The correct answer to our July 1 Quick Quiz is "$25".  The results were:

"$54.38":  (7.1%)

"$60":  (32.1%)

"None, because she is paid at a piece-rate.":  (33.9%)

"$25":  (21.4%)

"$20":  (5.4%)

One point we wanted to illustrate is that an employee is not exempted from the federal Fair Labor Standards Act's overtime-compensation requirements just because he or she is paid at a piece-rate.

The key to the correct response lies in properly determining Anne's "regular rate" of pay for purposes of calculating the FLSA overtime compensation she is due.  The FLSA regular rate for a particular workweek is figured by dividing the employee's total compensation for that workweek by the total number of hours worked in that workweek for which the compensation was paid.  See, e.g., 29 C.F.R. §§ 778.109, 778.111.

So How Is Her FLSA Overtime Calculated?

In the hypothetical, Anne's straight-time compensation for her 45 hours of work is (300 Devices × $1.50) = $450.  Therefore, her FLSA regular rate of pay is ($450 ÷ 45 Hrs.) = $10.00 per hour.  Her FLSA regular rate is higher than both the $7.25-per-hour minimum wage and her $8.00-per-hour guaranteed rate.

Her $450 in piece-rate pay represents the "one" of the "one and one-half" overtime rate required by the FLSA, so she must be paid additional half-time overtime premium at a rate of ($10.00 ÷ 2) = $5.00 per hour.  Consequently, under the FLSA, Anne is due for this workweek the sum of ($5.00 × 5 OT Hrs.) = $25 in overtime premium pay, for total FLSA wages of ($450 + $25) = $475.  See, e.g., 29 C.F.R. § 778.111.

There Is Another Approach.

The FLSA authorizes an alternative way to figure piece-rate overtime pay.  FLSA Section 7(g)(1) permits the employer to do this by paying at least 1.5 times the piece-rate(s) applicable to the pieces or units produced during overtime hours.

Assume that Anne had assembled 270 devices in her first 40 hours worked in the workweek and another 30 devices in her next five hours worked in that workweek.  If Anne's employer had instead adopted the Section 7(g)(1) method of calculating her overtime, her FLSA total gross wages would have been:

(270 Devices × $1.50) = $405 Wages For First 40 Hours

[($1.50 × 1.5) × 30 Devices] = $67.50 Wages For Overtime Hours

($405 + $67.50) = $472.50.

Among the requirements for using this alternative are that:

♦   There must be an advance agreement or understanding with the employee that this method will be used;

♦   The piece-rate must be a bona fide one (that is, it is the rate actually paid for the work when it is performed in non-overtime hours);

♦   The employee's average hourly earnings for the workweek (not counting overtime premium pay and certain other amounts) must come to at least the FLSA minimum wage;

♦   The overtime compensation must come to at least 1.5 times the minimum wage for the overtime hours worked;

♦   The proper FLSA overtime compensation must also be paid on other kinds of pay the employee receives (such as production bonuses) that are includable in the regular rate.

Of course, employers must always take into account the applicable requirements of different laws or the laws of other jurisdictions, and it is especially important to ensure that other such requirements permit this alternative.

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Anne is paid $1.50 for each remote-control device she assembles.  This is her straight-time compensation for all of her hours worked in a workweek.

She is guaranteed an average hourly rate of at least $8 an hour for her work.  The minimum wage in the state in which she works is the same as the federal Fair Labor Standards Act minimum wage, that is, $7.25 per hour.

In a particular workweek, Anne assembles 300 devices and works 45 hours.  How much FLSA overtime pay is she due?

The best answer to last week's Quick Quiz is, "No", it is not likely that Alan's time between calls would be found to be worktime under the federal Fair Labor Standards Act.

The idle time during which an otherwise off-duty employee is available to be called upon to do something might or might not be compensable FLSA "hours worked", depending upon the situation.  Generally, the question is whether this idle time while "on call" is spent predominantly for the employer's benefit as opposed to the employee's.  The answer usually turns upon the extent to which the employee is able to use the time effectively for personal purposes.

What Are The Important Factors?

The U.S. Labor Department and the courts say that this determination requires an evaluation of all the relevant facts.  Among the things often considered are whether:

♦   The employer requires the employee to remain on the employer's premises;

♦   The employer requires the employee to wait at home for calls or messages or confines the employee to an excessively-restricted geographical area;

♦   The employee receives numerous, frequent, and/or lengthy work assignments during the on-call period;

♦   The employee must respond within a short timeframe under the circumstances (especially if the employee must travel somewhere to do the work);

♦   The employer requires the employee to be on-call frequently, never relieves the employee from on-call status, does not permit the employee to exchange calls or call periods with another worker, or does not allow the employee to turn down at least some calls;

♦   There is an agreement or understanding covering the arrangement (although an employee may not agree to anything that violates the FLSA).

Ordinarily, some combination of restrictive factors is present when idle on-call time is found to be compensable work.

But the time need not be free from any restrictions whatsoever.  For example, courts have found these periods not to be worktime even though the employer required the employee to remain sober and not to take any mind-altering drugs, or to stay well-groomed and appropriately dressed.  Neither is it necessary for the employee to be able to engage in literally any personal activity he or she might wish.

So What About Alan's Situation?

Alan is on-call only for seven days a month, and only for six hours on each on-call day.  He need only phone within 30 minutes after receiving a message, rather than physically report somewhere within that time.  He averages far less than one duty-message per on-call day and spends roughly 5% to 7% of his on-call period performing work.  Although he cannot drink alcohol and must stay in the area, these restrictions standing alone do not mean that he is unable to use the on-call time for a wide variety of personal purposes.  It is probable that a decisionmaker would not see these particular circumstances as causing Alan's idle on-call time to be FLSA "hours worked".

Of course, the predominant-benefit question is necessarily fact-specific.  Therefore, each situation should be separately evaluated.

And Don't Forget . . .

States and other jurisdictions might have "on call" rules that are tougher on employers than the FLSA is.  Employers should look at every applicable wage-hour law to find out whether this is the case.

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Alan is a Help Desk Associate for The Big Corporation.  He is subject to the federal Fair Labor Standards Act's minimum-wage, overtime, and timekeeping requirements.

Alan normally works from 8 a.m. until 4 p.m., Tuesday through Saturday.  Once each calendar month, Alan is on-call between 5 p.m. and 11 p.m. each day for a seven-day period.

He has to call-in within 30 minutes after receiving an e-mail on his cellphone.  While he is on-call, he cannot drink alcoholic beverages, and he cannot leave the metropolitan area in which he lives.  Typically, Alan receives two or three messages in a seven-day on-call period and spends about an hour dealing with each problem that prompted the e-mails he received.  He accurately records all of the time he spends handling those problems, and his employer pays him properly under the FLSA for this worktime.

But what about the remaining time for which Alan is on-call?  Is it likely that his idle time between calls will be deemed to be FLSA "hours worked"?

The answer to our September 23 Quick Quiz is, "None of it".

The relevant question under the federal Fair Labor Standards Act gets down to whether Ellen was "engaged to wait" (which is compensable worktime) or was "waiting to be engaged" (which is not).  There is not always an obvious answer to whether this kind of time is or is not compensable work under the FLSA.  As the U.S. Labor Department puts it, "Whether waiting time is time worked under the [FLSA] depends upon [the] particular circumstances."  29 C.F.R. § 785.14.

The Labor Department says that an employee is often "engaged to wait" even during periods of inactivity when he or she can leave the premises, because these periods of time are typically unpredictable and of short duration and do not permit the person to use the time effectively for his or her own purposes.  According to the Labor Department, in these situations, the waiting periods are an integral part of the job so as to be compensable worktime.  See, e.g., 29 C.F.R. § 785.15.

On the other hand, the Labor Department has also said that an employee's waiting time might not be hours worked in situations in which the employee:

◊   Is completely relieved of all duties and responsibilities;

◊   Is told in advance that he or she is permitted to leave the job;

◊   Is told in advance that work will not resume until a specified time; and

◊   Has a long-enough time to use the period effectively for his or her own purposes.

See, e.g., 29 C.F.R. § 785.16.(a).  Once again, though, whether the amount of time involved is of a sufficient length "depends upon all the facts and circumstances .  .  .."  Id.

In our hypothetical scenario, the best answer is that Ellen is "waiting to be engaged" between 8:45 p.m. Sunday and 7 a.m. Monday.  She has no duties or responsibilities during that period; she performs no work during that time; she knows she is not required to be at the booth until 7 a.m. on Monday; and clearly the period is long enough for her to use it for her own, personal purposes.  The fact that she is out-of-town is not enough in itself to cause that period of time to count as FLSA "hours worked".

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Ellen is a non-exempt employee who works in Bigtown for The Acme Corporation.  She is assigned to hand-out brochures at TAC's booth at a tradeshow at a hotel in Salestown on Monday.  She will stay in the same hotel where the show will be held.  Her instructions are that she has to be at the booth location beginning at 7 a.m. on Monday, when she will help set up the booth.

She arrives at the Salestown hotel on Sunday night at 8:45 p.m.  She immediately goes to dinner until 10:15 p.m.  She then returns to her hotel room, reads a novel for a while, and goes to sleep.

She wakes up at 6 a.m., goes through her normal "get ready" routine, eats a quick breakfast downstairs, and reports to the booth location at exactly 7 a.m.

Under the federal Fair Labor Standards Act, how much of Ellen's time between 8:45 p.m. Sunday and 7 a.m. Monday is worktime?

Please use the poll buttons to the right to register your answer.

The answer to our July 11 Quick Quiz is, "One And One-Half Days' Worth".

To qualify for the federal Fair Labor Standards Act's executive, administrative, or professional exemption, employees usually must be paid on a "salary basis".  This means that the employee must regularly receive each pay period a predetermined amount (of not less than $455 per week) constituting all or part of his or her compensation.

With limited exceptions, this fixed amount cannot be subject to reduction based upon either the amount of time the employee works or how well he or she performs the work.  The circumstances under which this salary can be reduced for part-days missed are even more restricted.

One exception to this so-called "no-docking rule" is that deductions may be made from the salary for absences of one or more full days caused sickness, disability, or work-related accidents, if the deduction is made under a bona fide plan, policy, or practice that provides compensation for such absences.  As a practical matter, this usually means that, so long as an exempt employee has a paid-time-off allotment to cover the absence, he or she is paid the normal salary, and the absence is charged against the PTO balance.

The sick-day exception also permits proportional deductions to be made from the salary itself for whole-workday absences of this kind during the period:

♦   Before the employee qualifies for PTO, and

♦   After the employee exhausts the PTO allowance.

However, the sick-day exception does not authorize salary deductions for part-days missed.^*

But this part-day restriction does not prevent charging these absences against PTO allotments.  As the U.S. Labor Department has said, "Where an employer has a benefits plan (e.g., vacation time, sick leave), it is permissible to substitute or reduce the accrued leave in the plan for the time an employee is absent from work, whether the absence is a partial day or a full day, without affecting the salary basis of payment, if the employee nevertheless receives in payment his or her guaranteed salary."  Opinion Letter of Acting Wage-Hour Administrator FLSA2005-7 (January 7, 2005).  Consequently, Alice's employer is permitted to subtract the three half-days she missed, that is, the full one and one-half days' worth, from her PTO balance.

If Alice had no PTO balance remaining, then her employer could not dock her salary for any of the sick-time missed.  This is true because she would not have been absent for a whole day on any of the three days she was out sick.

Of course, employers should also review these matters under any applicable wage laws of a state or other jurisdiction.  For example, a state might take a more-restrictive position under the "salary basis" rules applying to exemptions from its own overtime requirements.

__________

^*  A different exception for an employee's absences covered by the federal Family and Medical Leave Act might permit part-day salary deductions under the proper circumstances.

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Alice performs work meeting the duties requirements for the federal Fair Labor Standards Act's administrative exemption.  She usually works 50 hours in five days each workweek.  She is paid a weekly salary of $950.  Alice is eligible for five paid days off each year, and she has three days left.

In one particular workweek, Alice has the flu and is sick for half-days on Monday, Tuesday, and Thursday.  She works only 31½ hours in that workweek.  How much of Alice's sick time may her employer apply against her paid-time-off allotment under the U.S. Labor Department's FLSA "salary basis" principles?

Please use the poll buttons to the right to register your answer.

The answer to our March 14 Quick Quiz is "$110".  The federal Fair Labor Standards Act does not prohibit the employer from recouping some of the loss in that workweek, but it does restrict the amount.

So What Are The Limits?

The employer may not require or allow Alex to restore the loss to the extent that this would (1) cut into the required minimum-wage rate for his first 40 hours worked in the workweek, or (2) cut into any of the time-and-one-half overtime pay due for his hours worked over 40 in the workweek.  These limitations apply even though the employer published a policy in advance, and even though Alex signed something saying that he would make the payment.  Furthermore, it makes no difference whether he pays in cash, or by check, through payroll deduction, or in some other way.

Therefore, the maximum his employer can recover that workweek under the FLSA is [($10 − $7.25) × 40 hrs.] = $110.  Alex must be paid the full [($10 × 1.5) × 5 OT hrs.] = $75 for his overtime work; none of that amount can be deducted or otherwise directly or indirectly turned over to the employer in that workweek.  The balance of ($150 − $110) = $40 may only be recouped in one or more future workweeks, subject to the same restrictions.

These FLSA rules also apply to many other kinds of deductions, payments, or repayments affecting non-exempt employees.  For example, Alex's employer could neither deduct nor accept payment from Alex for bank fees or charges relating to the dishonored check to the extent that this cuts into his FLSA-required pay.  Other illustrations include cash shortages, damage to or loss of the employer's tools or equipment, the costs of required uniforms, and unreturned employer property.

USDOL Says There Are Additional Requirements

In a June 2000 enforcement policy (link below), and in a February 2001 opinion letter, the U.S. Labor Department sought to impose further conditions and restrictions upon overtime-workweek deductions even to the narrow extent discussed above.  Among them are that:

♦   There must be an advance agreement or understanding (to which the employee affirmatively agrees or assents) specifically covering the items for which deductions will be made and how the amounts will be determined.
  
♦   The deductions must be bona fide and "legitimate" ones, including that they must fall within the agreement or understanding and must not be prohibited by federal, state, or local law.

♦   Permissible deductions may not cut into the highest applicable minimum wage (such as where a state's minimum is greater than the FLSA's).

♦   The deductions may not otherwise evade the FLSA's overtime requirements (such as if the deductions were made only in overtime workweeks, or if the deduction amount was increased in overtime workweeks).

One may question whether DOL is empowered to adopt or enforce a number of the edicts in these detailed advisory materials, but nonetheless its positions are what they are.

Don't Forget About Other Laws

Applicable state or local laws might further limit what an employer is permitted to do, or they might even prohibit these kinds of deductions or payments altogether.  The parameters could also be different under specialized federal or state wage-hour laws that might apply to public construction, to providing services to government entities, to certain government supply contracts, or to other publicly-funded work.

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 FOH 32j08 06 30 00.pdf (187.19 kb)

The answer to our November 4 Quick Quiz is "Yes":  Fair Labor Standards Act overtime must indeed be figured on the kind of bonus we described.  In fact, the U.S. Wage and Hour Division's Office of Enforcement Policy ("OEP") took this position with respect to such a bonus in a May 2006 opinion letter.

Under the FLSA, overtime for non-exempt employees must be calculated based upon the "regular rate" of pay.  The FLSA says that the regular rate includes "all remuneration for employment paid to, or on behalf of, the employee," with only limited exceptions.

Bonuses are not excluded from this definition simply because they are earned over an entire calendar year.  See, e.g., Opinion Letter of Deputy Wage-Hour Administrator FLSA2005-47 (November 4, 2005)("regular rate" included a retention payment designed to encourage employees to remain employed at a facility from June 6, 2002 through September 21, 2004).

Employers need not compute overtime on "discretionary" bonuses within the FLSA's meaning.  However, this exception applies only if both (a) whether the payments will be made, and (b) the amounts of any such payments:

•   Are within management's sole discretion;

•   Are decided at or near the end of the period for which the performance of services is being recognized; and

•   Are not made pursuant to any prior contract, agreement, or promise (either expressed or implied) causing the employee to expect such payments regularly.

29 U.S.C.A. 207(e)(3)(a).  OEP concluded that the kind of annual bonus we described did not fall within these parameters, in part because the benchmarks for whether a bonus would be due suggested that the payments were promised "as an incentive for increased or sustained productive efforts."  OEP also determined that the employer abandoned any discretion as to both whether payments would be made and what the amounts would be by announcing the criteria to employees well in advance, which in OEP's view appeared to be "a prior promise or agreement" to pay the bonus if those criteria were met.  And although OEP did not clearly say so in explaining its conclusion, the bonus's requirements relating to longevity and remaining employed at the time of payment also cut against its being viewed as discretionary.

Because the bonus is not excludable from the regular rate, Acme must determine whether any non-exempt employee receiving a bonus payment worked more than 40 hours in any workweek in the bonus period.  For any employee who did so, it must then figure the workweek-equivalent of the bonus and must calculate overtime on that equivalent for every workweek in which the employee worked overtime.