/28

Hospitals 8/80

• Hospitals may compensate employees based on an 8/80 plan.

• Under an 8/80 plan, the employer must pay overtime for any hours worked over 8 in a day or over 80 in a fourteen day period.

• Advantage is that the hospital looks at a fourteen day period rather than a seven day period.

What is Included in the Regular Rate of Pay?

• Includes:

• Hourly earnings

• Salary

• Value of meals (unless exception)

• Commissions

• Non-discretionary bonuses (i.e., production bonus, mandatory service charge)

• Controlled standby pay

• Piecework earnings

• Shift differentials

What is NOT Included in the Regular Rate of Pay?

• Discretionary bonuses

• Paid Time Off

• Holiday Pay

• Benefits

Hourly Employee (No Guaranteed Overtime)

• Regular Rate: Hourly rate

• Overtime Compensation: 1.5 x regular rate for the hours worked past 40 hours per week

• Thus, if employee works 45 hours at an hourly rate of $10.00/hr, he is entitled to $10/hr for all 45 hours plus an extra $5/hr for the five ot hrs for a total of $475 for the week.

Hourly Employee with a Bonus Example

• Regular rate includes the promised hourly rate plus any non-discretionary payments.

• Example: Employee has an hourly rate of $10/hr. He works 50 hrs during the workweek and also receives a $100 production bonus.

• Calculation of Amount Owed: Ee’s total includable compensation if 50 hrs x $10/hr, or $500 in straight time pay, plus the $100 non-discretionary bonus for a total of $600.

• Regular rate for this week is $600/50 hrs worked or $12/hr. Ee is entitled to premium overtime pay of an addtl $6 per overtime worked: 1.5 x $12/hour x 10 hours, equaling $60.00. Total amount owed: $660.00.

Employees Paid at Two or More Rates

• Example: $10.00/hour for Task A and $12.00/hour for Task B

• 15 hours at Task A ($10.00/hr) = $150

• 35 hours at Task B ($12.00/hr) = $420• Regular Rate: Total wages ÷ number of hours worked in

that workweek = $570 ÷ 50 = $11.40

• Overtime compensation: 1.5 x regular rate for hours worked past 40 per workweek

“Salaried” Employees

• Salaried Employee (Weekly Salary)

• Regular Rate: (Salary) ÷ number of hours which the salary is intended to compensate

• Overtime Compensation: 1.5 x regular rate for hours worked past 40 hours per week

• Salaried Employee (paid semi-monthly for 40 hours of work per week)

• Regular Rate: [(Salary) x 24) ÷ 52] ÷ 40

• Overtime Compensation: 1.5 x regular rate for hours worked past 40 per week

Fluctuating Workweek

• Salaried Employee-Fluctuating Hours (paid monthly for all hours worked)

• Regular Rate: [(Salary) x 12) ÷ 52] ÷ number of hours worked in the workweek

• Overtime Compensation: ½ x regular rate for hours worked past 40 per week

• Example: Ee works for a guaranteed weekly salary of $600 which the Er and Ee understand agree covers straight-time for all hours worked, whether the workweek is shorter of longer than 40 hrs. Ee works 60 hrs in the workweek. The regular rate is $600/60 or $10/hr. Ee is entitled to premium overtime pay of .5 x $10/hr x 20 hrsor $100.00 for a total weekly compensation of $700.

Piecework

• Piecework

• Regular Rate: Total earnings ÷ hours worked in a particular workweek

• Overtime Compensation: 1.5 x regular rate for hours worked in excess of 40

• Piecework Rate with Hourly Guarantee

• Regular Rate: Minimum hourly rate

• Overtime Compensation: ½ x regular rate for hours worked past 40 per week

Day Rate

• Day Rates and Job Rates

• Regular Rate: (All sums received at day rate or job rate in the workweek) ÷ total hours actually worked

• Overtime Compensation: 1.5 x regular rate for the hours worked past 40 hours per week

Calculating Overtime with Bonuses/Commissions

• The regular bonus rate is found by dividing the bonus by the total hours worked during the period to which the bonus applies. The total hours worked for this purpose will be all hours, including overtime hours.

• First, find the overtime due on the straight time rate. Then, separately, compute overtime due on the bonus/commission: find the regular bonus rate by dividing the bonus by the total hours worked throughout the period in which the bonus/commission was earned.

• The employee will be entitled to an additional half of the regular bonus rate for each time and one-half hour worked and to an additional full amount of the bonus rate for each double time hour, if any.

Commission Payments

• Commissioned Employees • Paid on a workweek basis

• Regular Rate: (Commission + other earnings for that workweek) ÷total number of hours worked in the workweek

• Overtime Compensation: 1.5 x regular rate for all hours worked in excess of 40

• Deferred Payments• Amount of Commission Allocated to Each Week: Commission ÷

(number of weeks it is intended to compensate)

• Adjusted Regular Rate: Wage (including commissions) ÷ number of hours worked during the week.

• Overtime Compensation: Commissions allocated to each week x (overtime hours ÷ (total hours x 2)) = additional half time owed on the overtime hours.

Tipped Employees

• Regular Rate: Total weekly earnings ÷ number of hours actually worked. Includes the amount of tip credit taken by the employer; however, any tips received by the employee in excess of the allowable tip credit are not included in the regular rate. An employer may not take a higher tip credit for an overtime hour than for a straight time hour.

• Overtime Compensation: (Regular rate x 1.5) – tip credit

Regular Rate Minus Meals

• Rate per hour that excludes the cost of a meal if the employer customarily furnishes not more than a single meal per day. Employer omits from the employee’s regular rate the cost of that meal. If the employer customarily furnishes more than one meal a day, the cost of all meals that the employer supplies must be factored into the regular rate of pay and the overtime compensation owed.

• If the employer supplies a free meal every day and also occasionally pays “supper money” when the employee works overtime, the cost of both the meal and the supper money may be omitted from the overtime compensation.

Fluctuating Workweek and Bonuses

• In April 2011, the DOL rejected a proposed amendment to the FLSA regulations that allowed the payment of bonuses and incentives under the fluctuating workweek method.

• Subsequently, courts have held that an employer violates the FLSA when it pays an additional bonus or incentive but continues to use the fluctuating workweek method for calculating overtime.

Most Common Overtime Violations

• Assuming that all employees paid a salary are not due overtime

• Limiting the number of hours employees are allowed to record

• Failing to include all pay required to be included in calculating the regular rate for overtime

• Failing to add all hours worked in separate establishments for the same employer when calculating overtime due

• Making improper deductions from wages that cut into the required minimum wage or overtime.

• Failure to pay overtime on non discretionary bonuses

• Failure to pay for tasks done before or after work

47© KRONOS INCORPORATED February 2, 2015© KRONOS INCORPORATED February 2, 2015

Workforce ManagementControlling Overtime and More

Jim ManfieldProduct Marketing ManagerKronos

48© KRONOS INCORPORATED February 2, 2015

Workforce Management Addresses “Necessary Business Processes”

• Poor communication• Redundant data entry• Manual/paper-based

processes• Create silos of critical data

and information

• Higher risks of noncompliance• Fines and penalties• Increased resources and costs

• Unguided decisions• Unpredictable results• Slow down organization• Impacts business performance• Increased payroll errors

Tracking Labor Costs Converting Hours to Paychecks Regulatory Compliance

Federal versus State

Skills & Certifications

I9, W4 Onboarding

FLSA

FMLA

UnionAgreementsCompany

Policies

EEOC

OSHA

?

49© KRONOS INCORPORATED February 2, 2015

Kronos Customers See Real Value

• Reduced labor costs and 40% reduction in overtime costs

• Improved FLSA compliance by capturing actual time worked and consistently applying rounding rules

• Mitigated leave liability by accurately tracking time off

40% Reduction in Overtime Costs

Clemson University

• $7.2M annual savings

• $2.5M in overtime reduction

• Compliance with FLSA & federal labor laws

• Improved accuracy of payroll calculations, overtime management & leave inflation

$2M in OvertimeSavings

City of Houston

50© KRONOS INCORPORATED February 2, 2015

Solving 3 Critical Business Issues

Minimize Compliance RiskControl Labor Cost Improve Workforce Productivity

Time andAttendance

Forecastingand Scheduling

AbsenceManagement

Analytics

Data Collection

Hiring

HR and Payroll

Activities

51© KRONOS INCORPORATED February 2, 2015

Managing Overtime: More than Just Cost Control

• Overtime is more than an issue of compensation• Effective employee relations strategies can alleviate common

confusion and dilemmas surrounding overtime– Preventing OT creates an environment that can be bad for morale

and productivity

• Overtime impact on employee satisfaction– Ensure that employees are consistently scheduled fairly, including

an equitable distribution of overtime– Are overtime policies and procedures consistently/fairly applied?

• Managing OT involves– Policy – communicating expectations and enforcing fairly– Planning – Forecasting, Budgeting, Scheduling– Visibility – management awareness of pending OT, planned or

unplanned– Auditability

52© KRONOS INCORPORATED February 2, 2015

Managing Overtime: More than Just Cost Control

• Workforce management systems allow organizations to strategically control – not eliminate – overtime.– Not all overtime is bad– OT or Agency/Supplemental staff

• Automated scheduling improves employee communication, expectations and productivity

53© KRONOS INCORPORATED February 2, 2015

Questions?

Thank you for attending!

54© KRONOS INCORPORATED February 2, 2015

About Kronos

With tens of thousands of customers around the globe, Kronos is the

leader in workforce management solutions. We deliver industry-focused

time and attendance, scheduling, absence management, HR and payroll,

hiring, and labor analytics solutions and services — in our cloud and on

the go. Kronos: Workforce Innovation That Works™.

For more information contact your Kronos representative, call (800) 225-1561 or visit www.kronos.com.

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