The Fair Labor Standards Act (FLSA), which outlines such wage and hour laws as overtime and exemption status, was enacted in 1938 and has only been modified slightly since. Many would argue that this law is archaic and difficult to apply to 2009’s workforce. Yet this does not prohibit the Wage and Hour Division of the Department of Labor from holding organizations accountable for compliance. In fact, this agency collected over $140 million in back wages for employees in 2008 alone. While all difficulties related to the FLSA cannot be outlined within this article based on volume, the following two points are common and pertinent for today’s employers.
Flextime or Telecommuting for Nonexempt Workers
Employers are trying to attract, motivate and retain key talent while workers are trying to meet demands for work-life balance. Flexible work arrangements are becoming increasingly popular. While these flextime programs provide benefits to employers and employees, they can also create a unique set of liabilities for those employees who are nonexempt.
Under FLSA regulations, nonexempt employees must be compensated for all time worked “on the job” and are eligible for overtime for time worked over 40 hours in a week. In addition to flexible schedules, this rule is often difficult to apply for nonexempt employees who have remote work access. All time worked must be tracked, including such tasks as checking email at night, responding to voice mails in the car, or working via Blackberry on the weekends.
WorldatWork, a global association for compensation and benefit professionals, recently published a report, Flexible Work Arrangements for Nonexempt Employees, which found that tracking employees’ time is one of the biggest obstacles when it comes to flexible work arrangements. The report provided the following suggestions for employers:
- Create formal policies and procedures for employees who are using flextime or telecommuting arrangements.
- Accurately track work hours and overtime.
- Train supervisors on how to manage employees on a flexible work arrangement, especially on tracking time and overtime laws.
- Train nonexempt employees on your policies and time tracking procedures relating to their particular flexible work arrangement.
- Enforce lunch and work breaks, even in telecommuting arrangements.
Watson Wyatt recently reported that nearly 65 percent of organizations currently offer at least one variable pay plan to nonexempt employees. What many employers don’t realize is that for non-discretionary incentives, which commonly have some type of formula, the amount paid must be factored into the employee’s regular rate of pay for purposes of calculating overtime.
For example, an employee worked 41 hours in one week at $10 per hour and receives a $50 productivity incentive. The employee’s regular rate is not $10, but actually $11.22 ($410 of regular pay plus $50 of incentive divided by 41 hours worked). The company would have to pay the one hour of overtime at 1.5 times $11.22 ($16.83). Total employee pay for the week would then be 40 hours at $10 per hour ($400) and 1 hour at $16.83 for a total of $416.83. If incentives are paid less frequently, such as quarterly or annually, the organization will have to go back to calculate additional overtime for the period in which the incentive is rewarding. If it seems complicated, it is, and leads to many employers being out of compliance.
As the workforce and technology change to meet the demands of today, there will be continued and new challenges related to the FLSA. The best way to avoid penalties and lawsuits is to ensure current pay practices are accurate and compliant. iBi