The Fair Labor Standards Act was passed in 1938, eighty-four years ago, and yet many employers continue to pay in violation of the FLSA based on urban myths. We address those urban myths, why they are wrong, and the right way to handle that myth. Such urban myths are: “I pay all of my employees' salaries so I do not have to pay overtime.” “All of my workers are independent contractors so I do not have to worry about the Wage-Hour Law.” We also address some of the more difficult issues such as paying tipped employees and remote employees.
Explore the Wage and Hour law webinar on-demand.
Presented by Larry Stine & Les Schneider
Les Schneider (00:00:00):
Good afternoon, everybody. My name is Les Schneider, and to my left is my partner, Larry Stein. And we're here to talk to you today about Urban Myths of the Fair Labor Standards Act, wage hour law. As you can see from the, on the screen, the books to your right of the books that Larry and I spent a lot of years writing because we were never really satisfied with the types of materials that were on the fa the wage and hour law. And we felt that it caused a lot of confusion. So we've tried to make it a little easier, although it's still long in length. Today we really want to talk about a lot of topics that we think employers make various mistakes in the wage and hour law. And if they had gotten the proper guidance in the beginning, they probably would have not made those mistakes and hopefully have not wouldn't committed violations that result in substantial back pay liability.
Les Schneider (00:00:58):
We wanna start out by basically indicating that despite how diverse and different the world is in terms of races and religions and sexes and national origin and sexual preference as far as the wage, now law is concerned. There's only two types of people in the world. You're either exempt or non-exempt from overtime. So if you can keep that working rule in in mind, the question becomes, are you properly classifying the people who work with you and for you as to whether or not they are subject to overtime? So, to start that out, what that working rule one of the other issues that we often see is the fact that a number of employers are of the view that if somebo, if they put somebody on a salary, then that makes them exempt under the Fair Labor Standards Act, and unfortunately, nothing could be further from the truth.
Les Schneider (00:01:57):
One of the key things that we is looked at is not whether somebody is salaried, but the work that they are doing, and whether that work itself is exempt or non-exempt under the wage and hour law. Clearly, if most people are put on an hourly wage, most of those folks are subject to over time, at time and a half. But again, a number of employers have a habit of believing that if they put, for instance, the secretary on a salary basis, that will result in that that secretary not being eligible for overtime. And that is clearly not true. Larry, you want to further expound on that?
Larry Stine (00:02:42):
Sure. on the Secretary, we do wage and hour audits, and one of the first things I ask is, how do you pay your secretary? And when they say, oh, she's salaried, so she's exempt, I know I'm in for a very long day explaining how these exemptions work and how the salary, the, the reason for the urban myth, the salary is there's a white collar exemption, and one of the requirements is for the salary. And what happens is the urban myth is there's salary and they tend to forget the other three elements of that particular exemption. And so what happens is you end up finding that the employee or exempt. The other thing that's very interesting about the Wage HR audits, when I, I used to work for the Department of Labor and sued people for wage HR violations and came on the private side.
Larry Stine (00:03:37):
And when I did my very first audit night, went in to talk to the managers about people being exempt or non-exempt, I was expecting a little pushback from the managers. To my surprise, I got zero pushback from the managers. They go, oh, okay, that's fine. I got pushback from the people who they thought were exempt, and I told 'em they were non-exempt. And it took me a while to figure out what was going on on the audits. And you had to be careful about this. When you look at exempt people and try to move 'em back, is they see being changed from a salary to hourly as a social demotion, right? Even if it's the same money, it's a demotion. And it took us a while to figure that one out, and we'll talk about this later because we're going to get to this thing about a salary non-exempt employees. And yes, there is such a thing as a salaried employee that you pay overtime to, but that's not what's on the topic. But Urban Mill, number one, if I pay 'em a salary, they're exempt. That's simply not true. And it hasn't been true since 1938 when they passed the law. So we don't know why this urban myth has been going on for 70 plus 80 plus something years now, but it still continues and it just flat deck wrong.
Les Schneider (00:05:03):
So therefore, you know, all if we all our audience, we'd like to reemphasize to everybody that you need to look at the work that the person is doing. And although a salary may be one element to determine whether they're exempt, it is not the sole element. And if their job involves ministerial activities and doesn't exercise a great deal of discretion, then in fact they are gonna be subject to overtime. And as Larry said, we will talk about how that overtime can be calculated. Let's go on to our third topic, Larry, which is basically the concept of an inde every an employer saying, well, these people are not employees, they're independent contractors, and therefore I'm not gonna take any deductions out of their checks. And also, independent contractors are not subject to the Fair Labor Standards Act, so therefore I don't have to worry about overtime as to those people. How, how how trustworthy is that reasoning?
Larry Stine (00:06:02):
Well, it you, it's, it, it's not. But here's the interesting thing is we go into some employers and they have come up with the urban myth of I can comply with a fairly standard act by making everybody an independent contract. And by the way, it's a wonderful world when you get to it. I don't have to pay the employer share fica, I don't have to pay Medicare, I don't. And the, from the employees, they love it because they get a gross check, gross check, no deductions, none of those pesky little things from the federal government and the state government taking taxes out. So it's too good to be true, right?
Les Schneider (00:06:41):
Too good to be true in another big area. And of course it, this varies, varies a little bit away from what we're talking about today, but I think employers also try to use that to say, well, I don't have to pay, I don't have to worry about workers' comp premiums. And that can get an employer in a great deal of trouble, especially in the case if there is an injury. So again, there is a extensive test on whether somebody's an independent contractor or an employee at a workplace. And unfortunately different laws have different tests. In fact, you can end up with the anomalous situation where you may be an independent contractor for unemployment compensation purposes, but for wage and hour purposes and workers comp purposes, you may have be an employee. So employers are really, we, we can't emphasize enough how important it is to make sure that you have classified these people properly. And don't assume that just because somebody is an employee or an independent contractor for let's say the unemployment law, that they are not nec they may, may be an employee for worker's comp and wage and hour and different laws have different tests, right? So we have to really emphasize that as we go on. I think the, okay, I got, oh, you wanna add another
Larry Stine (00:08:04):
Commentation? I wanna add something else about the, just so you know, this urban myth is so strong that Microsoft had a case in which you went down the hall and as you walked down the hall, there were software engineers. This one was an employee, this one was an employee, this one was an independent contractor, this one was an employee, this one was an independent contractor. What was the difference between them? Well, nothing. And what happened is they got sued under ERISA for the not providing the benefits to the independent contractors, and they lost Microsoft lost. So one of the things I tell my client is, you know, you've got the people and you can be an employee or an independent contractor. You don't have that choice. And the other thing is be very careful because at least when you make them an employee, when you projecting out your budgets and your billings and your invoices, you bake in those costs. If you put 'em as an independent contractor and one of these agency comes in and says, no, you're wrong. They're an employee. You haven't baked those costs into your pricing, your invoices, and I'll tell you where that money's gonna come off of, it's gonna come off of your bottom line straight out. So be very careful is a general rule. If they're dependent upon you and you're telling them what to do, they're yours and no piece of paper is gonna change 'em into an independent gun director.
Les Schneider (00:09:30):
That's exactly right. So again, don't take shortcuts because it usually will cost you dramatic monies at the end of the day. This is particularly sensitive in the construction area, transportation area, sometimes even things like adult entertainment, all of a sudden the people who were dancing are automatically assumed to be independent contractors. And there are very few cases where those people have ever been able to be properly categorized as independent contractors. Moving on, our fourth topic is being emphasizing that it's very important to determine the regular rate of pay and what has to be included in that rate so that in the event that the employee works more than 40 hours, we're properly calculating overtime. So Larry, let me throw a hypothetical to you and ask you if I'm paying someone $10 an hour, but I also pay them a 50 cents shift differential, or I add other monies on an hourly basis, what traditionally goes into the regular rate and what traditionally does not go into the regular
Larry Stine (00:10:44):
Rate? Good question, Les. The, the way you need to think about it is, everything I pay and employ for straight time compensation is gonna go into the regular rate unless there's a rule that says we can't. So the general rule is everything I pay them, and it's easy to do it when you only pay them hourly, but once you start doing other things, like even throwing a shift differential in, you have to put all that money into the calculation for the regular rate. Doesn't matter whether they're salaried, commissioned peace rate hourly with shift differential hourly with bonuses for attendances. There's a whole lot of things going in there. People tend to think, Hey, if I pay 'em 10 bucks an hour, I'll pay 'em $15 an hour and I have complied with failure standards. The answer is that's never and myth it's wrong. Everything you pay them.
Les Schneider (00:11:42):
Mm-Hmm. <affirmative>. So simply put, if I'm paying someone $10 an hour, but because they're working the night shift, I give them an extra 50 cents per hour. Right? The rate that I have to, to pay the overtime on is $10 and 50 cents, not $10. Correct. Is that correct?
Larry Stine (00:11:59):
That is absolutely correct. Okay. And go
Les Schneider (00:12:02):
Ahead. And does it also get more involved if, for instance, during the week I say, if you have perfect attendance for the entire month, I'm gonna pay you an extra hundred dollars, assuming $25 a week, does that $25 have to be worked into that $10 an hour so that the hourly rate for that week in essence goes up?
Larry Stine (00:12:29):
Yes. And and let me tell you, lots of people, there's a, in the Fair Labor Standards Act, there's this concept of discretionary and non-discretionary. And this is an odd urban myth, but everybody tends to think that discretionary means what English means. There's only one problem. It doesn't, that's not at all the definition of you're relying on an English understanding of discretionary. Cuz you can say, well, I can give 'em the attendance bonus, but if they don't show up, they don't get it. So it's discretionary. Nope. That we've handled. The last three wager audits have handled with wage an hour, they've only had one mistake, and they said they didn't pay over time on the attendance bonus, bonus bonus. And in one of those, it was a large plant that hadn't done it for, for the full two years, and the amount of money actually owed back wages was substantial, was in the six figures.
Les Schneider (00:13:30):
So these, these mistakes truly compound themselves when they occur. So at the end of the day, what we have to be very careful of is that hourly rate, and as Larry said, any per hour, per additional night differentials, you might give, and again, don't think of the word discretionary. If there is an objective standard, you could meet i e perfect attendance or ACC accident free months, et cetera, and the employee reaches that, then that is something they are going to receive and therefore that has to be worked into the regular rate.
Larry Stine (00:14:08):
Right? The way I describe an discretionary bonus from wage and hour, this is pretty much a discretionary bonus in the eyes of wage and hour. The boss wakes up one morning, the bird's chirping, it's wonderful, he's had a great night's sleep, everything's wonderful. He walks into the office and says, everybody gets a bonus. That's a discretionary bonus. And virtually that's the only thing that's a discretionary bonus
Les Schneider (00:14:31):
Because there's no objective criteria behind it, right?
Larry Stine (00:14:34):
Right. The idea behind it is not as strange as it sounds is wage an hour takes a position that anything I'm telling the employee that I'm trying to increase productivity or get more work out of 'em is not discretionary. So even if I don't even say, well, if we make a profit, I will give you a bonus if, you know, with that's intended to make them work hard and increase profit. Right. That's non-discretionary.
Les Schneider (00:14:59):
And we'll talk about bonuses a little later on because there is a, Larry and I have a strong suggestion to people to make it easier to make sure that any overtime that's owed in a bonus is taken care of without driving up the amount of money dramatically. All right. We've talked about calculating the regular rate, making sure that's done. So now let's talk about basically the whole concept of overtime requirements. The first working rule is in most cases with most employees, you look at the number of hours they work not on a monthly basis, but on a weekly basis. Correct?
Larry Stine (00:15:37):
Correct. Or biweekly.
Les Schneider (00:15:37):
Right. And it, and the biweekly part, even though you may get paid every two weeks, it doesn't mean that you can work 45 hours one week and 35 hours the second week, and therefore no overtime is owed. In the first week where you work the 45, there would be five hours of overtime owed for the non-exempt employee. And you don't get to borrow the five hours that you didn't work in the second week. So two 40 hour people, 40 and 40 week one and two doesn't come out the same as a 45 and 35 with another employee, even though in both cases over the two weeks, 80 hours was worked. Right. Now, there are certain exceptions for certain number of employees ju to this weekly rule. And the work week again, has to be consistent. Let's say if it's either Sunday through Saturday, it could be Wednesday through Tuesday, it's a seven day period that you, you have to analyze and you can't jump around from one week to the other. You have to be consistent. But Larry, what are the exceptions to the employees who you can evaluate the overtime on more than just a weekly basis?
Larry Stine (00:16:55):
Well, they're not many of 'em, but one of them is healthcare. And then we call this the eight or 80. So you can start paying overtime for people in the healthcare industry after 80 hours, but the caveat is an eight or 80. It also means that you have to pay overtime to them whenever they work more than eight hours a day. So if you're on the eight or 80 and you're working people, you know, three 12 hour shifts, it doesn't make any sense to go on eight or 80 because you had just paid for overtime 12 hours of overtime, where if you were just on the strain, ordinary 40, you'd pay no overtime on it.
Les Schneider (00:17:36):
So in addition to healthcare, Larry, that would be a nurse or somebody like that. What's an another area? Another group of employees other than the healthcare
Larry Stine (00:17:46):
Employees, law enforcement and firefighters.
Les Schneider (00:17:48):
Okay. And what working rule do they use?
Larry Stine (00:17:50):
Well, what they have is a really complicated rule where they've given overtime at a much higher rate on a monthly basis. But you can pro it to biweekly or weekly, just you have to look it up to see what it is. It's like 56 hours for firefighters on a weekly basis. So they can actually work 56 hours before you have to pay them overtime. Law enforcement's a little smaller and you can work and, and not have to pay overtime. And it allows you also, unlike most things, you can make overtime on a two week period number or a monthly period number. Right? That's, that's as far as you can go.
Les Schneider (00:18:32):
But if you're working in a restaurant or you're working in a retail store or you're working construction, you don't get to do anything other than evaluated on a, on a weekly basis.
Larry Stine (00:18:43):
Right. It has to be done on a weekly basis. If it's on a weekly basis, it's easy. If it's biweekly is not hard. But heaven help you if you're paying semimonthly on, on people for overtime. Because what happens is you still have to look at each one of the four hours, 40 hour work weeks. And in a semimonthly what's happening a lot of times is you're looking at part the first week, full week in the middle and part of the week. That means you have to go back to the prior paycheck and add those hours to see if there's overtime. And the next check, you've gotta go back and look at that last week to see if they actually worked overtime. We've had a few cases where employers have screwed up and not only paid overtime when they worked over 80 something in the semi monthly period, and they miss a lot of overtime because of the way it works. But it's still for every, almost everybody with those few exceptions, you have to use the work week and 40 hours and pay overtime when they work over time and a half the regular rate when they work over 40 hours and they work week.
Les Schneider (00:19:49):
So Larry, that would also apply that even if somebody is paid on the 15th and the 31st or the 15th and the 30th of every month, the employer still has to analyze a, the seven day period, the consistent seven day period work week to determine if there's overtime. You don't get to say, well, this check covers these number of days and therefore I'm okay. Right.
Larry Stine (00:20:19):
All right. Which is the, by the way, account is love sending monthly because it's 12 even they can budget for the month. They don't have that weird two months where they have three paychecks extra weeks. So the la love the count is love it, wage hour investigators and us, we hate it. Right. but it is allowable, but it's got a lot of work to get the overtime run.
Les Schneider (00:20:38):
Right. All right. We've talked about shift differential and again, shift differential needs to be included in the regular rate and I don't think we need to spend a lot more time on that. Let's talk about the concept of bonuses. It seems that, again, under the wage and hour law, if it's a discretionary bonus, it wouldn't have to be included in the regular rate, but if it's non-discretionary, it would be. But of course, as you've pointed out earlier that we're discretionary, like, well, I don't have to pay, it doesn't necessarily cover the concept of wage and hours. So let me throw out to you, let's assume that an employer, as you said earlier, is even even e either trying to increase profits and says, look, if there is a greater profit from the previous year, I'm gonna give people a bonus. And in fact he gives the bonus because the numbers are better.
Les Schneider (00:21:35):
In that case, that would have to be included in the regular in, in overtime calculations for the non-exempt employees. Correct? Correct. Okay. Now, let's assume that obviously people work during the year, there'll be some weeks they get overtime pay, some weeks they don't. And the employer looks at it and says, well, because we had such a good year we've had good profits, or the people had perfect attendance and they haven't had any workers' comp injuries. Again, objective standards that were reached and he decides to give everybody a thousand dollars bonus. Does that bonus have to be recalculated to be included in to look at the overtime weeks and to see if the overtime has to be adjusted?
Larry Stine (00:22:30):
Yeah, they do. And, and the, the county department will probably kill you when they figure out what they have to do because,
Les Schneider (00:22:35):
And that's very a tedious exercise.
Larry Stine (00:22:39):
They have to go back in order to count. You give an annual bonus mm-hmm. <Affirmative> and it's non-discretionary, which most are for that. You literally have to go back and look at your entire year and figure out the total number of hours worked in the year. You got to divide the bonus by the total number of weeks or hours worked in there, and you come up with a regular rate. And then you take half that time the total number of overtime they worked in the entire year. And then you multiply that time. So half of that time is the overtime hours and there's your overtime calculations literally will require the accountants to go back and look for the payroll people at every, the entire year for a yearly bonus when you do it that way. But you do have to figure it out.
Les Schneider (00:23:25):
So that would be a a bookkeeping nightmare for obviously the accounting department. Right. So let's assume that as an employer, I look at it and I say, well, you know, I wanna, I want to basically provide about $50,000 to bonuses and I've got 50 employees and it's got, I want it to come out around a grand each, but instead of using a hard dollar figure, I decide to use a certain percentage of everybody's earnings that particular year. And let's say it comes out to a half a percent or 1% or whatever. If I do it based on 1% of somebody's total earnings, do I save that bookkeeping department a lot of headache where the overtime then would not have to be recalculated that it's, if somebody has made $20,000 for the year, which includes all their overtime, and I give them a 1% bonus, then does that take care
Larry Stine (00:24:34):
Of it? Right. The accounting department is gonna be very, very happy. It sounds a little odd, we're saying that this is easy, but let's just say you use a half a percent of total compensation. The way wage and hour looks at it is during the year they work and made $40,000 in straight time pay and 5,000 in overtime pay. But the bonus remember is 1% times the straight time pay and 1% times the overtime. Hey, in other words, when you look at it mathematically there, that over when I pay 1% on the overtime compensation, they've already figured it out at the regular rate at time and a half for the overtime hours. And so all the accounting department has to do is take that percentage, look at the bottom line number for the year, which is right there, boom, there's the bonus, you've already got the overtime in there.
Larry Stine (00:25:27):
And we use this for different things for a lot less than the annual basis. You can use it to adjust pay. A lot of times when we're trying to help clients figure out some way, part of the problem when we come in and they haven't been paying overtime, right, is they kind of have a budget number in mind that they want to pay people. And when you, and they have set the rates based upon this and straight time, but when you add the overtime, all of a sudden they're overshooting that budget amount in their head all the time. So what we go back in and do is point out that you can reduce the hourly rate, the piece rate the commission, and by a small percentage to take into account that, but because there's fluctuation hours mm-hmm. <Affirmative>, sometimes what's gonna happen if they just say work 40 hours and you reduce the rate, they're gonna make it less than they're used to doing and less than you budget it for them. And so what we'll do sometimes is suggest that's tend to suggest a monthly, I don't like to do it every week at the end of the month, we'll kinda look at it and say, well, they should have made about this. So that's about 2% short, I'm gonna give 'em 2% bonus, still compensation.
Les Schneider (00:26:37):
So very simply put, Larry, let's say in, in a quarter a company has a million dollar payroll right? And they wanna basically eyeball it and say, you know, the people, this includes everybody, this includes everybody's salary, this includes everybody's hourly wage, this includes all the overtime we paid in that quarter. Right? If we basically just take, let's say 1% or 2% of that number and then give it to everybody in a pro ratta basis, then we have complied with the wage in our law. And you don't have to worry about going back and recalculating because the percentage assumes that whatever anybody's wages are
Larry Stine (00:27:18):
Les Schneider (00:27:19):
For that quarter, we have given him a percent of their total wages. And whether somebody made $30,000 straight and was an exempt employee or somebody was $30,000 non-exempt and that included all their overtime, those two people will get the same bonus. Correct. So it makes it a lot easier and it is something you all should strongly consider because it makes life a lot easier. All right. Let's move on. Larry. There is a concept in which you have a law called the weighted average methods that you can use, right? Do you want to expand on that a little bit?
Larry Stine (00:27:54):
Sure. Some of the questions that payroll gets confused on is when you have employees that are getting paid all sorts of different ways. We've recently looked at one they were working and what happened is some of the time they got paid by the hour mm-hmm.
Les Schneider (00:28:10):
Larry Stine (00:28:11):
Some of the time they got paid by the piece and then they got an attendance bonus.
Les Schneider (00:28:16):
Okay. So you might have somebody who's doing certain work at $20 an hour mm-hmm. <Affirmative>, somebody may get paid $500 to complete a particular project and somebody may just get a raw attendance bonus of $50.
Larry Stine (00:28:33):
Right. So what happens is it begins to seem like it's a problem, but the reality is it's a very simple formula for all of 'em. And by the way, this formula works for the non exempt salary people too. And what it is, is real simple is you take a total straight time compensation,
Les Schneider (00:28:53):
Larry Stine (00:28:54):
Whatever it is, peace rate, there's some hourly rates in there, there's an attendance bonus, you add it all up and you come up with a total compensation for straight time.
Les Schneider (00:29:03):
And let's say in our example, let's say that's $700,
Larry Stine (00:29:06):
Okay? And let's just say he worked 50 hours that week
Les Schneider (00:29:09):
In that work week.
Larry Stine (00:29:10):
Mm-Hmm. <affirmative>. So what happens in that work week, you would take the $700 and you would divide it by the 50 hours mm-hmm. <Affirmative>, and you're going to come up with a regular rate, right? Of well hold on 31.
Les Schneider (00:29:25):
Now you're talking to lawyers and not accountants. So I'll cheat a little bit and use a calculator so that we can make sure we're right here. But as Larry said, he had $700 and the person worked 50 hours that week. Mm-Hmm. <affirmative>. So that particular week shows you how bad I am at this 700 mm-hmm. <Affirmative> divided by 50 50 is $14 an hour.
Larry Stine (00:29:52):
Right? Now what you've done that is your regular rate, that's the weighted average method, but that is the regular rate. Now, what the overtime requires is you pay the additional halftime for all hours work.
Les Schneider (00:30:04):
So I take that 14 mm-hmm. <Affirmative>, I multiply it by the number of overtime hours that week, which would be 10 mm-hmm. <Affirmative>, and then I multiply that by a half 0.5
Larry Stine (00:30:15):
For 70 bucks
Les Schneider (00:30:16):
And that's $70. And that's perfectly lawful. Yes.
Larry Stine (00:30:19):
It's perfectly lawful. And when you do it to the salary only, a lot of people get confused because they wanna soon the salaries for 40 hours. But the salary, particularly if you told 'em it's for all hours work, that was a $700 salary, that's the overtime.
Les Schneider (00:30:35):
And to your point, Larry, it is important for the employer to either through a memorandum or a, a record of conversation to make sure that the employee has knowledge of this is how his pay is going to be calculated.
Larry Stine (00:30:50):
It, it, it is helpful because the, some plaintiff lawyers try to argue based upon a interpreted bulletin, they're, they're required to understand. So basically what we suggest is there's a memorandum to the employee, how you're a salary non-exempt, you get paid overtime, and the way we're gonna pay overtime is divide your salary by the total number of hours work, we come up with a regular rate, and then we're gonna take half that rate and multiply by the overtime hours. And that's how you getting paid and you give it to them in writing. That way we just avoid some argument some plaintiff attorneys have, have made on that particular issue. So that's what we do all the time.
Les Schneider (00:31:29):
So the weighted average method does, does give the employer the freedom to pay people at times for certain jobs they're doing on an hourly basis, some on a salary, and some on a peace rate as you pointed out. Or also including other incentives they may get, which are basically taking all that money, dividing it by the total hours, work that week, coming up with an hourly rate. The sa the total monies take care of the regular time, but then you have to pay that half time of overtime, which as we explain that calculation
Larry Stine (00:32:06):
Right. Sometimes some of the lawyers we've run into have got an urban myth that you gotta pay everybody by if they're, if they're not exempt, you have to pay them by the hour. Simply not true. And we want to make a caveat that how you pay people drives their performance. That's the reason sometimes you pay by the piece because they're more efficient at it and sometimes you pay 'em by the job, I'm gonna pay you two grand to get this job done. If they're not exempt, just they gotta pay overtime on it.
Les Schneider (00:32:35):
Right. And when we talk about by the piece, what we're really talking about there is it's really that that really applies to production work where somebody, you know, every time they put together a widget, they may get $10 for every widget they do. Right. And again, you add up the total number of widgets times that piece rate for that widget, and then again, divided by the number of hours they've worked that week. If it's over 40, there obviously is overtime owed and we calculate it the same way.
Larry Stine (00:33:06):
Sure. And we see, we see peace rate all over the place, even construction industry. Right. a lot of different places, but Okay. That, that is an urban myth that's wrong. You do not have to make pay non-exempt employees just an hourly rate.
Les Schneider (00:33:20):
All right. Well Larry, our next topic obviously has a lot of relevancy in this age of covid, we sometimes I wonder if we have more people working at home than we have people actually coming to the place of work to work and we're not criticizing people working at home. But obviously the supervision that might occur at home is not the same supervision that might occur at the workplace. So first of all, it's clear that if somebody is permitted to work at home, then that again is compensable time that they have to be paid for. And so hours working remotely have to be paid for. And I guess the first practical question I would throw to you is how does an employer measure the number of hours that people work remote?
Larry Stine (00:34:13):
Well, you got, the interesting thing is you have to record it. You're required by wage hour law to record the hours work, but of course the problem is you ain't
Les Schneider (00:34:23):
Larry Stine (00:34:24):
So you're pretty much fundamental on an honor system. Well, you know, you can say, well, I can make them log onto the computer
Les Schneider (00:34:31):
And that at least that would start give you a starting time. And the employer would have a rule that says you need to log in to your, on your computer or have some method of logging in. Even if they're calling in and saying, okay, it's nine o'clock, I'm starting the workday. Right. And then they are obligated. You can have rules to say, look, you need to, you know, if it's go, if you're going to work, start at nine o'clock and then you're gonna take lunch at noon, then you are, you, you communicate with us either through your computer web that you're clocking out, so to speak. Sure. And then you're clocking back in. But in terms of the hours working remotely, whether you work remotely or work in the office, it's all hours worked and it has to be paid for.
Larry Stine (00:35:16):
Right. The biggest problem, of course for the remote hours is the employee who logs in at nine and then does the laundry and then cooks their dinner and they don't log in and out and they're not working. That's a bigger problem because reality is when they're working at home, 99% of the time they're on the honor system.
Les Schneider (00:35:34):
Larry Stine (00:35:35):
Right. You have to rely on 'em. And so, so then you're kind of, the way you have to monitor it is productivity metrics, something so you can see if it's successful. Because what we find is, and probably every employee's found this, is there's some employees that actually seem to excel and do better at home. Some seem to do okay. And some seem to drop off the face of the earth when they work
Les Schneider (00:35:59):
From home or abuse the system terribly. Yes. And, and that has to be determined. And employers who do have a lot of folks working remotely should certainly think about the kind of procedures and rules they want to implement to, to best monitor the situation. Let's say an employee decides that they put in, they say, gee, I worked 16 hours today, and the employer is a little suspect of that. Right. how do you handle that? How, how do you best deal with those type of issues?
Larry Stine (00:36:33):
Well, the interesting thing is, what I think employers first instinct is when they go back, let's say they're looking at emails, they pull the person's emails and they're seeing emails from nine to 12 and then from one to five and no more emails and this person's doing a number of emails and he's putting in 16 hours, then you have some suspicions that they're really doing his work. The problem is they've reported it and you don't know what it is. What we recommend is that you discipline them, the doc doctor, because you don't have enough information yet to prove they're not doing it. So you treat it as a employee discipline
Les Schneider (00:37:12):
Rule. So the discipline could include counseling, the discipline could include, these are the procedures that have to be used. If you don't use these procedures, it could lead to further disciplinary action up to and including discharge. Right. But at the end of the day, do not quarrel over one day's
Larry Stine (00:37:29):
Pay. Right. It's just not worth it. And you can get yourself in a wage hour issue. You can tell 'em you have lost their right to work remotely. If it's been abused. I, you, I just can't trust you.
Les Schneider (00:37:40):
Larry Stine (00:37:41):
But you're done. And, and off we go. I don't think that happens often, but everybody has a few employees that it will abuse the system when given the opportunity. And those when you have to monitor but don't dock their pay discipline
Les Schneider (00:37:58):
Because the document, the pay is really what leads to wage and hour investigations. Right. It leads to lawsuits. It's just not worth the issue. So, correct. Again, in these covid times, we know there's more and more people working remotely. In fact, it's gonna be hard to pull some people back into the office. And as you say, some people work and thrive at home and other people do not. And that's just a employee relations issue that the employer is gonna have to that determination he's gonna have to make. Let's move on to our next topic. You and I have always referred to it as the concept of engaged to be waiting or waiting to be engaged. As we all know that there are a lot of TE devices today that can alert people to report to work. In the old days, maybe there was just a telephone, and I'll give you an example. If somebody is told by their employer, look, I don't know if I need you today, but I want you to stay at home and be at be be near a telephone and if I call you, I need you to come to the facility immediately in that type of situation. Are you engaged to be waiting? Will you have to be compensated for that time? Or are you just waiting to be engaged where it is not compensable
Larry Stine (00:39:18):
In that particular instance, you're engaged to be waiting in its compensable time. What the courts and wage hour look at is how long of tether do you stick on that employee. So if you tell the employee you gotta hang by the phone at home and respond immediately, you got about as short a leash as you can get.
Les Schneider (00:39:38):
So the freedom of movement and what else they can do becomes a very critical factor. Yeah. So if I change the hypothetical Larry and I say, okay, I'm the employer, I may need you today, but if you're sticking in town, you wanna go to the grocery store, you want to go to the movies, that's fine. If I beep you on your beeper or I send you a text message and you know, try once from the time I send you the message, if you can get back to the facility in an hour, then that's okay. Is that more of the waiting to be engaged And that's not compensable,
Larry Stine (00:40:15):
That is more of the waiting to be engaged and it's not compensable. You don't have to pay for it cuz you've given them enough time to go out and do things. They don't have to wait by the phone. Unless I do say using beeper may have dated you a
Les Schneider (00:40:28):
Little bit. Right. Well since I'm the most anti-tech person in America, that's true. But I guess again, it's the whole issue of having these devices and being able to be contacted right. Is the key. And that makes many situations more waiting to be engaged. But employers should worry about, from the time I send you, you gotta be back to the facility in 10 minutes. That's not giving a lot of free min freedom of movement. So you know, you have to look at the area you're in. If you're in an urban area and the normal commute is 30 minutes to get to work, you should be giving them at least that 30 minutes. Correct.
Larry Stine (00:41:05):
Yeah. At least that. And probably better give 'em another 30 minutes for this to be able to stop what they're doing. Right. Because they gotta be able to do something. You gotta get a sufficiently long leash. And of course, now the interesting thing is, am I, am I living in a small town?
Les Schneider (00:41:18):
Larry Stine (00:41:20):
I can give you less time because there's just not as much to do around town. And you know, my commute's five minutes, right. I can make it a shorter one wage actually does look at things like where you are, how what can you do? What they're looking for is that you're free to do the things that you want to do, then you're just waiting to be engaged. If you, it severely limits what you can do, then you're engaged to be waiting, then you have to be paid
Les Schneider (00:41:48):
For. Okay. And let me say that those of you who are listening in today, if you have questions, we will take them at the end and be happy to try to answer them. Again. We have a number of topics that we'd like to get through, but we will save time for your questions at the end. Again, the books that you see to my write are the wage and hour book that Larry and I did author with the help of a lot of other folks. And again, it is written in a way that people in human resources and lay folks can understand. And we hope it gives a number of examples of how to actually calculate over time, which exemptions to look out for, et cetera. So if you're in the mood for some reading that doesn't have a lot of sex and violence you may find it to be helpful for you. Moving on, Larry. The whole concept of volunteering also comes in as to whether or not that's a compensable activity or not. So if you could talk a little bit about the fact that a number of companies have quote unquote volunteer days. They have volunteer programs, they encourage their employees to volunteer for certain activities in the community. How do you deal with that as a function of, is that hours worked or is it not?
Larry Stine (00:43:12):
It's pretty complicated actually on the volunteers. And it also has a lot to do with whether you're a nonprofit or you're a for-profit. Wage and hour look very skeptical. Alright. For-Profit, having their employees volunteer to do things. Now that doesn't mean you can't, you can't do it, you can't. But, and when you're a for-profit, the volunteering has to be fundamentally something unrelated to your work at the company.
Les Schneider (00:43:43):
All right. So let me give you an example Larry. I work for a bank, right? And the bank says, gee, the first national bank of whatever we want you all to get into the community. We don't care if you help the Carter Center build homes a Habitat for humanity. We don't care if you're tutoring people on how to read. We don't care if you do charitable work in your church or your synagogue, but we want you to do something. Right. We want you to volunteer. Right. If, if it's mandatory to do the volunteering, does the employer have to pay for those hours?
Larry Stine (00:44:22):
And with the example that you use, which basically says you go volunteer out in the community and pick something. No. Right. It's still a true volunteer cuz it's not related to the job the person's doing. And it's designed to help. Cause you get, you're given so much ability to pick whatever you want to do. Most of us tend to do something anyway. I would be the rare person who doesn't do something. So,
Les Schneider (00:44:47):
So if I'm a salary non-exempt folk person mm-hmm. <Affirmative> and I work Monday through Friday nine to five. But on this particular Wednesday, I go out nine to five and I volunteer for my synagogue or church or whatever. And I, I do work there from nine to five. The company doesn't dock me. It's pretty clear that that's fine. But what would happen if the company said, well you're volunteering, yes, we want you to volunteer, but we're not paying you for that day, whether you're hourly or salary, we're not gonna pay you. Right. What would happen then as to those volunteer hours?
Larry Stine (00:45:29):
Well, in the circumstance where we're still basically saying that you can pick anything you want. Right? It's still not ours work. Mm-Hmm. <affirmative>. So for the hourly employees, that's fine. For the salary to exempt, we have to go back to the exemption issue. But, but for example, it was different. Let's just say we had the first bank charity and I made all of them have the charitable event for the first bank charity event, and they all went out for that same eight hours. They're gonna find that to be compensable. Right? Cause I've got a charity that's my charity that is out there to generate good, good marketing and good feelings towards my company and I'm making my employees go out there to do it. Then that one, I think they, they were at a point where they've crossed the line and they are now making them work for their particular char. It's just too close. But if they're give them the freedom to pick anything else, it's fine. But that's, that becomes more of I'm making you do something that I'm getting an actual benefit to, to, so
Les Schneider (00:46:36):
You have to be careful on how you tailor these volunteer programs.
Larry Stine (00:46:40):
Sure. But like for example, one of the things that we know is, you know, if you could go out to the local stadium and have the first national bank serve food for free and y'all are wearing a first national bank thing to kind of do that, that still would be considered.
Les Schneider (00:46:55):
So you can work the concession stand. Yeah. And in all likelihood, you wouldn't have to pay those
Larry Stine (00:46:59):
Folks when, when exception.
Les Schneider (00:47:00):
Larry Stine (00:47:01):
That is, you cannot mandated them to do that.
Les Schneider (00:47:04):
Right. It has to be truly
Larry Stine (00:47:06):
Volunteer has to be truly volunteer. And that's the concept. It's still whatever it is with a volunteer, you have to give them the ability to, to volunteer. If you don't get there, then it's just an assignment that you're trying to hide. And that's true with almost even the nonprofits. The nonprofit says you're going to go to this charitable event that we're running. You're, and you're an employee. That's what you do. Right. And so it's compensable and you're not really there volunteering. But if they say, Hey, we're having this run and you know, I've got five people who are gonna be manning and doing all the work, I'm making 'em to do it. Rest of y'all can come if you want. And you don't have to come if you don't want, if they show up, it's still clearly volunteering.
Les Schneider (00:47:47):
So if it's, if it's voluntary volunteering, you're okay. Yeah. If it's mandatory volunteering, there may be other
Larry Stine (00:47:53):
Issues. Right. Yeah. And we're
Les Schneider (00:47:56):
Talking about name and if it involves outside of the normal workday, people work Monday through Friday nine to five, but then they're doing the Saturday volunteering, that also has to be analyzed
Larry Stine (00:48:07):
Properly. That's right. Because it could end up being overtime.
Les Schneider (00:48:08):
Right. It could be overtime. All right. Well let's move on. To exemptions, Larry, there's a large number of exemptions in the wage now law 54 and the 54 a number, and if we did all 54, we'd clearly run outta time <laugh>. So rather than would
Larry Stine (00:48:25):
Les Schneider (00:48:25):
Rather run outta time, most people don't care about most of those exemptions. But what are the main exemptions that make somebody an exempt employee that would not subject to o Okay. Not subject them to
Larry Stine (00:48:38):
Overtime. The one that almost every business has some exemptions are the white collar exemptions. Right? The executive, the administrative and the professional. And we alluded to it because the salary, so for executive for example, is you're, if you're getting a salary of $684 or more, and just so you don't get too comfortable wage hours looking at it right now to increase that number to nine, somewhere in the $900 range, you think, and if you supervise two or more full-time employees and your primary job is management of a recognized unit and you have a recognized unit, then you are a executive exempt employee administrative, you're doing white collar, you get the salary of at least $684. Your job is administrative right. Not production. And you get to exercise discretion and independent judgment as a matter of significance. You are exempt on the administrative and for professionals you have a salary requirement for almost all professionals except for doctors, lawyers, and teachers.
Larry Stine (00:49:49):
Right. Don't know why the teachers are thrown out. I know whether the doctor's, lawyers there, but the teachers there too. And then you have to be engaged primarily, and a function requires professional ability and they define that as a designated degree and typically four years degree. So in other words, if I just say I need a college graduate and you can have a graduate, anything, then not gonna call it professional. But if I have to have a specific degree, I gotta have a law degree, I gotta have a agricultural engineer degree and I only hire people with those degrees. And then the work is primarily doing that toward work. They're exempt as professional. That's one of them. 13 [inaudible] [inaudible] with, for truck drivers.
Les Schneider (00:50:28):
Well, before we get there, Larry, let, let me go back a little bit and kind of point out to everybody that, as you say, some people have the salary requirements. Some people ha and added to that is being able to exercise independent judgment. But let's look at certain things that employers can get trapped on. Okay. We know there was a restaurant chain that had assistant managers. Right. But those managers, you have to really focus on what those managers do and whether or not those assistant managers are exempt or non-exempt. True. And if they're the, if they get the title of ex assistant manager, but all they're doing is cooking in the back of the house, it's less likely that they would be an exempt employee.
Larry Stine (00:51:14):
Right. But on the other hand, if they're the, the manager does one shift and the assistant manager does the next shift,
Les Schneider (00:51:22):
Then they probably would have the exemption. Yeah. And then in the legal profession, obviously you've talked about the lawyers being exempt and, but paralegals, again, you have to look at what that paralegal is doing. And we, you and I have experienced cases where they have been found to be exempt, but they have also found to be non-exempt more often than not <laugh>, where the overtime would be owed. So
Larry Stine (00:51:46):
It might make them feel better that a bunch of law firms have gotten caught for not paying overtime to their paralegals and claimant professional exemption. And then they have law. So that's just not ordinary employees get caught. Law firms have been caught with the paralegal
Les Schneider (00:52:01):
Issues. Right. So again, we've talked about the three main exemptions. There are numerous others. But again, they're very specialized and we will try to handle that on another day in a more focused seminar Simply on that point. Going on from n normal exemptions, Larry, we talk about this concept of fluctuating work week, right? And you and I have already kind of explained some of that, right? And I know there's a kind of a, of a pejorative term that some people use and call it quote unquote Chinese overtime. And that doesn't sit well in these political, it's definitely not correct pages. Correct. But at at this point what we're saying there is that we, that if you pay somebody a salary and it's clear that the salary covers all hours worked, right? That if the person works over 40, yes, it may cover those hours, but you still have to pay overtime in those situations.
Les Schneider (00:53:04):
Correct. And it can be dramatically different. And I would, if the folks who were listening today have a pencil and paper or a pen and ink or their little computer in front of them, the difference can be something like this. If you paid somebody $10 an hour and they worked 40 hours, they would make $400. If you put somebody on a salary of $400 a week and they work 40 hours, they're also getting $400. But that same, those same two people, if they each worked 50 hours, the pay would come out much different. Right. The the the hour 41 to 50 on the $10 an hour person is gonna be making $15 an hour times 10, which is one 50 plus to 400, they're making $550. Correct. On the other hand, the salary person, if we take that 400 divided by 50, that's coming out $8 an hour, that particular week, you take the eight times, the 10 overtime hours times one half, not one and a half, but one half, you're only having $40 added to the 400. So that amount of money would be four 40. So as you can, as you can see, the five 50 versus the four 40 is dramatically different, but both methods are lawful. Correct. But you have to communicate to the employee which methods you're using. Correct. And it could make a, a big difference in what we're doing.
Larry Stine (00:54:36):
Correct. Yeah. A lot of times people wanna, we tell 'em that they just shake their heads and disbelief they
Les Schneider (00:54:42):
Roll our eyes and think we have to be drug tested. Yeah. Which is another seminar for another day <laugh>. So we'll, we'll, we'll deal that at another time.
Larry Stine (00:54:50):
It isn't magic. It really is the law and it really does truly work. Now, the quid pro quo is that if the $10 an hour employee works 30 hours, you're gonna pay him 300 bucks. Right? The salaried employee works 30 hours, you're gonna pay, I'm 400 bucks. Right? The quick pro quo is that you can't cut the salary when they drop below 40 because if you do that, really what you're doing is you're just saying, I'm gonna pay you hourly up to 40 and I'm gonna call you salary over 40 won't work. So it basically, the rule is if it's salary, they work three days that week and a non-exempt, you gotta still pay 'em the 400. Okay? But that, that's pretty fair trade when you think about how it does any overtime. Right? The other thing that does though, if you notice the guy who worked overtime for $10 worked for $15 an hour, right. For the next 10 hours. Well, the, the 400 person worked those next 10 hours for
Les Schneider (00:55:48):
Larry Stine (00:55:48):
There is a tendency when you put them on these systems that they figured this out and all of a sudden you'll have people who really don't wanna work over 40, which sometimes is what you
Les Schneider (00:55:57):
Want. Right? Anyway.
Larry Stine (00:55:59):
Les Schneider (00:55:59):
They work more efficiently because they realize that additional halftime they're getting is not that much money. Right. So they, they want to get the job done in an efficient and quick fashion.
Larry Stine (00:56:10):
Yeah. In their mind they're working for $4 an hour overtime.
Les Schneider (00:56:12):
Right? So the next concept is something in the wage, our local per permit or suffered, right? And we're not authorized. You know, the question is, is if an employer basically has some knowledge that the employer is doing work at home, can they stop that? Or if the person does do the work at home and you have kind of wink winked that and given tacit permission, is that hours worked and are you were obligated to do
Larry Stine (00:56:45):
It? Right? Well, under the fair labor standards, the concept is suffer will
Les Schneider (00:56:48):
Larry Stine (00:56:50):
Which means if I allow you to work that, and so if I tell you now you're not to work over 40 hours, by the way, you're at, you know, on Friday afternoon I tell you I gotta have this report on my desk Monday morning at eight, I'm gonna fire your. And then they turn in, you know, 20 hours on the weekend and you go, I didn't know you were 20 hours on the weekend. No, you're not gonna get away with that.
Les Schneider (00:57:16):
And you're gonna have to pay for those 20 hours.
Larry Stine (00:57:18):
For those 20 hours because you knew what you were doing. You have a rule to don't do it and you enforce it and they don't tell you and you haven't allowed it, you can probably make an argument that you don't have to pay for it. Typically what we say is when you make a rule, if they work it, you pay it, and then you discipline them for not asking for the authorization. And an employment discipline we don't mess with mainly because, as you alluded to earlier, it's such a small amount of money and can cause such a big problem. That's, that's right. That we don't want to do that. Now we, we've run almost outta time and we only got three minutes left and we wanted to ask you if you had any questions. We've got the, you can do it under the q and a and if not we'll we'll
Les Schneider (00:58:05):
Larry Stine (00:58:06):
Talking, we'll keep talking main, mainly Les and I figured that we went down and put the subject, we had about four hours worth of topics and we were just talk until we got to the end of an hour. Right.
Les Schneider (00:58:16):
All right. Yeah. So does anybody have any questions?
Larry Stine (00:58:21):
Les Schneider (00:58:22):
No. All right. So we will, we'll keep moving you for a few more minutes. Larry, in, in the restaurant industry, obviously the issue of tips and the tip credit is a big deal and there's something called the 80 20 rule. Do we wanna expound a little bit of that because that's a big issue that a lot of people in the restaurant industry make those mistakes and there's huge amounts of liability involved.
Larry Stine (00:58:47):
Yeah, basically what's happened under the tip rules, and y'all may not be in tips or not, but cuz what's used to be called an eight or 88 or 20 rule, which meant that 80% of your time had to be engaged to get the tip of it had to be in tip engaged work, and then you could put 20% of your time and related stuff like wrapping silverware, making tea, cleaning the tables, not cleaning the toilets, not going out and policing the parking lot. They don't even even let that come at all. But they just changed it to a new rule that, that we're now calling 2030, which says still the 80 20 rule, that they only allow you to do 20 percent of your time and these non tif generating work related issues. And now they said you still have to do that, but you can't exceed 30 minutes on either side of the shift. So if you come in at the start of the shift and you're normally been bringing your people in for an hour wage and I are saying you can't do that anymore, you, you're gonna have to pay 'em for a half hour at the full minimum wage and not the tip credit. The tip credit issue, frankly, is something that we could probably spend 30, 40 minutes or longer to a more specialized audience on that particular thing. But it is a extremely difficult thing
Les Schneider (01:00:10):
And it, and is this something that people often get wrong and you owe overtime on the tips and you have to do that correctly. The travel time issue is another issue that people make mistakes on. And again, I don't know if we have enough time today, but we can certainly talk about all of these other topics perhaps in a, in a part two of this seminar. But please, if you have people traveling as part of their work, some of that travel is compensable, some of it is not. The rules are very tricky and it take, it's, it's worth taking the time to learn to do it correctly. The 13 [inaudible] [inaudible] exemption applies to travel in, in trucking and interstate commerce and as a result, some of those folks who, who deal with certain vehicles that they drive, they can be exempt from overtime for that driving.
Les Schneider (01:01:04):
But again, it's a certain type of vehicle, et cetera. But I see that we are rapidly getting beyond our time that we have other, we have other topics, but we'll be it, it'll be another story for another day. We would very much appreciate the feedback from all of you on other topics you may wanna hear from what about wage and hour and whether or not what we did today was helpful to you to, to get some pointers And we're obviously always open to have further discussions with anyone who wishes to make sure that their systems are the right systems. So we wish everybody a good weekend and we appreciate you all dialing in so long.
Where Experience Counts