Timeclock16137386.jpgWhether you call it “rounding” or the “7/8ths rule” or have no word to describe it at all, rounding may be of central concern for employers, both in day-to-day operations and in litigation. Rounding is the practice of adjusting time clock punch times within specific bounds. For example, if your employees punch in for work at 7:57, 8:01, and 8:02, your rounding rules may treat all of those punches as occurring at 8:00 a.m. for payroll purposes.

This practice of rounding employees’ time up or down in increments is permissible under the Fair Labor Standards Act (FLSA) regulations. Importantly, though, the FLSA does not require employers to round time! If your system of recording and calculating time worked permits you to track time down to the exact minute, then do it. Paying for actual time worked is always the best practice.

However, for those of you that can’t easily track time down to the exact minute, Section 785.48 of the FLSA’s regulations provides that employers may utilize time clocks that round up or down in increments of up to a quarter hour so long as the clock rounds both ways, occasionally in the company’s favor and occasionally benefitting employees. 29 C.F.R. §785.48(b). Thus, for example, an employee who works a total of 8 hours and 5 minutes would be paid for 8.1 hours, and an employee who works 8 hours and 2 minutes would be paid for 8.0 hours. In other systems, an employee’s starting and ending times are rounded to the nearest 1/10th of an hour. Thus, an employee who clocks in at 7:57 would have her start time rounded up to 8:00, and an employee who starts at 8:02 would have her start time rounded back to 8:00.

Of course, employees who voluntarily clock in and hang out drinking coffee before their regular starting times or who remain after their regular end times chatting with coworkers before clocking out do not have to be paid for those extra periods provided that they do not actually engage in any work. 29 C.F.R. §785.48(a). Of course, if you choose not to pay for those extra periods, this becomes a costly, fact-intensive issue if a claim is made by those employees. Instead, a better approach is to pay for the time recorded and counsel your employees on the proper procedures for clocking in or out.

If you do use rounding, part of your periodic internal and external wage and hour audits should include at least a sampling of time records that you maintain to determine whether it appears that the rounding did occasionally benefit both the company and the employees or, better yet, discussing the algorithm used by any automated time system to determine the rounding method used.

In my next post, I’ll discuss some of the areas of potential risk in rounding and how you can best avoid them.

As I mentioned yesterday, in order to avoid costly lawsuits or DOL enforcement actions, FLSA and state wage and hour due diligence should be a substantial part of the overall due diligence process in any deal involving a company with employees, regardless of whether those employees will be employed by the buyer.

Here are my insights on the steps you can take to prevent or at least minimize FLSA successor liability:

Determine the FLSA risk level involved in the deal. The first step in any FLSA due diligence review is to recognize that you can uncover at least one wage and hour violation at any company if you search hard enough. Accordingly, any buyer should assess whether the FLSA risks presented by the deal are low, medium or high. Categorizing the risk level will dictate the amount of time, energy and resources that need to be spent on the FLSA due diligence process. Depending on the level of risk presented, build in enough time to do a sufficient wage and hour risk review before the deal closes – no matter how attractive the returns or anticipated profits! While there are certainly time pressures involved in many acquisition, particularly of distressed companies like the ones Lindsey and I have discussed, FLSA due diligence is not an area you should gloss over or ignore. Get competent wage and hour counsel with experience handling acquisitions (and here’s a tip on where you can find some) involved early to advise you on how to properly handle any FLSA red flags that may be present.

Conduct a reasonable risk-based FLSA due diligence review pre-acquisition. In order to know what FLSA risks are involved, it is important to ask the right questions. Look for any FLSA “red flags” like independent contractors, salaried employees, hourly employees who never receive overtime, everyone in a department being classified as “exempt,” missing records, etc. Thoroughly investigate and resolve any FLSA violations that you and your employment counsel uncover. Your due diligence team and your employment counsel should keep detailed documentation of all due diligence efforts when evaluating potential violations. Your due diligence review documentation should be timely, accurate and thorough. Remember, it is not enough to rely on information provided solely by the target company about their wage and hour practices. You must get your own, independent verification of critical information.

Take appropriate action for all FLSA issues identified. Establish all relevant facts relating to any apparent, actionable FLSA or state wage and hour violations. Determine whether payments to employees or a change in wage and hour practices is advisable. Early identification of these issues and corrective actions can mitigate or eliminate successor liability, or at least account for it in the structure of the deal. To the extent practicable, all wage and hour-related investigations should be concluded and any violations resolved prior to closing. When faced with existence of possible FLSA or other wage and hour violations, you as a buyer must decide whether to delay, renegotiate or even walk away from the deal. Depending on the nature and extent of the violations you uncover, they may have a significant impact on the purchase price and your willingness to acquire the assets or business from the target company. Other remedial steps may include requiring the seller to take specific actions by set deadlines, broadening the investigation into employment practices, and/or for the seller to pay any costs associated with investigating and remedying the violation(s).

Preserve relevant documents and do no harm. If the buyer uncovers potential issues, treat them like you would in litigation. Follow litigation hold protocols and preserve all relevant documents. Take immediate action to ensure that the seller’s employees do not destroy documents. Take into account any data protection or employee privacy laws in the relevant jurisdictions and create an investigation plan. Be prepared to ask for interviews with affected employees. As a seller, be prepared to take disciplinary action against responsible employees if necessary. If the seller or prospective partner is a publicly traded company, the parties may have disclosure requirements under the Securities and Exchange Act. In other words, do no harm. Involve knowledgeable counsel. Making hasty decisions or covering up information can further complicate the deal and invite unintended liability.

Ask for FLSA related representations and warranties from the target company. The seller should be able to provide assurances that it does not have any FLSA or state wage and hour violations. If the seller does have potential or actual violations, additional representations or certifications may be required in the final deal.

Retain audit and termination rights. If any FLSA violations are uncovered in the pre-acquisition due diligence process, you should retain audit rights to inspect the books and records of the seller as well as the right to terminate the deal or to be reimbursed for expenses relating to the resolution of any wage and hour violations uncovered between signing the purchase agreement and closing the deal. While these contractual protections are all negotiable, you should also consider having the seller indemnify you for any FLSA or state wage and hour violations that are uncovered.

Tighten up internal controls post-closing. Just because the seller didn’t pay close attention to wage and hour issues does not mean you, the buyer, should continue that lax oversight. In order to ensure no FLSA or state wage and hour problems crop up post-closing, assess whether you have internal controls in place that are adequate to prevent, detect and address potential FLSA and wage and hour violations.

These are just some steps to consider in the due diligence process. In any merger or acquisition, acquiring companies need to assume that successor liability will apply to them and that a simple disclaimer of liability will have no effect. Take the time to do the FLSA and wage and hour due diligence before you agree on a deal. Of course, even in non-union environments, the NLRB’s recent outreach means you shouldn’t stop with employment law due diligence, either. Get labor and employment counsel with M&A experience involved early. The investment will pay off no matter what becomes of your deal.

Recently, my colleague Lindsey Marcus guest authored a post on yet another successor liability case, this time out of the Third Circuit. Her post reminded me of another case in the Seventh Circuit from 2013, and a larger point from the mergers and acquisitions part of my practice and my days doing M&A in the tech world: labor and employment issues are too often overlooked in purchase agreements. As the buyer found out the hard way in the case Lindsey detailed, often lost in all the talk about asset valuations, tax implications, and structuring the financing are serious wage and hour issues that must be addressed at the negotiating table, too. In order to avoid costly lawsuits or DOL enforcement actions, FLSA and state wage and hour due diligence should be a substantial part of the overall due diligence process in any deal involving a company with employees, regardless of whether those employees will be employed by the buyer.

To give you another example, in 2013, the Seventh Circuit stuck an asset purchaser with the bill for a $500,000 FLSA settlement associated with its bankrupt Wisconsin predecessor. The asset purchaser had to pay up because it had notice of the FLSA lawsuit prior to the asset purchase, it hired 247 out of the predecessor’s 295 employees, and continued to run the business in substantially the same manner as the predecessor company: same name, same location, almost all of the same employees. Importantly for those of you in acquisition mode, the fact that the asset purchaser had specifically disclaimed liability for the FLSA lawsuit in the asset purchase agreement was not enough to preclude successor liability. According to the Seventh Circuit, allowing an asset purchaser to contractually disclaim liability would frustrate the “statutory goals” of the FLSA, and “a violator of the [FLSA] could escape liability or at least make relief much more difficult to obtain.”

Had the buyer identified the scope of the FLSA problems pre-closing, it may have been able to avoid or minimize its ultimate liability. At the very least, the buyer would have been able to reassess the true value of the acquisition and determine whether it made sense to move forward or to negotiate a lower purchase price in light of the substantial wage-and-hour risks involved. On Monday, I will share some solutions that will prevent or at least minimize FLSA successor liability.

Tip-Hand11366723.jpgRecently, I explained that revising the FLSA regulations will not be easy, and highlighted tip credits as one such area in particular. In my last post, I discussed yet another case involving the miscalculation of wages for tipped employees. This time, a large restaurant operator coughed up $2.86 million to settle a lawsuit alleging a number of violations of the complex tip regulations. It is clear that tip credits will continue to be an issue. Unfortunately, though, recent debate seems to be focused not on the unnecessarily complexity of the FLSA regulations, but on a fictional “tipped minimum wage.” To me, this phrase is almost as misleading as “wage theft,” a topic others have addressed recently. That’s unfortunate, and employers need to speak up to get this debate back on track.

A few weeks ago, as part of its early April equal pay push, the White House’s National Economic Council, Council of Economic Advisers, and Domestic Policy Council, in conjunction with the Department of Labor, put together a report about the “Importance of Ensuring a Robust Tipped Minimum Wage.” When I saw mention of it on Twitter (and you are following @WageHourInsight on Twitter, right?), I did a double-take. Did Secretary Perez release new FLSA regulations and I missed it? Nope—he told SHRM’s Employment Law and Legislative Conference in Washington D.C. that he had no “precise answer” about the timeline for new regulations.

So what’s this “Tipped Minimum Wage” business all about? The introduction repeats the same “tipped minimum wage” phrase several more times before it finally hints at what Section 3(m) of the FLSA actually says. The answer: there is no federal “tipped minimum wage,” just a tip credit. The FLSA’s minimum wage for employees like those at the TGI Friday’s restaurants (see our last post) is the same $7.25/hour as for every other non-exempt employee.

Even if bills like the one pending in New Jersey that would shrink the tip credit become law, the minimum wage would still be $7.25/hour for tipped workers. It isn’t until page six of the report that the White House clearly explains what it is referencing:

Employers must pay tipped workers at least a tipped minimum wage of $2.13 per hour, and if workers’ tipped earnings are less than the amount needed to ensure they earn the full minimum wage, their employer must make up the difference to ensure their total pay meets or exceeds the full minimum wage.

It’s that last piece that should be the focus, not the fiction of a tipped minimum wage. If the employee’s cash wages plus the tips they earn do not add up to at least $7.25 per hour, then the employer must make up the difference or they violate the FLSA.

The report observes that 10% of workers in predominantly tipped occupations “report hourly wages below the full Federal minimum wage, including tips.” How do you fix this? Not by raising the minimum wage, or by shrinking the tip credit. The answer is the buried on page seven: “The rules for tipped workers are complicated and can be confusing for employers and employees alike.” Less confusing rules would lead to better compliance and more justifiable punishments for those who ignore them.

TipJar_cropped14346183.jpgWe’ve covered tips and tip credits at length in the past here, here, here, and here, and I could probably blog all day, every day just to keep up with the volume of tip-related cases and actions that are filed nationwide, some high profile and others not. I want to highlight one of them here.

Recently, the Southern District of New York, in Diombera v. The Riese Organization, approved a $2.86 million settlement between the Riese Organization and approximately 2,600 members of its waitstaff. Reise owns or operates 10 TGI Friday’s restaurants (the subject of this lawsuit) and more than 75 restaurants in total in New York City. The employees had filed an FLSA collective action in 2012 alleging that the TGI Friday’s restaurants failed to properly pay its tipped employees. The complaint, which also alleged state law violations, identified several classes of tipped workers including servers, bussers, runners, bartenders, and barbacks, alleged that the TGI Friday’s franchisee did not pay the proper minimum wage or overtime compensation because they instructed the tipped workers to spend more than 20% of their time engaged in non-tipped side work, failed to pay spread-of-hours pay or call-in pay, made unlawful deductions, encouraged workers to work “off the clock” when performing side work, and engaged in other violations of the restaurant workers’ rights under the FLSA and state law.

What’s the upshot for employers who have tipped employees?

The debate, and litigation, over whether and how to pay tipped employees is not going away. As a recent White House report—one I will discuss in my next post—mentioned recently, “One of the most prevalent violations is the failure to keep track of employee tips and therefore the failure to ‘top up’ employees if their tips fall short of the full minimum wage.”  We warned back in 2011 that this 20% rule was clearly ripe for further litigation. If an employer loses the ability to take a tip credit for work performed by tipped employees, this often results in a substantial increase in wages owed. In order to minimize that risk, you should consider taking the following general steps that we have outlined in the past:

  • Don’t require tipped (or any other) employee to “finish up their work off the clock” after their shift.
  • Ensure that tipped employees spend no more than 20% of their time on non-tip-producing duties.
  • Spread the non-tip-producing duties among all tipped employees; do not assign these duties to just a few tipped employees exclusively.
  • To the extent possible, assign non-tip-producing duties to non-tipped employees.
  • Keep accurate records of hours worked and time that tipped employees spend on non-tip-producing duties.

On that last point, as I recently explained to a client in another related situation, there is nothing wrong with having employees clock in and out for different tasks. That recordkeeping can be critical, and that’s even truer in situations like these.

US Department of Labor logo.jpgThe Senate voted narrowly on Monday to confirm David Weil as administrator of the Department of Labor’s Wage and Hour Division (WHD). The narrow 51-42 majority followed a similarly narrow 12-10 party-line committee vote in December. The WHD is the DOL division that, among other duties, implements and enforces the Fair Labor Standards Act (FLSA) regulations and oversees various worker misclassification initiatives we have reported on previously. The Senate had not confirmed a WHD administrator since 2001, and since 2004 the position has been filled by acting leaders and a recess appointee. President Obama controversially nominated Dr. Weil, a respected Boston University professor, Harvard researcher, and DOL advisor, to fill the position in September 2013. Weil was the administration’s third nominee for the position.

Weil’s nomination drew particular attention because of his work on a May 2010 report to the DOL entitled Improving Workplace Conditions through Strategic Enforcement: Report to the Wage and Hour Division Strategic Enforcement. The report, which he principally authored, provides a number of policy prescriptions that may hint at Administrator Weil’s enforcement priorities at the WHD. For instance, the report recommends that the DOL implement a penalty policy “as a central element of deterrence,” expand both civil and criminal litigation efforts to deter noncompliance, and “uniformly and consistently” impose civil money penalties and liquidated damages. The 2010 report also claimed the decline of private-sector unionization “reduces the capacity of regulators to oversee the workforce—an implication of union decline that is often overlooked in policy debates.” In particular, the report singled out several industries including agriculture, construction, health care, hospitality, restaurants, and retailers.

In December, The Wall Street Journal described Weil as “a life-long, left-wing academic with labor-union sympathies, no private-sector experience or legal training, and limited management experience.” Business associations submitted a joint letter to the Senate committee considering Weil’s nomination last year objecting “based on his writings, advocacy positions, and lack of any non-academic job experience.” The associations questioned Weil’s ability to “administer federal labor law in a fair and impartial way.”

Sen. Tom Harkin (D-IA), chairman of the Health, Education, Labor and Pensions Committee that oversaw the nomination, called Mr. Weil an “exemplary candidate” who has received strong recommendations from colleagues for his fair-mindedness. Mr. Harkin lauded Mr. Weil for his extensive study of “the most effective ways to use limited resources to increase compliance.”

We will monitor Dr. Weil’s enforcement approach in his new role and provide further updates as the WHD’s enforcement priorities under his leadership become clearer.

 

Guest Blogger: Lindsey Marcus

The Third Circuit Court of Appeals, which covers Pennsylvania, New Jersey, Delaware, and the U.S. Virgin Islands, recently became the third appellate court to adopt the federal common law standard for successor liability in a Fair Labor Standards Act (FLSA) claim. The decision likely means that successor employers will find it increasingly difficult to avoid liability for wage and hour violations of their predecessors.

The Third Circuit held in Thompson v. Real Estate Mortgage Network et al. that under the federal common law standard for successor liability, which is a lower bar for a plaintiff to meet than most state-law standards, the plaintiff’s claims against her former employer and its successor were improperly dismissed by the district court.

Patricia Thompson was hired by defendant Security Atlantic Mortgage Company (Security Atlantic) in June 2009 as a mortgage underwriter. In February 2010, in response to a federal investigation, Thompson and many of her colleagues were asked by supervisors to fill out new job applications for Real Estate Mortgage Network (REMN). After Thompson did so, her paychecks were issued by REMN. However, most other aspects of her employment remained the same. She and her colleagues continued to do the same work, at the same desks, at the same location; and her pay rate, work email address, and direct supervisors remained the same. Security Atlantic subsequently went out of business.

Thompson alleged that Security Atlantic and REMN violated the FLSA and New Jersey wage and hour law by requiring her to work more than eight hours per day and 40 hours per week without paying her overtime compensation for all of her overtime hours, and misclassified her and other mortgage underwriters as exempt employees who were not entitled to overtime.

Following the lead of the Seventh and Ninth Circuits, the Third Circuit concluded that applying the three-factor federal common law standard to FLSA claims was a “logical extension of existing case law” the standard used for other federal employment statutes like Title VII. Those factors are: “(1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor-employer of its predecessor’s legal obligation; and (3) ability of the predecessor to provide adequate relief directly.”

Applying those factors, the Third Circuit found that Thompson had adequately alleged that REMN was the successor of Security Atlantic as follows: there was seamless continuation of “essentially all facets of the business” when REMN took over; a small group of Security Atlantic managers were aware of systematic FLSA violations; those practices continued once REMN took over; and these managers assumed corporate leadership roles with REMN. Further, the defendants claimed that Security Atlantic was defunct, which the court construed as meaning that Security Atlantic would be unable to satisfy a judgment against it.

The Third Circuit’s decision adds to a growing chorus of federal courts applying a lower bar to claims of successor liability in FLSA lawsuits. What does that mean for your business if you are in acquisition mode? Where there will be significant overlap between the workforce and operations before and after sale, asset purchasers need to assume that successor liability may not simply be contracted away, and plan accordingly in negotiating the deal. Doug will offer some additional thoughts in light of this and another decision in an upcoming post.

White Collar 925264.jpgLast month, the U.S. Court of Appeals for the Eighth Circuit issued an opinion that essentially watered down the Fair Labor Standards Act (FLSA) overtime exemption for executives. This decision perhaps makes an unwitting case for President Obama’s intended overhaul of the FLSA’s white collar exemptions that we discussed recently.

An employer must satisfy four elements to take advantage of the FLSA’s executive exemption:

  • The employer must pay the worker a salary of at least $455 per week;
  • The employee’s primary duty must be management;
  • The employee must customarily and regularly direct the work of two or more employees; and
  • The employee must have the authority to hire or fire employees, or at least have the ability to offer suggestions and recommendations as to hiring, firing, advancement, promotion, or other status changes for employees, with the employer giving particular weight to those suggestions.  29 CFR § 541.100

This four-element standard is what remained after the Department of Labor’s 2004 revisions to the FLSA regulations that ditched what were then known as the “long test” and the “short test” under the former regulations. The long test had a lower salary basis and also required the employee to have regularly exercised discretionary powers to have devoted no more than 40% of their workweek to activities not directly and closely related to management. 29 C.F.R. § 541.1 (2003). The short test used a higher salary basis, but only required employees to regularly direct two or more employees and to have a primary duty of management.  Id.

Because there is no objective test for determining what an employee’s “primary duty” is or what “particular weight” means, this has led to substantial litigation, including the Eighth Circuit’s Madden v. Lumber One Home Center decision last month.

Continue Reading I’m an Executive, You’re an Executive, We’re All Executives! 8th Circuit Lowers the Bar for FLSA “Executive” Exemption

Although unlikely to be passed in its current form, President Obama’s Fiscal Year 2015 budget request to Congress allocates an additional $2 million of the Department of Labor’s requested $1.8 billion budget so that the Department’s Office of Administrative Law Judges (OALJ) can hire additional personnel primarily to deal with a massive backlog of cases.

iStock_Money_Small.jpgThe proposed budget would allow OALJ to hire at least 10 employees, though the request does not specify how many of those would be administrative law judges. In an internal April 2013 memorandum, later made public through a FOIA request, OALJ Chief Judge Stephen Purcell wrote then-Acting Labor Secretary Seth Harris that “we are fast reaching a point where the productivity of this Office will sustain a significant downturn from which we will not likely recover for years to come.”

In February, six members of Congress had written the White House complaining of “untenable delays in adjudicating claims, such as claims under the Black Lung Benefits Act and alleged violations of employment law. These delays directly and severely impact the lives of workers throughout the country, placing an undue financial and emotional burden on the affected individuals and their families.”  Citing Judge Purcell’s memorandum, the lawmakers said a total of 11,325 cases were pending before 41 administrative law judges in OALJ at the end of Fiscal Year 2013, nearly double the number of cases from a decade ago.  OALJ now has just 35 administrative law judges nationwide, compared to over 50 just ten years ago.

DOL spokesman Jesse Lawder wrote that if the agency gets the requested budget increase, an uncertain prospect given GOP control of the House, it will “use the resources in the most efficient manner to process cases and will make that decision once funding is provided by Congress. The Labor Department is committed to resolving compensation claims for workers and their families, and that includes alleviating the backlog of cases before administrative law judges.”

FAQs17489126.jpgQ. Under the Fair Labor Standards Act (FLSA), do we have to define “full time” to mean 40 hours per week, or is that left to employers’ discretion? Can we maintain a 40-hour standard for wage and hour purposes, but have a lower threshold for certain benefits, like paid time off accrual or supplementary health care coverage?

A. Neither the FLSA nor its regulations define what is considered “full time” employment. Whether an employee is classified as full-time is left completely up to you, the employer. The FLSA’s only requirement is that non-exempt employees receive at least minimum wage for all hours worked, as well as overtime compensation for any hours worked in excess of 40 hours in a single workweek at a rate of at least one and one-half times their regular hourly rate of pay. Under the regulations, you certainly can permit employees to qualify as “full time” if they work fewer than 40 hours. Some employers may choose to set 30 hours per week as the threshold for “full time” because that is the definition used by the IRS’s Affordable Care Act regulations to determine full time status, and they are free to do so.

That said, defining “full time” status as working less than 40 hours for all employment-related purposes may cause potential wage and hour problems with salaried, non-exempt employees. Let me explain.

Generally speaking, calculating overtime is straight forward. To calculate overtime, an employee’s “regular rate” is calculated by dividing an employee’s total compensation for the week by the total number of hours worked. For employees who are paid an hourly rate only (i.e., no bonus, commission, etc.), this calculation is simple, as the regular rate is the employee’s normal hourly rate of pay.

However, things get trickier when a non-exempt employee is paid a salary. Suppose you pay me a salary of $1,000 per week to write blog entries for your company’s new blog. I work 50 hours in a certain week: 40 hours of straight time, and 10 hours of overtime. To calculate my overtime pay, you need one more crucial piece of information: how many hours did we intend my $1,000 salary to cover?

Generally speaking, the answer to this question is a matter of the agreement between you, the employer, and me, your employee. Suppose your company writes in my offer letter that the $1,000 salary is intended to cover up to 50 hours of work per week. In that case, no additional straight-time pay would be due if I work 50 hours, regardless of how you define “full time” in your policies for other employment related purposes. In addition to the straight time, I would still be entitled to an overtime premium for the 10 hours of overtime worked, of course. However, because my salary already covers straight-time for those hours, the additional overtime premium due is only one half of the regular rate of pay, not the full one and one half:

Regular rate = $1000 / 50 hours = $20/hour

Total pay = Regular salary + 10 hours at 1/2 the regular rate

Total pay = $1000 + (10 hours x $20/hour / 2) = $1,100

Total pay = $1,100.00

Easy, right? Now, let’s go back to our original question: suppose your employee handbook says that the normal workweek for a full time employee consists of 30 hours, and that we have no other agreement about my salary, other than its amount. I could argue that, based on the handbook, there is a general understanding that my base salary is intended to cover only 30 hours of straight-time work, resulting in a different calculation of my overtime pay:

Regular rate = $1000 / 30 hours = $33.33/hour

Total pay = Regular salary + 10 hours additional straight time + 10 hours at time and-a-half

Total pay = $1000 + (10 hours x $33.33/hour) + (10 hours x $33.33/hour x 1.5) = $1,833.28

Total pay = $1,833.28

Yikes! A salaried, non-exempt employee (or, for that matter, a misclassified salaried, exempt employee) can make the claim that he or she is entitled to straight time for all hours over 30 up to 40, and then time and a half for all hours over 40, which may not be what you intended when you adjusted your handbook’s definition. If this claim results in litigation, not only could you be on the hook for the additional pay but also liquidated damages and opposing counsel’s attorney’s fees. A simple handbook policy change can add up to some substantial liability very quickly!

Okay, but I want “full time” to mean something different! How can I do it?

If you want “full time” to mean something less than 40 hours per week at your organization, here are two approaches to consider:

  1. Eliminate “full time” definitions from in your handbook entirely.
    The FLSA does not require you to define full time, part time, temporary, or any other similar category, so why do it? These categories can be confusing for employees when presented generically in a handbook, and some categories (like “probationary employee” or “temporary employee”) can actually create liability for your organization in some situations. If your goal is to establish a threshold for benefits eligibility, then do that instead! Specify how employees can qualify for benefits based on the number of regularly scheduled hours in the appropriate section of your handbook: “To be eligible for XYZ benefit, you must be regularly scheduled to work at least ___ hours per week and have completed one year of service.”
  2. Draft written understandings with your employees about their salaries.
    Go ahead and define “full time” to mean 30, 35, 37.5, 40 or any other number of hours, but make sure that you have a written understanding with every salaried employee, particularly non-exempt ones, that clearly outlines what the employee’s salary is intended to cover—including the number of hours, if they are non-exempt. Depending on your needs, this document could be something formal, like an employment agreement, or something informal, like a job offer letter that the employee signs.  You should also make clear that to the extent the hours requirement in that written understanding conflicts with anything in the handbook, the written understanding prevails.