Minimum Wages and Overtime
In New York for 2014, the minimum wage is $8.00 per hour (for 2015, it will be $8.75/hour and for 2016 it will be $9.00/hour, with few exceptions. Employers must post a Minimum Wage Information poster displaying this information at the place of work.(If you need posters, look in our Resources section). Employees covered by the New York State minimum wage orders, including their supplemental wage provisions (or any other state minimum wage laws), are also covered by the federal Fair Labor Standards Act (“FLSA”). Employers must comply both with the State and Federal laws, whichever may result in a higher minimum wage. In all cases, while the higher wages apply, the federal rules generally govern employee categories and statutory implementation.
Coverage under the Fair Labor Standards Act
Most employment positions are governed by the FLSA [29 USC 201 et seq.] However, there are some jobs which are not covered – some are excluded from FLSA coverage by express provisions of the statute. Other jobs, while governed by the FLSA, are considered "exempt" from the FLSA overtime rules.
Exclusions from FLSA coverage
There are some jobs which may be completely excluded from coverage under the FLSA overtime rules. There are two general types of complete exclusion – those that are specifically excluded in the statute itself and others which are covered by another statute. Instances of the first type of exclusion includes employees of movie theaters and many agricultural workers – neither are governed by the FLSA overtime rules. Another type of exclusion involves jobs which are regulated by some other specific federal labor law. As a general rule, if a job is governed by another federal labor law, the FLSA does not apply. For example, most railroad workers are governed by the Railway Labor Act, and many truck drivers are governed by the Motor Carriers Act, and not the FLSA. Look for FLSA exclusions in §213 of the FLSA (but the list is not exclusive).
Exempt or Nonexempt
Employees whose jobs are governed by the FLSA are either "exempt" or "nonexempt." Exempt means that they are not covered by the law (therefore “exempt” from its rules) and they are not entitled to overtime pay. Nonexempt employees are entitled to minimum wages and overtime pay.
Most employees are nonexempt but there are some who are not. Some jobs are classified as exempt by definition. For example, "outside sales" employees are exempt ("inside sales" employees are nonexempt). Usually, whether employees are exempt or nonexempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do. More than half of the employee’s earnings must come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.
Exemptions from both minimum wage and overtime pay exist for bona fide executive, administrative, professional and outside sales employees. These exemptions are found in FLSA §13(a)(1) which also exempts (along with FLSA §13(a)(17)) certain employees in computer-related occupations. [Note: several other FLSA exemptions are not discussed in this summary.]
For the FLSA §13(a)(1) exemptions to apply, an employee generally must be paid on a salary basis of no less than $455 per week and perform work that: (a) is directly related to the management of his/her employer’s business, or (b) is directly related to the general business operations of his/her employer or the employer’s clients, or (c) requires specialized academic training for entry into a professional field, or is in the computer field, or is making sales away from his/her employer’s place of business, or is working in a recognized artistic or creative field.
FLSA §13(a)(17) exempts hourly paid employees who perform certain types of work in the computer field if they are paid at a rate of not less than $27.63 per hour.
Exemptions are determined based on each specific employment situation. Do not rely on job titles to determine the exempt or non-exempt status of any employee. Each determination is based on the specific job duties performed and compensation received. Before a conclusion is made on status, consult the DOL website or your attorney as to each specific employee or as to each group of employees who perform essentially the same duties and receive essentially the same compensation package. These requirements are outlined in the U.S. Department of Labor’s FLSA Regulations. Most employees must meet all three "tests" to be exempt.
Salary Level Test
Employees who are paid less than $23,600 per year ($455 per week) are nonexempt. (Employees who earn more than $90,000 per year are likely to be exempt.)
Salary Basis Test
As a general rule, an employee is paid on a salary basis if he/she has a "guaranteed minimum" amount of money he/she can count on receiving for any work week in which he/she performs any work. This amount need not be the entire compensation received, but there must be some amount of pay the employee can count on receiving in any work week in which he/she performs any work. An employee is usually considered to be paid on a salary basis if an employee’s base pay is computed from an annual figure divided by the number of paydays in a year, or where an employee’s actual pay is lower in work periods when he/she works fewer than the normal number of hours. However, whether an employee is paid on a salary basis is a "fact," and thus specific evaluation of each particular circumstance is required.
Whether an employee is paid on a salary basis is not affected by whether pay is expressed in hourly terms (as this is a fairly common requirement of many payroll computer programs), but whether the employee in fact has a "guaranteed minimum" amount of pay he/she can expect each week.
The FLSA salary basis test applies only to reductions in monetary amounts. If an employer requires an employee to charge absences from work to his/her leave accrual is not a reduction in "pay," because the monetary amount of the employee’s paycheck remains the same. Similarly, paying an employee more than the guaranteed salary amount is not normally inconsistent with salary basis status, because this does not result in any reduction in the base pay.
With some exceptions, the base pay of a salary basis employee may not be reduced based on the "quality or quantity" of work performed (provided that the employee does "some" work in the work period). This usually means that the base pay of a salary basis employee may not be reduced if he/she performs less work than normal, if the reason for that is determined by the employer. For example, a salaried basis employee’s pay may not be reduced if there is "no work" to be performed (such as for a company closing or slow period), and a salary basis employee’s pay may not be reduced for partial day absences. However, employers may "dock" the pay of salary basis employees in full day increments, for disciplinary suspensions, or for personal leave, or for sickness under a bona fide sick leave plan (such as where the employee has run out of accrued sick leave).
Thus, there can be "permissible" and "impermissible" reductions in salary basis pay. Permissible reductions have no effect on the employee’s exempt status. However, in general, if an employee is subjected to impermissible reductions in salary he/she deemed to lose “salary” status, and becomes a nonexempt employee (with all the minimum wage/overtime rules come into play). However, employers have several avenues by which they can "cure" impermissible reductions in salary basis pay, and as a practical matter these make it unlikely that an otherwise exempt employee would become nonexempt because of salary basis pay problems.The salary basis pay requirement for exempt status does not apply to some jobs (like doctors, lawyers and schoolteachers) which are exempt even if the employees are paid on an hourly basis).
The Duties Tests
An employee who meets the salary level and basis tests is exempt only if he/she also performs job duties which are “exempt” – these are employees who perform relatively high-level work. Whether the duties of a particular job qualify as exempt depends on what they are. Once again, do not rely on job titles or position descriptions which can help in this determination but look at all the circumstances. (A file clerk is still a file clerk even if he/she is called an "administrative assistant," and the chief executive officer is still runs the company if he/she is called a manager.) It is the actual job tasks that must be evaluated, along with how the particular job tasks relate to the business operation.
There are three typical categories of exempt job duties, called "executive,"
"professional," and "administrative."
Exempt Executive Job Duties
Job duties are exempt executive job duties if the employee:
- regularly supervises two or more other employees, and
- has management as the primary duty of the position, and
- has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments).
Supervision means what it suggests. The supervision must be a regular part of the employee’s job, and must be over other employees. Supervision of non-employees does not meet the standard. The "two employees" requirement may be met by supervising two full-time employees or the equivalent number of part-time employees. (Two half-time employees equal one full-time employee.)
"Mere supervision" is not enough. Also, a supervisory employee must have "management" as the "primary duty" of their job. The FLSA Regulations contain a list of typical management duties. These include (in addition to supervision):
- interviewing, selecting, and training employees;
- setting rates of pay and hours of work;
- maintaining production or sales records (beyond the merely clerical);
- appraising productivity; handling employee grievances or complaints, or disciplining employees;
- determining work techniques;
- planning the work;
- apportioning work among employees;
- determining the types of equipment to be used in performing work, or materials needed;
- planning budgets for work;
- monitoring work for legal or regulatory compliance;
- providing for safety and security of the workplace.
Determining whether an employee has management as the primary duty of the position requires case-by-case evaluation. A practical way to look at this is to determine if the employee is "in charge" of a department, division or sub-division of the business (such as a shift). Think of who would respond if an outsider asked for "the boss." Usually, only one employee is "in charge" at any particular time. For instance, if a "captain" and an "admiral" are both present at the same time, only the admiral is "in charge" when he’she is present.
An employee may qualify as performing executive job duties even if he/she performs a variety of "regular" job duties as well. For example, the night manager at a fast food restaurant may in reality spend most of the shift preparing food and serving customers. He/she is, however, still "the boss" even when not actually engaged in "active" directing duties. In the event that "executive" or “management” decisions are required, he/she is there to make them, and this is sufficient.
The final requirement for the executive exemption is that the employee have genuine input into personnel matters. This does not require that the employee be the final decision maker on such matters, but rather that the employee’s input is given "particular weight." Usually, it will mean that making personnel recommendations is part of the employee’s normal job duties, that the employee makes these kinds of recommendations frequently enough to be a "real" part of the job, and that the recommendations are effective – higher management takes the employee’s personnel suggestions or recommendations seriously.
Exempt Professional Job Duties
The job duties of the traditional "learned professions" are exempt (note: state law may not accept these exemptions if traditional employment is involved). These include lawyers, doctors, dentists, teachers, architects and clergy. Also included are registered nurses (but not LPNs), accountants (but not bookkeepers), engineers (who have engineering degrees or the equivalent and perform work of the sort usually performed by licensed professional engineers), actuaries, scientists (but not technicians), pharmacists, and other employees who perform work requiring "advanced knowledge" similar to that historically associated with the traditional learned professions.
Professional exempt work means work which is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment. Professional exempt workers must have education beyond high school, and usually beyond college, in fields that are distinguished from (more "academic" than) the mechanical arts or skilled trades. Advanced degrees are the most common measure of this, but are not absolutely necessary if an employee has attained a similar level of advanced education through other means (and perform essentially the same kind of work as similar employees who do have advanced degrees).
Some employees may also perform "creative professional" job duties which are exempt. This classification applies to jobs such as actors, musicians, composers, writers, cartoonists, and some journalists. It is meant to cover employees in these kinds of jobs whose work requires invention, imagination, originality or talent; who contribute a unique interpretation or analysis.
Identifying most professional exempt employees is usually just common sense and uncontroversial, but this is not always the case. Whether a journalist is professionally exempt, for example, or a commercial artist, will likely require careful analysis of just what the employee actually does.
Exempt Administrative Job Duies
The most elusive and imprecise of the definitions of exempt job duties is for exempt "administrative" job duties. The Regulatory definition provides that exempt administrative job duties are:
- office or nonmanual work, which is
- directly related to management or general business operations of the employer or the employer’s customers, and
- a primary component of which involves the exercise of independent judgment and discretion about
- matters of significance.
The administrative exemption is designed for relatively high-level employees whose main job is to "keep the business running." When you are considering making a classification decision involving administrative staff, a useful rule of thumb is to distinguish administrative employees from "operational" or "production" employees. Employees who make what the business sells are not administrative employees. Administrative employees provide "support" to the operational or production employees. They are "staff" rather than "line" employees. Examples of administrative functions include labor relations and personnel (human resources personnel), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations, and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration).
To be exempt under the administrative exemption, the "staff" or "support" work must be office or nonmanual, and must be for matters of significance. Clerical employees perform office or nonmanual support work but are not administratively exempt. Nor is administrative work exempt just because it is financially important, in the sense that the employer would experience financial losses if the employee fails to perform competently. Administratively exempt work typically involves the exercise of discretion and judgment, with the authority to make independent decisions on matters which affect the business as a whole or a significant part of it.
Questions to ask might include whether the employee has the authority to formulate or interpret company policies; how major the employee’s assignments are in relation to the overall business operations of the enterprise (buying paper clips versus buying a fleet of delivery vehicles, for example); whether the employee has the authority to commit the employer in matters which have significant financial impact; whether the employee has the authority to deviate from company policy without prior approval.
An example of administratively exempt work could be the buyer for a big grocery store. He/she performs office or nonmanual work and is not engaged in production or sales. The job involves functions which are truly necessary to the overall operation of the store — selecting the merchandise to be put into inventory. It is important work, since having the right inventory (and the right amount of inventory) is crucial to the overall well-being of the store’s business. It involves the exercise of a substantial amount of important judgment and discretion, since it is up to the buyer to select items which will sell in sufficient quantity and at sufficient margins to be profitable. Other examples of administratively exempt employees might be planners and true administrative assistants (as opposed to secretaries with creative titles). Back office bookkeepers, "administrative assistants," and most employees who operate machines are not administratively exempt.
Ordinary clerical work may be administrative, but it is not exempt. Most secretaries, for example, perform administrative work, but their work generally is not exempt. In the same fashion, workers who do the filing, filling out forms and preparing routine reports, answering telephones, making travel arrangements, working on customer "help desks," and similar jobs are unlikely to be administratively exempt. Most workers who work in an office setting do exercise some discretion and judgment in their jobs. However, to make a difference as to exempt status, the exercise of judgment and discretion must be about matters of high enough importance to the operation of the enterprise as a whole.
Routinely ordering supplies (and even selecting which vendor to buy supplies from) is not likely to be considered high-enough to qualify the employee for administratively exempt status. Unfortunately, there is magic "bright line." Some secretaries may indeed be high-level, administratively exempt employees (like the secretary to the Chief Financial Officer who really does keep his business affairs on track), while some employees with fancy titles (e.g. "assistant to the president") actually may be doing nonexempt clerical duties.
Rights of Exempt Employees
Exempt employees have little or no rights under FLSA overtime rules. An exempt employee can demand and enforce (under the FLSA) his/her right to receive the full amount of his/her base salary (less taxes etc.) in any work period during which he/she performs work. There is no FLSA limit as to the amount of time an employer may require or expect from an employee, on any schedule. Also an employer can require exempt employees to sign time sheets, or work set schedules, or "make up" time lost due to absences. Note: this lack of rights is what the FLSA allows but exempt employees may have rights under other laws, employment contracts and enforceable policy statements.
Rights of Nonexempt Employees
Under the FLSA and most state labor laws, nonexempt employees are entitled to time and one-half their "regular rate" of pay for each hour they actually work in excess of the applicable FLSA overtime threshold in a specified work period.
Things Employers Typical Do That Result in FLSA and State Law Overtime Claims
- Mistakenly treating employees as "exempt" from the FLSA overtime requirements;
- Failing to identify, record, or pay for "off-the-clock" time of employees performing work or being available on site or doing compensable, job-related activities.
- Failing to include wage additions such as night time differential pay when calculating an employee’s overtime rate.
Claims for minimum wage/overtime under the FLSA can result in recoveries by employees in lots of different situations (plus liquidated damages and attorneys’ fees). Here are a few common ones:
- Employees performing compensable job-related activities during their "off-the-clock" time, such as: taking work home, making/receiving job-related telephone calls at home, working through lunch, working before or after regular shifts, taking care of work-related equipment, job-related "volunteer" work.
- Employees mistakenly classified as exempt (who are really nonexempt) often work regular ("on-the-clock") hours in excess of the FLSA regular time limits (e.g. overtime), as well as compensable "off-the-clock" hours.
- A frequent error by employers is to calculate the overtime rates improperly – not including in the employee’s regular rate pay additions such as "longevity pay," "shift differentials," nondiscretionary bonuses (e.g., educational stipends). The question employers must ask themselves is what is the "time and one-half” based on?
- Employers must pay wages on time and when they pay wages "late,” an employee can file a successful claim under the FLSA. The rule is that FLSA wages must be paid "when due," which normally means at the next regularly scheduled pay day. "Late pay" means generally the same thing as missed pay. An employer that fails to pay wages when due may be liable for liquidated damages (double damages).
The FLSA defines "overtime" as "time actually worked beyond a prescribed threshold." The basic FLSA "work period" is the "work week" — 7 consecutive days — and 40 hours per work week is the normal FLSA overtime threshold. There are some jobs which look to a different FLSA overtime threshold (see discussion below), but in general, unless your lawyer tells you otherwise, assume employees are regular "40 hour per week" employees.
Time actually worked over 40 hours in a work week is "overtime." Sometimes employers use the word "overtime" to describe "time worked outside of the employee’s normal schedule" or "time worked over 8 hours in a day." Working late or outside of a regular schedule" may or may not be the same as "time worked over 40 hours in a work week." For "FLSA overtime" purposes, the only thing which counts is actual working time in excess of 40 hours per week.
No overtime pay is due an employee unless and until a nonexempt employee has actually worked more than 40 hours in a work week. It is only if and when and an employee’s actual weekly hours worked exceed 40 in a work week; that is when the FLSA overtime rules come into play.
Overtime pay is figured based on all the time the employee has actually worked in a work week. All time actually worked counts, but only time "actually" worked counts. Therefore, the first step in the FLSA overtime formula is to determine how much time a nonexempt employee has actually worked in a work week.
The FLSA refers to work time as time which an employer “suffers or permits” an employee to work. Therefore, all time spent by an employee performing activities which are job-related is potentially "work time" or even time spent doing nothing if it is at the workplace and the employer permits it to occur. This includes the employee’s regular "on the clock" work time, plus "off the clock" time spent performing job-related activities (which benefit the employer). An employer suffers or permits work if it knows the employee is doing the work (or could have found out by looking), and lets the employee do it.
With only a few exceptions, all time an employee is required to be at the premises of the employer is work time. All regular shift time is work time. This includes "breaks" (if there are breaks), and "nonproductive" time (for example, time spent by a store salesman reading a novel while waiting for the phone to ring or customers to arrive). In addition, all time spent by an employee performing work-related activities that the employer suffers or permits is work time, whether on premises or not and whether "required" or not. Work done "at home" or at a place other than the normal work site is work, and the time must be counted.
"Voluntary" work is work, and the time must be counted. "Unauthorized" or "unapproved" work is work and must be counted (provided that the employer knows or should know it is being done and permits the employee to do it). It is the privilege and responsibility of the employer to "control the work" of its employees. If an employer does not wish an employee to perform work, it must prohibit the employee from doing it if the employer does not wish to include that work time in the required FLSA pay computations.
An employer may not accept the benefit(s) of work performed by its nonexempt employees without counting the time in computing pay due under the FLSA. The FLSA regulations on these points are at 29 CFR §§785.11, 785.12, and 785.13.
While all actual work time must be counted, only actual work time must be counted. "Time not worked" need not be included in computing FLSA pay due. Time not worked includes leave time (for whatever reason), even if leave time is considered "work time" for some other purpose (such as pension accruals, or "overtime" pay due under an employer policy or collective bargaining agreement).
Time not worked may also include meal periods – paid or unpaid – (in New York, an unpaid meal period is required after 6 hours of work), if the employee is actually relieved of all active duties during the meal period. For example, if an employee’s regular schedule is 5 shifts per week from 9:00 am to 6:00 pm, Monday through Friday, with an hour off for lunch during each shift. If the employee actually "takes lunch," and works only the normal work week (no more, no less), he/she will have actual work time of 40 hours. If, however, the employee takes a personal day during the week, he/she will have actually worked only 32 hours in that work week. If the employee takes Thursday off, but worked a double shift the previous Monday, he/she will have actually worked 40 total hours that work week (and no overtime pay is due). If the employee works the normal schedule, but works through lunch on two days that week, he/she will have 42 hours actually worked in that work week (and will be owed 2 hours of overtime pay at time and one-half).
In addition to leave time and meal periods, other potential "time not worked" may include some travel time, and "sleep time." These are treated separately.
Numerous employee FLSA lawsuits have involved claims that their employers failed to include time spent by claimants performing work outside of their normal shifts. Whether it involves employees who "come-in early" and start working before the official start time for their shifts or “late stayers” who just keep working at te end of the day, such time counts as work time. This extra time must be included in minimum wage and overtime pay computations, and the employee needs only to show that the employer knew or should have known that the employee was beginning work early or stayed late (and, of course, to the extent that the employee spent pre-shift and post-shift time actually performing work activities). Pre-shift "roll calls" are work time. Time spent setting up equipment before the official start time of a shift is work time. Time spent by an employee cleaning equipment after the close of a shift is work time. Post-shift work time could also include time spent by an employee performing job-related activities "on the way home," as for example an assistant who drops off the day’s mail at the post office or delivers some paperwork to a customer or supplier. Some employees take work home. That time may well be work time. Similarly, if an employee is contacted at home by telephone for work related reasons, the time spent is work time (and, of course, if an employee is "called back" to work, that is work time).
Most training time is work time. All training time is work time if it occurs during an employee’s regular shift, or if it is required by the employer. Training time need not be counted as work time only if it (a) occurs outside of an employee’s normal work schedule, (b) is truly voluntary (as in with neither direct nor indirect pressure on the employee to attend, and with no "come back" if the employee chooses not to attend), (c) not directly related to the employee’s current job (i.e., the training is designed to qualify the employee to get a new job, and not to enhance the skills used by the employee on the existing job), and (d) the employee does no other work during the training.
Travel has some "grey areas". As a general rule, commuting "home to work" and "work to home" is not work time, and this is true even if the "commute" is longer than normal, to or from a different work site than normal, or the employee uses a company vehicle for the trips. This assumes that the employee is performing no other work activities while commuting. Time spent by an employee writing a report is work time, even if it happens to occur while the employee is riding on a bus (or airplane) to or from work. Travel time which is "all in a day’s work" is work time. Usually, this means that travel time is work time if it occurs between when the employee first arrives at the first work site and before the employee leaves the last work site at the end of the work day. The first work site is the place where the employee first performs work activities. For example, an employee who travels to the office, picks up equipment, then goes to a work site to perform the day’s activities is working from the time he’she first arrives at the office. Picking up the equipment needed to do the day’s activities is the first work activity of the day, and the office is the first work site of the day.
Meal periods need not be counted as work time if they are at least 30 minutes long and the employee is relieved from active duties during the meal period. An employee who "works through lunch" is working and that time must be counted. An employee who "eats at the desk," or is required to monitor a machine, is working through lunch. However, a meal period need not be counted as work time if the employee is merely expected to "remain available" during the meal period but is otherwise relieved of active work duties. So, for example, a meal period may be time not worked even if the employee is not permitted to leave the facility, or expected to remain in uniform.
For employees who work shifts of 24 hours or more, the FLSA permits a "sleep time exclusion" of up to 8 hours, if there is an "agreement" with the employees about this and adequate sleeping facilities are provided. All time during which an employee is required to perform active duties must be counted as work time, and if in reality the sleep period is interrupted to the point where the employee does not have the opportunity for at least 5 hours of sleep the entire time must be counted as working time. No sleep time exclusion is permitted for employees whose shifts are less than 24 hours.
Time spent work at home or "off premises" is work time which must be counted in computing pay. However, some employees routinely perform work activities off premises, at home and outside of their normal shift times. It my be difficult for an employer to control this kind of work. There is a special FLSA rule which permits employers and employees to agree to a predetermined amount of time which will be credited as work time under these circumstances. Essentially, this special rule permits the employer and employee to estimate a realistic average amount of off-premises time which is likely to be spent by the employee performing work activities on a "week in, week out" basis. The agreement must be "real," and not just imposed by the employer, and it must be set up before the work is performed. The amount of time must be estimated after consideration of "all pertinent facts."
Alternative work periods
Most nonexempt employees are "40 hour per week" employees, entitled to overtime pay if, when, and to the extent they have actually worked more than 40 hours in a work week. There are, however, exceptions to this general rule, two of the most important of which may apply to medical care providers, and government police officers, fire fighters, and (certain) EMS employees. For these employees, the FLSA permits (but does not require) alternatives to the standard 40 hour per work week FLSA overtime threshold.
Nonexempt medical care providers working at medical care facilities may be paid based either on the standard 40 hour work week or on so-called "8/80" systems. If the medical employer chooses, it may pay these employees FLSA overtime for actual time worked in excess of 8 hours per day, or 80 hours every two weeks (whichever is better for the employee), instead of for hours worked in excess of 40 hours per work week.
The Work Week Standard
The FLSA uses the work week as the standard for computing overtime pay due, and each work week stands alone. A nonexempt employee’s time worked "vests" at the end of each work week (or work period). Work time may not be "averaged" from work week to work week. So, an employee who works 44 hours in a week then 36 hours in a following week, is entitled to 4 hours of overtime pay for first week. The employer may not use an "average" of 80 hours in the two week period. (Two exceptions to this might be for some medical care employees, and government police officers and fire fighters, who are permitted to be paid on special "alternative work periods.")
Similarly, time worked in one work week may not be offset against time off in some other work week (except for some government employees). An employer may not avoid paying overtime pay due in one work week by granting time off in another. However, nothing in the FLSA guarantees any employee any particular amount of work time, or requires any particular schedule of work. An employer may "adjust schedules" within a work week to avoid an employee working overtime. For example, if nonexempt employees work "extra" time early in a work week, the employer can limit their time later in the week and "send them home" so that total hours actually worked in that work week will not exceed 40. How an employer chooses to schedule an employee during the work week is simply not an FLSA concern, since that does not affect the overtime threshold under FLSA rules.
Wages Must Be Paid In Cash or Check, but Direct Deposit is OK If Agreed to By the Employee
For non-government employees, wages due must be paid in money or check although, if an employee elects to receive direct deposit to his account, it is often permitted For example, New York State Division of Labor Standards Guidelines section 192 states: “No employer shall without the advance written consent of any employee directly pay or deposit the net wage or salary of such employee in a bank or other financial institution.”
"Compensatory time" off in lieu of cash for overtime wages due is not permitted (except for some government jobs). This rule is limited to wages for overtime work. How an employer chooses to compensate employees for hours worked up through 40 in a work week when no overtime is worked is not really an FLSA or state law concern (except for the minimum wage laws). If, for example, a nonexempt employee is regularly scheduled to work 35 hours per work week, and actually works 40 hours in a work week. Since total time worked did not exceed 40 hours, no overtime rules have been triggered. Therefore, there is no FLSA requirement about how the five hours after the 35th hour are paid (except for the minimum wage laws). An employer may compensate for these hours pretty much as it choses, in wages at the regular rate, or some other rate, or in time off later, or for that matter with nothing extra at all (provided the minimum wage laws are adhered to).
The Regular Rate
Many employers make the mistake of assuming that an employee’s regular rate is his/her normal pay rate. This is not correct. Both under the FLSA and most state laws, overtime pay is time and one-half the employee’s "regular rate" of pay and employers need to know what the regular rate is. In most cases, this is a straightforward inquiry, but in some situations the FLSA employs some odd arithmetic used to determine the regular rate.
The regular rate is defined as the hourly equivalent of all straight time compensation received by an employee for work. The FLSA formula is that an employee’s regular rate is the total "straight time" compensation received by the employee "for work," divided by the number of hours that money is intended to compensate.
If an employee’s straight time pay is a purely hourly wage, then that wage is the regular rate. However, if an employee receives extra pay for night work or daily overtime, that extra pay must be included in the computation of his/her regular rate. (See Wage Additions or “Augments” discussion below). In other situations, straight time pay is not simply an hourly rate. A nonexempt employee may be paid a "salary," and there may be additional compensation received by an employee which the FLSA requires be included as part of the regular rate.
"Salaried nonexempt employees"
The FLSA does not require that nonexempt employees be paid hourly. Nonexempt employees may be paid a salary. Salaried nonexempt employees are still entitled to overtime pay if they actually work more than 40 hours in a work week. Since overtime pay is time and one-half of the employee’s regular rate of pay, when a nonexempt employee is paid a salary, the salary amount must be converted to its hourly equivalent to determine the regular rate of pay (time and one-half of which is the employee’s overtime rate of pay).
The FLSA formula for determining the regular rate is to divide the total amount of straight time compensation received by the employee "for work" by the number of hours that compensation was intended to pay for. For example, if nonexempt employee "Joe" is paid a salary of $400 per week for a normal 40 hour work week, the hourly equivalent is $10 per hour. However, the FLSA does not prescribe how many hours per week of straight time a salary must be intended to compensate. This is left to the employer and employee to decide. If, for example, a nonexempt employee ("Sue") is hired at a salary of $400 as straight time compensation for a normal work week of 50 hours, the hourly equivalent of this salary is $8 per hour. If the employee ("Bob") is hired at a salary of $400 per week for 37.5 normal straight time hours per week, the hourly equivalent is $10.67 per hour.
Assuming that the salary is the entire compensation received by the employee for work, the employee’s regular rate of pay — and therefore the FLSA overtime rate of pay — varies depending on what the salary is "for." Assume the hypothetical employees described above actually worked 55 hours in a work week — 15 FLSA overtime hours. Employee "Joe’s" regular rate is $10 per hour, which paid straight time for 40 hours. He is due $15 per hour for each overtime hour, or an additional $225, for total pay due of $625.
Employee "Sue" is different. She is also due time and one-half for 15 overtime hours worked, but she has "already" been paid the straight time rate of $8 per hour for the first 50 hours. He is therefore due "the difference" between the $8 of straight time already paid for these hours and the time and one-half overtime rate of $12 per hour for these hours, or an additional $4 per hour for 10 hours, or an additional $40. She has been paid nothing for hours 51-55, and is due $12 per hour for each of these. Thus, total wages due employee "Sue” are $400 + $40 + $60 = $500. This kind of regular rate computation is sometimes, but inaccurately, known as a "half time" pay system.
Employee "Bob" has a regular rate of $10.67 per hour, and an overtime rate of $16 per hour. The salary did not compensate for any of the FLSA overtime hours (hours 41-55), so he is entitled to an additional $240 for these. However, he also worked hours 37.5-40, which are not FLSA overtime hours. In a work week when employee "Bob" did not work any overtime, how he was paid for hours 37.5-40 would not be an FLSA concern at all. However, an FLSA regulation requires that in overtime work weeks, the employee must be paid "all straight time due" in addition to all overtime due. Absent some peculiar employment arrangement governing payment for hours 37.5-40 (and no such arrangement exists in this example), employee "Bob" must be paid straight time for those, or 2.5 hours at $10.67 per hour = $26.68. Total pay due employee "Bob" is therefore $400 + $26.68 + $240 = $666.68.
There is another possible way that nonexempt employees may be paid on a salary, and that is if a salary is intended to compensate at straight time for "all" hours worked by the employee, whether "few or many." This type of straight time pay arrangement is permitted under the FLSA for nonexempt employees whose hours of work vary from work week to work week (and typically when their normal hours vary so that in some weeks they work fewer than 40 hours). Under these circumstances, a salary designed to compensate at straight time for "all" hours worked is called a "salary for fluctuating hours." On this kind of pay plan, the FLSA regular rate arithmetic formula is the same, but it results in some unusual computations.
To determine the regular rate for a nonexempt employee paid a salary for fluctuating hours requires dividing the salary amount by how many hours the employee actually worked in the work week. (Since the salary for fluctuating hours compensates at straight time for "whatever" number of hours were worked, the number of hours it was "intended" to compensate depends on how many hours were in fact worked.) Since (almost by definition), the hours actually worked by such an employee may vary from week to week, the employee’s regular rate of pay may also vary from week to week. The more hours were actually worked, the less the regular rate is. For example, if employee "Mary" receives a $400 "salary for fluctuating hours," and worked 60 hours in some week, the regular rate for that week is $6.67. However, if "Mary" worked 48 hours in the following week, the regular rate for that week would be $8.33. In the first week, "Mary" is entitled to 20 hours of overtime pay, at time and one-half the regular rate of pay for that work week. Time and one-half $6.67 is $10. However, the salary has already compensated "Mary" at straight time for each hour worked. Mary is due is "the difference" between the $6.67 regular rate for that week and the $10 overtime rate for that week, for 20 overtime hours, or an additional $3.33 per hour for 20 overtime hours, for a total of $400 + $66.60 = $466.60. In the second week, when "Mary" worked 48 hours, she is due time and one-half of the regular rate of $8.33 for each of the 8 overtime hours worked. Since she has already been paid $8.33 for each of these FLSA overtime hours in the salary, she is due an additional $4.16 for each overtime hour. Thus, for the 48 hour week, "Mary" is due $400 + $33.28 = $433.28. A salary for fluctuating hours is another variation of the type of FLSA overtime pay which is sometimes (but inaccurately) called a "half time" system. Valid wage plans using salaries for fluctuating hours are rare.
Wage Additions or “Augments”
There are lots of nonexempt employees who receive various wage extras in addition to their base wages. This may include items such as shift differentials, longevity pay, attendance pay, or "bonuses" of various kinds. Under the FLSA, any money received by an employee "for work" is part of the employee’s “regular rate” of pay. Wage additions such as those listed are considered compensation for work, and must therefore be factored into the regular rate (on a "pro rata" basis).
Sometimes, this is easy to compute. For example, assume that a nonexempt employee is paid $10 per hour, plus $.50 per hour shift differential. For that work week, the regular rate is $10.50 per hour, time and one half of which is $15.75. In other circumstances, however, the FLSA arithmetic is more complicated. Assume, for example, a $10 per hour employee who also receives an "extra" $500 per year as longevity pay. That $500 per year is considered compensation for work and is part of the employee’s regular rate of pay. The difficult question is how the $500 should be allocated to each hour actually worked by the employee; by how much per hour the longevity pay bonus increases this employee’s regular rate. The answer is that the $500 has to be allocated on a pro rata basis among "all" the hours the employee actually worked during the period when the bonus applied (since the longevity pay was "earned" for "all" the hours the employee worked). Since the longevity pay bonus covered a year’s worth of work, it would be allocated among all the hours the employee actually worked in the year to which the bonus applied. This, of course, makes it impossible to determine how much to allocate per hour until the total hours worked by the employee over the entire year is known. Therefore, at the end of the year, the $500 should be allocated to all the employee’s work hours, and then the employee’s overtime pay recomputed for each work week when overtime was worked using the adjusted regular rate. The employer should then tender the employee the "increase" in overtime pay attributed to the regular rate adjustment. This can be a tough and long task, so employers take the easier path of simply allocating the wage augments lineto the employees’ "straight time" work weeks, increasing the regular rates accordingly even though ultimately that may result in employees receiving slightly more than the strict FLSA formula would require.
Most bonuses are required to be included in the employees’ regular rates. The only exception is for bonuses which are entirely "discretionary" with the employer. A bonus is not discretionary if the employment policy is that an employee is entitled to the bonus if he/she meets certain predetermined requirements, such as successfully making a "quota." Nor are bonuses discretionary if they depend on the employer meeting predetermined goals, such as "profit sharing" triggered by a set revenue figure.
Payments to employees as reimbursements of out-of-pocket expenses are not required to be included in the regular rate, since they are not compensation "for work." Extra money paid to employees to offset the cost of purchasing or dry cleaning work uniforms is not required to be included as part of the regular rate. Extra money paid to employees to compensate them for the time they may spend cleaning work uniforms is compensation for work and part of the regular rate. Mileage payments for the employee’s use of a personally owned vehicle are reimbursements, is not compensation for work.
Statutes of Limitations for FLSA and NYS Labor Law Actions
A cause of action under the FLSA accrues on the regular payday immediately following the work period for which services were rendered and not properly compensated. In general, the statute of limitations for bringing an FLSA suit is two (2) years from the date the cause of action accrued. In the case of a "willful violation," however, the statute of limitations is extended to three years. 29 U.S.C. § 255(a).
A claim under NY Labor Law an action to recover upon a liability must be commenced within six years of the date on which the labor law infraction occurred. All employees have the right under NY law to recover “full wages, benefits and wage supplements accrued during the six years previous to the commencing of such action.”
New York State Wage Theft Protection Act
The NY Wage Theft Protection Act adds to employers’ obligations to give pay rate information to employees at the time of hire, annually and each time it pays its employees. (See discussion in our HR Help Topics)
The NY Commissioner of Labor has issued the Miscellaneous Wage Order found at 12 NYCRR 142-2.2. which requires overtime for covered employees who work overtime must be paid at a rate that is one and one-half times their regular, "straight-time" hourly rate of pay. For non-residential employees, this means overtime rate applies to all time over 40 hours in a payroll week. The overtime requirement is based on hours worked in a given payroll week. Thus, time and one-half, double-time — or any amount higher than the agreed rate — is not required simply because the work is performed after eight hours per day or on a Saturday or Sunday.
Some categories of employees are excluded from New York State’s overtime provisions. These state exemptions from the requirement for overtime pay are identical to the federal overtime exemptions outlined in the FLSA. The statute of limitations for violations of New York’s overtime and spread of hours requirements is six years. See N.Y. Labor Law §§ 198(3), 663(3).