The Fair Labor Standards Act: An Introduction

1. The Fair Labor Standards Act:An Introduction Kim A. Leffert Emily M. Emerson Mayer Brown LLP Chicago Metro AEYC Opening Minds Conference January 26, 2012

2. A Brief History of the Fair Labor Standards Act • On June 25, 1938, President Franklin D. Roosevelt signed the Fair Labor Standards Act to become effective on October 24, 1938. • The law was originally designed to address factory working conditions and child labor. • The most bitter controversy raged over labor standards in the South. “There are in the State of Georgia,” one Indiana Congressman declared, “canning factories working ... women 10 hours a day for $4.50 a week. Can the canning factories of Indiana and Connecticut of New York continue to exist and meet such competitive labor costs?” • In the industries covered, the Act banned oppressive child labor and set the minimum hourly wage at 25 cents, and the maximum workweek at 44 hours.

3. What is the Fair Labor Standards Act? • The Fair Labor Standards Act (“FLSA”) regulates the minimum wage, overtime pay requirements, child labor, equal pay requirements, and wage and hour recordkeeping requirements. It also prohibits retaliation against any employee who files a complaint of FLSA violations. Where state law is more protective of workers, state law would apply. • The FLSA affects full-time and part-time workers in the private sector and in Federal, State, and local governments. • Minimum Wage: Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. In Illinois, nonexempt workers are entitled to $8.25 per hour effective July 1, 2010. • An ambitious senate bill was introduced in Illinois in 2011 that would have increased Illinois’ minimum wage by 50 cents per year, plus a cost-of-living adjustment. If it had passed, workers would be making a minimum of $8.90 per hour in 2011, and $9.50 in 2012. Adjusted for inflation, the minimum wage would have reached approximately $10.65 by 2014. The bill was not passed but may be reintroduced this year. • Overtime: After 40 hours of work in a workweek, an employer is required to pay overtime pay at a rate of not less than one and one-half times a covered nonexempt worker’s regular rate of pay.

4. Recordkeeping Requirements under the FLSA • The employer has a duty to maintain accurate records of a nonexempt employee’s work hours. Information to be maintained by employers includes: • Full name and social security number; • Home address; • Date of birth (if under 19); • Sex and occupation; • Time of day and day of week on which the workweek begins; • Regular hourly rate of pay for any workweek, basis of pay by stating the amount paid per hour, day, week, piece, commission or other basis, and the amount and nature of each payment which is excluded from the regular rate; • Hours worked each workday and total hours worked each workweek; • Total daily or weekly straight-time earnings; • Total premium pay for overtime hours; • All additions to or deductions from wages each pay period; • Total wages paid each pay period; and • Records of retroactive payment of wages. • For exempt employees, employers must maintain records showing the basis on which wages are paid in sufficient detail to permit calculation for each pay period of the employee’s total remuneration for employment (including fringe benefits).

5. Complying with Overtime Requirements: “No-Overtime” • Many employers, especially those who operate staffing agencies, find overtime calculations particularly burdensome and complex. Some implement a “no-overtime policy” to attempt to simplify budgeting and adhering to fixed-price contracts. • No-Overtime Policy: Employees are told that they are not authorized to work more than 40 hours in the week without prior approval, and that unauthorized work will not be paid as overtime. • In a 2008 case, Chao v. Gotham Registry Inc., the 2nd Circuit held that a staffing agency for healthcare professionals violated the FLSA because the employer was deemed to have controlled or required the off-site unauthorized overtime work, and because that work benefited the employer. The employer took extensive precautions in the policy, such as constantly reminding employees of the policy and including it in the legend on their timesheets, but the court determined that this was not enough. • According to the court, the employer must do more in implementing a no-overtime policy, such as tracking hours each day, firing employees who habitually disregard the policy, or refusing to pay employees anything for unauthorized overtime work. • The employer could also consider adding a self-certification on time sheets (e.g., “I certify by signing this time sheet that it reflects all hours that I worked for Employer during this week.”)

6. Operation of Daycare Centers and Preschools Under the FLSA • Characteristics: Daycare centers and preschools provide custodial, educational, or developmental services to preschool age children to prepare them to enter elementary school grades. This includes nursery schools, kindergartens, head start programs, and any similar facility primarily engaged in the care and protection of preschool age children. Individuals who care for children in their home are not considered daycare centers unless they have employees to assist them with the care of the children. • Coverage: The 1972 Amendments to the FLSA specifically extended FLSA coverage to preschools as covered “enterprises”, regardless of whether public or private or operated for profit or not for profit, and without regard to the annual dollar volume of the business. As a result, all such enterprises are required to comply with applicable provisions of the FLSA. • Requirements: Employers must: • Establish the workweek for pay purposes (7 consecutive 24-hour periods), which may begin on any day of the week in the employer’s discretion (but remains fixed once established). • Maintain complete and accurate records of each employee’s daily and weekly hours worked each week. • Pay at least the federal minimum wage to all nonexempt employees for all hours actually worked. • Pay overtime compensation to each nonexempt employee for all hours worked over 40 in each workweek. • Comply with all youth employment standards.

7. Operation of Daycare Centers and Preschools Under the FLSA, cont’d. • Preschool Teachers: Teachers in preschool and kindergarten settings may qualify for exemption from the minimum wage and overtime pay requirements as “professionals” under the same conditions as a teacher in an elementary or secondary school. • Other Preschool Employees: Although a preschool may engage in some educational activities, preschool employees whose primary duty is to care for the physical needs for the facility’s children would ordinarily not meet the requirements for exception as teachers under the applicable regulations. • Rest and Meal Periods: Bona fide meal periods (typically 30 minutes or more) generally need not be compensated as work time as long as the employee is completely relieved from duty for the entire meal period. The employee is not relieved from duty if required to perform any duties, whether active or inactive, while eating. Thus, an employee is not considered "relieved" if he or she is required to continue to watch over children while they and the employee eat their meal. • Lectures, Meetings and Training Programs: Attendance at lectures, meetings, training programs, and similar activities must be counted as working time unless all four of the following criteria are met: (1) it occurs outside normal scheduled hours of work; (2) it is completely voluntary; (3) it is not job-related; and, (4) no other work is performed during the period. Therefore, time spent attending training that is required by the state for daycare center licensing is working time for which employees must be compensated.

8. Exemptions from Minimum Wage and Overtime Requirements • Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. • Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. • To qualify for exemption, employees typically must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. • Employees who earn an annual salary of at least $100,000 are automatically exempt if they also meet at least one of the duties or responsibilities of a bona fide executive, administrative, or professional employee. • Job titles do not determine exempt status. For an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.

9. Executive Exemption • To qualify for exemption from the overtime requirements of FLSA as an executive employee, an individual must: • Be compensated on a salary basis at a rate of not less than $455 per week, • Have the primary job duty of managing the enterprise or a customarily recognized department or subdivision of it, • Supervise two or more employees on a regular and customary basis, and • Have the authority to hire or fire other employees or be influential in those processes • Examples: CEO, manager

10. Administrative Exemption • An administrative employee is exempt from FLSA's minimum wage and overtime requirements if he or she: • Is compensated on a salary basis at a rate of not less than $455 per week, • Performs office or non-manual work of substantial importance relating to management or general business operations that require a high level of skill or training, and • Customarily and regularly exercises discretion and independent judgment over matters of significance • Example: Executive secretary to the company president

11. Professional Exemption • Individuals may be exempted as either learned or creative professionals. To qualify for the professional exemption, an employee must be compensated on a salary basis at a rate of not less than $455 per week. • Learned professionals qualify for exemption if they perform non-manual work of an advanced type in a field of science or learning that: • Requires knowledge customarily acquired by a prolonged course of study, • Is primarily intellectual in character, and • Requires the exercise of discretion and independent judgment. • Examples: teachers, scientists, accountants, attorneys, and doctors • Creative professionals qualify for exemption if they perform work that requires “invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.” • Examples: artists, writers, musicians, and performers

12. Computer Professionals • Computer systems analysts, programmers, software engineers, and other similarly skilled workers in the computer field can be exempt from FLSA's overtime requirements as a special category of professional employee. • Computer professionals performing administrative or executive duties must paid on a salary basis of at least $455 weekly to qualify for the exemption. Unlike other exempt professionals, however, these individuals can be paid on an hourly basis and still qualify for exemption, provided they earn an hourly wage of at least $27.63. • To qualify for the computer-related exemption from overtime, an employee's primary duty must include: • Application of systems analysis techniques and procedures, including consultations with users to determine hardware, software, or system function specifications; • Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs based on and related to user or system design specifications; • Design, documentation, creation, testing, or modification of computer programs related to machine operating systems; or • A combination of the above duties requiring the same level of skill.

13. Outside Salespersons • Salespersons also can be exempt from FLSA's minimum wage and overtime provisions. • To qualify, an employee must make sales or obtain orders away from the employer's place of business. • These employees need not be paid any salary if their compensation is calculated solely on the basis of commission.

14. Consequences of Misclassifying Employees • It is the employer’s burden to prove that an employee is exempt from the FLSA’s overtime and minimum wage requirements. • Misclassifying a nonexempt employee as an exempt employee can be an expensive mistake for an employer. • Accidental Misclassification: The Labor Department's Wage and Hour Division can order an employer that misclassifies an employee as exempt to pay up to two years' back wages due the employee. Back overtime wages can mount quickly, particularly if the employer's misclassification involves several employees. • Intentional Misclassification: If the Wage and Hour Division finds that an employer intentionally misclassified an employee to avoid overtime obligations, it can order the employer to pay three years' worth of back wages. In addition to back wages, the Wage and Hour Division can collect an amount in liquidated damages equal to the amount of unpaid wages and can impose a fine of as much as $10,000 per violation. • Bottom Line: Pay close attention to tasks and responsibilities that make up a particular job position as well as the qualifications required to perform the job. Create a clear job description that lays these out.

15. Exempt Part-Time Employees • What happened: An employer asked if it is acceptable practice to prorate the minimum allowable salary of an exempt employee to match his 20-hour-a-week part-time status. The company wanted to pay the employee an annual salary of $15,000 – less than the $23,660 minimum allowed by the FLSA. • DOL’s answer: No. In a February 14, 2008 Opinion Letter, the DOL refused to allow a prorated salary for an exempt employee whose workweek is less than 40 hours. • Reason: Employees classified as exempt under the FLSA are not entitled to overtime and are exempt from various other wage and hour rules. Someone you classify as exempt must be paid a minimum salary set by law, and also perform certain defined duties. That minimum salary is $23,660 annually, or $455 per week – no exceptions. The amount must be paid even if the employee works part time. An employer wishing to pay an employee less than the minimum would have to reclassify the worker as a nonexempt employee and pay the employee on an hourly basis.

16. Permissible Salary Deductions for Exempt Employees • Employees lose their exempt status if deductions from salary are made for absences caused by the employer or by the operating requirements of the business. However, employers can reduce an exempt employee's pay without jeopardizing the worker's exempt status for absences of a full day or more due to: • Personal reasons other than sickness or disability; • Illness or accident, if the employee is covered under a sick-pay policy; or • Unpaid leave taken under the Family and Medical Leave Act. • For example, an employer may make a deduction from the salary of an exempt employee without destroying exempt status in cases where the employee chooses to stay home in inclement weather and the employer remains open for business. • Employers cannot make deductions from pay for absences caused by jury duty, attendance as a witness, or temporary military leave. However, employers can offset any amounts received as jury fees, witness fees, or military pay for a particular week against salary for that same week.

17. Additional Salary Deductions for Exempt Employees • Disciplinary Reductions: Reductions in pay can be made as penalties imposed in good faith for infractions of safety rules of major significance. • Safety rules of major significance include those that relate to the prevention of serious danger in the workplace or to co-workers, such as rules that prohibit smoking in explosive plants, oil refineries, or coal mines. • Employers can make reductions to pay for unpaid disciplinary suspensions of one or more days imposed in good faith for infractions of written workplace conduct rules that apply to all employees. • The exception applies only to rules relating to workplace conduct, and deductions cannot be made for infractions related to attendance or performance. • Deductions From Leave Accounts: An employer that provides paid leave may make deductions from an employee's paid leave account without affecting the employee's exempt status.

18. Break Time for Nursing Mothers Under the FLSA • General Requirements : Employers are required to provide reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk. Employers are also required to provide a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk. • Time and Location of Breaks • Employers are required to provide a reasonable amount of break time to express milk as frequently as needed by the nursing mother.  • A bathroom, even if private, is not a permissible location under the Act.  A space temporarily converted into a space for expressing milk or made available when needed by the nursing mother is acceptable provided that the space is sufficiently private.  • Coverage and Compensation • Under the FLSA, only employees who are non-exempt are entitled to breaks to express milk. In Illinois, however, any nursing employee is entitled to reasonable unpaid break time each day to express milk. • Employers with fewer than 50 employees are not subject to the FLSA break time requirement if compliance with the provision would impose an undue hardship.  • Employers are not required to compensate nursing mothers for breaks taken to express milk.  Where employers already provide compensated breaks, an employee who uses break time to express milk must be compensated in the same way. In addition, the employee must be completely relieved from duty or else the time must be compensated as work time. 

19. Exempt and Nonexempt Employees in the Child Care and Development Industries

20. Teachers: Elementary & Secondary School • Teachers qualify as exempt employees under the professional exemption of the FLSA, which includes employees whose primary duties include teaching, tutoring, instructing or lecturing in the activity of imparting knowledge and who are employed as teachers in an educational establishment. • Elementary or secondary school teachers who hold a teaching certificate clearly fall within the exemption, regardless of terminology such as “conditional” or “provisional” that may be used by the state to describe different types of certificates. • Teachers who do not hold certificates can qualify for the exemption if they are employed in a jurisdiction, private school, or institution of higher learning that does not require them to obtain certificates, and perform primarily teaching duties.

21. Teachers: Kindergarten, nursery school, and substitutes • Kindergarten and nursery school teachers are exempt since the DOL has extended the teacher exemption beyond “traditional academic teachers” to include teachers of kindergarten or nursery school pupils. • Substitute teachers are also considered exempt where their primary duty is teaching and imparting knowledge in an educational establishment.

22. Other Employees of Educational Institutions • Employees compensated on a salary or fee basis who receive at least $455 per week, or on a salary basis at a rate at least equivalent to the entrance salaries for teachers at the educational establishment where they are employed, are exempt as administrative employees if their primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment, department, or subdivision. • Educational Establishments: Any elementary or secondary school system, institution of higher education, or other educational institution. • Related Administrative Functions: Functions related to the academic operations or functions of the school, rather than those functions relating to general business operations, including operations directly in the field of education. • Examples:Superintendents or other heads of a school system and assistants responsible for matters such as curriculum, quality and methods of instruction, testing, establishing and maintaining academic and grading standards; principals and vice principals; department heads; academic counselors and others with similar responsibilities. • Those employed in jobs relating to building management and maintenance or student health, and academic staff such as social workers, psychologists, lunch room managers, and dieticians, do not perform academic administrative functions, though they may qualify as exempt under other sections of this rule if those requirements are met.

23. Daycare Center Instructors • A DOL opinion letter issued September 29, 2008 addressed the question of whether employees of daycare centers qualified as exempt teachers under Section 13(a)(1) of the FLSA. • Daycare center instructors spend a majority of their time teaching children between the ages of three and five a curriculum of basic reading, counting, and social skills. The daycare centers at issue, however, were not licensed by the State Department of Education. • The DOL opinion letter states that unless the daycare center provides grade school curriculums, introductory programs in kindergarten, or nursery school programs in elementary education as determined under state law, the instructors are not within the scope of the teacher exemption of the FLSA. • Because the daycare centers were not licensed by the State Department of Education, but instead are licensed by the Department of Public Welfare, the DOL concluded that the state did not consider the daycare centers to be providing educational services. Thus, the instructors did not qualify for the teacher exemption under Section 13(a)(1) of the FLSA.

24. Casual Babysitters • “Casual babysitting” is irregular or intermittent and is not performed by a person whose vocation is babysitting. Some unrelated household duties may be included if they do not exceed 20 percent of the total hours worked. • Section 13(a)(15) provides a minimum wage and overtime exemption for people who provide casual babysitting services in the home of the children involved. • If the babysitting service is performed in the home of the babysitter, the minimum wage or overtime requirements would not apply.

25. Companions • Section 13(a)(15) provides a minimum wage and overtime exemption for persons providing companionship—fellowship, care, and protection—for the elderly or infirm who are unable to care for themselves. The U.S. Supreme Court upheld the validity of the extension of this exemption to companions employed by a third party, such as an agency, in addition to those hired directly by the patient or patient's family. • Household work such as meal preparation, bed making, and laundry is permitted under this exemption if it is incidental to the companion's duties and does not exceed 20 percent of the total hours worked. • Note: The “casual limitation” that applies to babysitting does not apply to companionship service. • Trained personnel such as registered or practical nurses providing companionship services are not exempt (but may be exempt as professionals if they meet the criteria). Certified nurse aides and home-health-care aides may be exempt depending on the nature of their work. • Group homes owned and maintained by an employer do not qualify for the exemption. • State regulations vary widely on this issue. Currently, 29 states, including Illinois, do not cover home care workers in their minimum wage or overtime protection laws. Note that failed senate bill sought to remove this exemption for “domestic service”.

26. Recent Proposal Regarding Companion Workers • The Obama administration revealed a proposal on Dec. 15, 2011 to extend minimum wage and overtime protections to in-home care providers in the U.S. by revising federal rules on the exemption for companion workers. The proposed rule would refine the definitions of “domestic service employment” and “companionship services” within the FLSA. • Under the plan, staffing agencies would no longer be able to claim the companion exemption even if they were joint employers with a family or household of workers whose duties fell under the definition of companionship services. Agencies account for an estimated 1.59 million of the nation’s 1.79 million home care workers. Individuals, families, and households, however, who employ in-home workers who perform mainly companionship tasks would still be able to use the exemption, even if they were jointly employing the worker with an agency. • Under the new proposed definition, “companionship services” would be limited to tasks that directly relate to offering fellowship and protection to those who cannot care for themselves. Companion workers could also provide incidental personal care like dressing and grooming, as long as that work didn't exceed 20 percent of their time in a given week. • The DOL also plans to revise the record-keeping requirements for live-in domestic workers ensure that they comply with demands made on other employers. That means that families and employees will have to track hours instead of just reaching a work agreement. • The economic impact analysis for the measure states that the changes would cost families and agencies about $9.9 million in the first year and then $3.5 million the following year, with an estimated $4.4 million in expenses 10 years in. • This notice of proposed rulemaking was posted to the Federal Register Vol. 76, No. 248 (Doc No: 2011-32657) on Dec. 27, 2011, and interested persons may submit comments via www.regulations.gov on or before February 27, 2012.

27. Additional Resources • U.S. Department of Labor • http://www.dol.gov • http://www.wagehour.dol.gov • 1-866-4-USA-DOL • Illinois Department of Labor • http://www.state.il.us/Agency/idol/ • 312-793-2800