The FLSA What You Need to Know

1. The FLSAWhat You Need to Know University of Illinois at Chicago Office of the Vice Chancellor for Human Resources Compensation 2009

2. Purpose • Informational • Provide an overview of the Fair Labor Standards Act (note, this presentation is meant to be broad and can not cover every possible aspect of the FLSA) • Address concerns and provide answers and recommendations to questions and operational concerns that arise frequently • Communicate where to go with questions

3. What is it? • Federal law that governs minimum wage, overtime, recordkeeping, and child labor requirements/restrictions • Passed by Congress in 1938 originally, has been amended in 1966, 1972, 1974 and 1985, and finally updated in August 2005 • Called the Overtime law, but focuses on other aspects of pay as well (e.g. equal pay, child labor restrictions, etc.)

4. What is the Basic Underlying Public Policy Question? • The FLSA seeks to articulate that there are differences between persons who are employed in exempt and non-exempt roles; and these differences must be acknowledged and handled appropriately within organizations. • Employees in jobs that are exempt from the FLSA work when duty calls, until the job is done. These employees receive a salary, pay that doesn’t change for doing their work (irrespective of quantity of hours). • Employees in jobs that are non-exempt work during specific times. When those timeframes are exceeded those employees are eligible to receive overtime compensation. These employees are paid by the hour for their work.

5. What is Covered? • Basic minimum wage • Some state laws may add benefits (e.g. for min wage, Illinois is $7.75 and will increase to $8.25 by 2010) • Whichever is best for the employee “wins” • Can always do more, not less • Overtime pay • Recordkeeping requirements • Child Labor/working condition requirements

6. What is Not Covered? • Vacation, holiday, severance, or sick pay; • Meal or rest periods, holidays off, or vacations; • Premium pay for weekend or holiday work; • Pay raises or fringe benefits; and • a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees. • does not provide wage payment or collection procedures for an employee's usual or promised wages or commissions in excess of those required by the FLSA. • does not limit the number of hours in a day or days in a week an employee may be required or scheduled to work, including overtime hours, if the employee is at least 16 years old. Need to always check the state statutes on these issues

7. Who is covered • Enterprises with at least two employees who engage in interstate commerce, produce goods for interstate commerce, or handle, sell, or work on goods or materials that have been moved in or produced for interstate commerce with $500,000 in annual dollar volume of business. • Regardless of dollar amount, also applies to hospitals, businesses providing medical or nursing care for residents, schools, preschools and government agencies (federal, state, and local) • Which ends up being -- for most companies in the private and public sectors -- more than 130 million workers

8. Who is not covered • Relatively few employee types • Employees of firms which are not covered enterprises under FLSA still may be subject to its minimum wage, overtime pay, and child labor provisions if they are individually engaged in interstate commerce or in the production of goods for interstate commerce, or in any closely-related process or occupation directly essential to such production. • These are the most well-known exemptions, but there are others (e.g. some jobs are exempt from both the overtime and minimum wage provisions, some just minimum wage, and others only overtime). • Executive employees • Administrative employees • Professional employees

9. Minimum Wage • Covered, non-exempt employees must be paid not less than the federal minimum wage for all hours worked • The current federal minimum wage is $6.55 per hour effective July 24, 2008 and will be $7.25 per hour effective July 24, 2009 . The state of Illinois’ minimum wages are different (i.e. current $7.75, will be $8.00 on 7/1/09) • Cash or equivalent – free and clear • Minimum Wage issues: • Compensation Included • Deductions • Tipped Employees • Hours Worked

10. Hours Worked Issues • Suffered or PermittedWork not requested but suffered or permitted is work time for which non-exempt employees must be paid • Waiting Time • Counted as hours worked when • Employee is unable to use the time effectively for his or her own purposes; and • Time is controlled by the employer • Not counted as hours worked when • Employee is completely relieved from duty; and • Time is long enough to enable the employee to use it effectively for his or her own purposes • On-Call Time • On-call time is hours worked when • Employee has to stay on the employer’s premises • Employee has to stay so close to the employer’s premises that the employee cannot use that time effectively for his or her own purposes • On-call time is not hours worked when • Employee is required to carry a pager • Employee is required to leave word at home or with the employer where he or she can be reached

11. Hours Worked Issues • Meal and Rest Periods • Meal periods are not hours worked when the employee is relieved of duties for the purpose of eating a meal • Rest periods of short duration (normally 5 to 20 minutes) are counted as hours worked and must be paid • Training Time • Time employees spend in meetings, lectures, or training is considered hours worked and must be paid, unless • Attendance is outside regular working hours • Attendance is voluntary • The course, lecture, or meeting is not job related • The employee does not perform any productive work during attendance • Travel Time • Ordinary home to work travel is not work time • Travel between job sites during the normal work day is work time • Special rules apply to travel away from the employee’s home community

12. Hours Worked Issues • Sleep Time • Less than 24 hour duty • Employee who is on duty for less than 24 hours is considered to be working even if allowed to sleep or engage in other personal pursuits • Duty of 24 hours or more • Parties can agree to exclude bona fide sleep and meal periods

13. Overtime • Generally, covered, non-exempt employees must receive one and one-half times the regular rate of pay for all hours worked over forty in a workweek • Compliance is determined by workweek, and each workweek stands by itself • Workweek is 7 consecutive 24 hour periods (168 hours), days are determined by employer • Overtime Issues • Each workweek stands alone; some exceptions (e.g. Hospitals, Emergency) • Regular rate • Payments excluded from rate • Payments other than hourly rates • Tipped Employees • Deductions

14. Executive Administrative Learned Prof Management of the enterprise or recognized department/division Customarily and regularly directs the work of 2 or more Authority to hire, fire, or has a weighty recommendation Performs office or non-manual work directly related to the management or general business operations of employer or customers Exercises discretion and independent judgment in matters of significance Performs work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction Exemptions from Overtime Pay – White Collar Exemptions

15. Creative Prof Computer Outside Sales Performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor Application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system function applications Design, development documentation, analysis, creation, testing or modification of computer systems based on user or design specifications Design, documentation, testing, creation or modification of programs related to machine operating systems or Combination , the performance of which requires same skill Makes sales or obtains orders or contracts for services for the use of facilities for which a consideration will be paid by the customer Employee is customarily and regularly engaged away from the employer’s place or places business Exemptions from Overtime Pay – White Collar Exemptions

16. Exemptions There are other exemptions that are less common in our industry… Contact Compensation if you have questions about any job and it’s FLSA status

17. How Are the Exemptions Determined? Basis: receives a predetermined amount of pay each week that won’t vary due to quantity or quality of work (“salaried”) Level: $455 per week Salary Test & The duties for each type of exemption are specific and must be met. Job titles are not sufficient indicators. Duties Test

18. Minimum Salary • For most employees, the minimum salary level required for exemption is $455 per week • Must be paid “free and clear” • The $455 per week may be paid in equivalent amounts for periods longer than one week • Biweekly: $910.00 • Semimonthly: $985.83 • Monthly: $1,971.66 • No proration amount for part time workers (i.e. you can not reduce the $455 per week threshold to match a part time employees work time).

19. Salary Basis • Regularly receives a predetermined amount of compensation each pay period (on a weekly or less frequent basis) • The compensation cannot be reduced because of variations in the quality or quantity of the work performed • Must be paid the full salary for any week in which the employee performs any work (except in initial or terminal weeks of employment) • Need not be paid for any workweek when no work is performed • Generally, the pay for an exempt cannot be docked except in specific circumstances

20. Deductions from Salary • An employee is not paid on a salary basis if deductions from the predetermined salary are made for absences occasioned by the employer or by the operating requirements of the businesses • If the employee is ready, willing and able to work, deductions may not be made for time when work is not available

21. Salary Deductions - Seven exceptions from the “no pay-docking” rule • Absence from work for one or more full days for personal reasons, other than sickness or disability • Absence from work for one or more full days due to sickness or disability if deductions made under a bona fide plan, policy, or practice of providing wage replacement benefits for these types of absences • To offset any amounts received as payment for jury fees, witness fees, or military pay • Penalties imposed in good faith for violating safety rules of “major significance” • Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of written workplace conduct rules • Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment • Unpaid leave taken pursuant to the Family and Medical Leave Act

22. What’s the Big Deal? • Penalties and Sanctions • Employers who willfully violate the Act may be prosecuted criminally and fined up to $11,000 • Employers who violate the youth employment provisions are subject to a civil money penalty of up to $11,000 for each employee who was the subject of a violation • Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,100 for each such violation • Private lawsuits • An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney’s fees and court costs • Enforcement • FLSA enforcement is carried out by Wage and Hour staff throughout the U.S • Where violations are found, Wage and Hour advises employers of the steps needed to correct violations, secures agreement to comply in the future and supervises voluntary payment of back wages as applicable • A 2-year statute of limitations generally applies to the recovery of back pay. In the case of a willful violation, a 3-year statute of limitations may apply http://library.findlaw.com/2000/Apr/27/128730.html

23. What’s the Big Deal • Mistakes can be costly, a few examples: • Houston Tree Service Pays $1.8 million in Overtime Back Pay to 2,501 EmployeesFeb. 16, 2007 -- ABC Professional Tree Services Inc. in Houston has agreed to pay $1,801,507in back wages, after an investigation by the U.S. Department of Labor's Wage and Hour Division found that 2,501 current and former employees working in 16 states were not properly paid. The investigation, covering the two-year period Aug. 7, 2004, to Aug. 6, 2006, determined that ABC Professional Tree Services violated the overtime provisions of the Fair Labor Standards Act (FLSA).

24. What’s the Big Deal? • U.S. Bank agreed to pay $3.8 million following a federal Department of Labor (DOL) audit in which the DOL determined that the bank had mistakenly classified personal bankers . The salespeople who help customers open checking and savings accounts or apply for loans as exempt from the FLSA’s overtime pay requirements. • Nabisco, Inc. agreed to pay over $5 millionas part of a settlement with the DOL based on an audit that uncovered Nabisco's misclassification of retail representatives as exempt from the overtime provisions of the FLSA. • Albertsons, Inc. announced last year that it had set aside $37 millionto cover back pay claims arising out of a lawsuit in which workers alleged that the company forced them to work off the clock and then retaliated against them when they complained about not being paid overtime. http://library.findlaw.com/2000/Apr/27/128730.html

25. Closing Thoughts • Laws change… as they do, we will determine how these impact FLSA (or any other law for that matter) and communicate out as appropriate. • No question is “dumb”, ask it over and over again if necessary • These questions and answers have to be taken in context (i.e. state statutes, considerations of the workplace practices, case by case in many instances, in relation to collective bargaining agreements, etc.) so don’t assume that you know everything there is to know. • We are here to help you, so call us/me if you need to