Frustrated Manager.XSmall.jpgReading about a recent lawsuit filed against Groupon, I was reminded that even the most cutting edge businesses may not understand the nuances associated with calculating overtime and find themselves a target for running afoul of wage and hour laws.  My colleague and fellow blogger, Bill Pokorny, wrote a helpful blog entry last week on calculating overtime for salaried employees.  I thought it might be useful for our readers if a follow-up entry was posted discussing how to calculate overtime for salaried, non-exempt employees who also receive commissions.

The key in calculating overtime is to determine the regular rate of pay.  Generally speaking, adding commission payments to the mix does not alter this calculation; you still must divide the employee’s total non-overtime compensation for the week by the total number of hours worked.  As Bill points out in his post, things get trickier when a non-exempt employee is paid a salary.  Adding a weekly commission payment does not really affect that calculation too much – the commission is simply added to the salary received for the week.  Here is a sample calculation using Bill’s prior example (and also assuming my math is correct):

  1. Chuck is paid a salary of $1,000 per week.  The employee handbook states that the normal workweek consists of 40 hours, thus the base salary is intended to cover 40 hours of straight-time work.  In one week, Chuck works 50 hours – 40 hours of straight time, and 10 hours of overtime.  The Company is also able to determine that Chuck earned $250 in commissions that week.  Chuck’s pay would be calculated as follows:

    Regular rate = $1,000 + 250/40 hours = $31.25
    Total pay =  (Regular salary + commission) + 10 hrs at time and-a-half
    Total pay = $1,250 + (10 hrs x 31.25/hr x 1.5) = $1,718.75

  2. Now assume that Chuck and the Company have an understanding that the $1,000 is intended to cover up to 50 hours of work per week.  As a result, Chuck would be entitled to the additional overtime premium for 10 hours at one-half of the regular rate of pay:

    Regular rate = $1,000 +250/50 = $25/hr
    Total pay = (Regular salary + commission) + 10 hrs at half the regular rate
    Total pay = $1,250 + (10 hrs x $25/hr /2) = $1,375

But things get trickier when that employee is paid both a weekly salary and a monthly commission, and the employer is not able to determine exactly what workweek in the month the employee earned a commission.  Here, Chuck earns $1,200 this month in commissions but the Company cannot tie the commissions earned to a specific workweek.  In such a situation, the Company must allocate the commissions equally to each workweek in the period covered by the commission payment.  Therefore, to calculate Chuck’s regular rate of pay under these circumstances, divide the total commission amount ($1,200) by the number of weeks in the pay period (4) to determine the weekly commission earned ($300).  So, here is how you would then calculate Chuck’s overtime using the examples above:

  1. Regular rate = $1,000 + 300/40 hours = $32.50
    Total pay =  (Regular salary + commission) + 10 hrs at time and-a-half
    Total pay = $1,300 + (10 hrs x 32.50/hr x 1.5) = $1,787.50
  2. Regular rate = $1,000 +300/50 = $26/hr
    Total pay = (Regular salary + commission) + 10 hrs at half the regular rate
    Total pay = $1,300 + (10 hrs x $26/hr /2) = $1,430

Hopefully, these examples will help guide employers through the perils of calculating overtime owed.  As Bill points out, such overtime calculations may be different if the employer uses a fluctuating workweek method for paying employees.  This will be addressed in a future post.

CalculatorQ. We have a number of non-exempt employees who are nevertheless paid a salary. How do we calculate overtime for these employees? 

A. The question above is a positive sign, because if you find yourself asking it you’ve passed the first hurdle of realizing that not all “salaried” employees are exempt from the overtime requirements of the Fair Labor Standards Act. 

Generally speaking, calculating overtime is a simple affair. Employees must be compensated for hours worked in excess of forty hours in a single workweek at a rate of one and one-half times the employee’s regular hourly rate of pay. The “regular rate” is calculated by dividing an employee’s total non-overtime compensation for the week by the total number of hours worked. For employees who are paid a simple hourly rate, this calculation is simple, as the regular rate is simply the employee’s normally hourly rate of pay.

However, things get trickier when a non-exempt employee is paid a salary. Suppose Chuck is paid a salary of $1000 per week. He works 50 hours in a certain week – 40 hours of straight time, and 10 hours of overtime. To calculate Chuck’s overtime pay, you need one more crucial piece of information: how many hours is the $1000 salary intended to cover? 

Continue Reading Calculating Overtime for Salaried Employees [Wage & Hour FAQ]

DOL Enforcement Stats screenshot.pngRecently the U.S. Department of Labor revamped its enforcement data website, http://ogesdw.dol.gov/, adding some snazzy new map displays showing inspection and violation data from OSHA and the Mine Safety and Health Administration. 

Of more interest to readers of this blog willl be the site’s statistics regarding the Wage and Hour Division‘s enforcement activities. 

According to the site’s interactive piecharts, the agency conducted 68,644 enforcement actions. (The chart, unfortunately, does not say over what period, though if the chart is based upon the large data set available from the site this may represent FY2007 to present.) Of these, the Department found violations in 50,364 cases, and no violation in just 18,280. In other words, the Department found violations in roughly 73% of all of its compliance actions. These findings resulted in findings of back wages due totaling $681,151,513, or about $13,524.57 per case in which a violation was found. 

Like crunching numbers? You can download the Wage & Hour Division’s of all concluded compliance actions since FY 2007 here. The dataset includes, among other things, the names and addresses of employers, whether any violations were found, the back wage amount, the number of employees due back wages, and civil money penalties assessed.

If you find anything noteworthy in the data, feel free to share in the comments!

 

Dollr Sign13528403.jpgQ.        My Company anticipates embarking on a big project this fall that will have extreme importance to the Company’s future and require extra hours at the office.  The Company wants to give a little extra pay to employees who work on this important project.  A number of these employees are classified as exempt.  May the Company provide extra compensation to exempt employees for their work on this project?

 A.        Yes.  Exempt employees are not required to receive extra compensation for extra work, but the FLSA allows employers to provide extra pay and still maintain their employees’ exempt status.  Specifically, the FLSA regulations provide that an employer may provide an exempt employee with additional compensation so long as the employment arrangement also includes a guarantee of at least the minimum weekly-required amount or $455 paid on a salary basis. 

Generally, in these types of situations, the risk facing employers is whether the format of the additional compensation will invalidate the salary basis requirement, resulting in a loss of the overtime exemption.  The regulations provide limited examples of acceptable additional compensation that will not affect the salary basis qualification.  If your Company chooses to pay exempt employees additional compensation for this extra work, one of the payment formats with the least risk of destroying the employees’ exempt status would be that of a flat sum bonus.  An employee’s exempt status – already difficult to establish – might be even more difficult to prove if the employee is paid time-and-a-half for the extra hours, like a non-exempt employee. 

pillbottle.XSmall.jpgRecently, another group of pharmaceutical sales representatives successfully demonstrated that they are not exempt from overtime under the FLSA.  Kuzinski, et al., v. Schering Corp  Focusing on the administrative exemption, the District Court of Connecticut held that the sales representatives’ work was not directly related to Schering’s management or general business operations and they lacked the necessary exercise of discretion and independent judgment to meet the requirements of the exemption.  The sales representatives did not directly sell pharmaceutical products, instead individualizing Schering’s canned sales pitch to promote certain products to identified customers.  At the end of the day, the sales representatives simply used the core messages and promotional strategies developed by Schering, rather than developing those messages and strategies themselves.

 Litigation Background

Pharmaceutical companies have traditionally classified sales representatives as exempt under the outside sales exemption, but have recently faced difficulty convincing courts that pharmaceutical representatives meet this exemption since they do not make “sales” in the traditional sense.  While the results have been mixed at the district court level, the most noteworthy case, the Novartis wage and hour litigation, put a hole in the companies’ defense.  Affirming the district court, the Second Circuit concluded that the Novartis sales representatives do not make sales and, therefore, do not qualify for the outside sales exemption.  The U.S. Supreme Court recently declined to review that decision and the holding remains. 

Notwithstanding the impact of the Novartis decision, there was a glimmer of hope that pharmaceutical sales representatives could still be classified as exempt, but under the administrative exemption.  In Smith v. Johnson & Johnson, the Third Circuit concluded that the administrative exemption was satisfied because Smith’s work related to the company’s core business operations and her primary duties involved the use of her discretion in making significant decisions.  Specifically, Smith had to form a high-level strategic plan to maximize sales in her territory, and exercised significant discretion and independent judgment while performing her duties without direct oversight.  But not all sales representatives are alike and so the administrative exemption will not apply across the board.  The Schering court focused on this issue, contrasting the “management-scripted,” “core messages” used by the Schering sales representatives with that of Smith, a senior professional sales representative who ran her territory as she saw fit.  Finding the Schering sales representatives duties were more like those of Novartis, the Court concluded they did not fit the narrow facts supporting the holding in Smith.

 Insights for Employers

The decisions in Schering and Smith further underscore the fact intensive nature of the administrative exemption.  This exemption is not a “one size fits all” category based on job title, but depends on whether the employee actually fulfills the requirements.  To truly meet the administrative exemption, companies must prove that the employee’s work is directly related to its management or general business operations and that the employee exercises discretion and independent judgment in matters of significance. 

For sales representatives, this may be achieved by giving the representatives actual control and management of their sales territory and allowing them to exercise the necessary level of discretion and independent judgment.  Companies should consider holding the representatives accountable for specific sales goals or targets, while leaving the means of achieving those ends primarily up to them.  This means that while the representatives may receive general guidance about how to approach a customer, the crafting of the precise message, the number of times conveyed and to whom, should be left up to the representative.  While there is no guarantee that a court will find the exemption met, such a proactive approach will definitely put the company in a better position if sued or subjected to a DOL audit.

Man with laptop working lateHas something like this ever happened in your organization? You have a solid non-exempt employee working hard on a project. His supervisor is out of town and unreachable. In the supervisor’s absence, to get the job done, he works a few hours of overtime. When the supervisor gets back, he asks if she will approve the extra time he has already worked. The supervisor says yes, but adds that if the employee had asked ahead of time she probably would have told him not to work overtime on this particular project. The employee responds apologetically and says that he won’t put in for the overtime pay. 

Your employee handbook says that overtime must be approved in advance, so end of story, right? Maybe, but maybe not. 

Under the Fair Labor Standards Act, employees are entitled to pay for any time that they are “suffered or permitted” to work. In this case, the employee was given an assignment that he evidently concluded could not be completed during his regular work hours, and as a result worked additional time. Perhaps his conclusion was unreasonable, but under these circumstances it will be difficult at best to argue that the employee was not “suffered or permitted” to work the extra hours. 

So what should you do when an employee informs you that they’ve worked “unauthorized” overtime? First, make sure that the employee records all of his or her time and is properly paid. Second, remind the employee of your policies. If overtime requires advance approval, make sure the employee understands this and is put on notice that working overtime in the future without such approval may result in discipline. If this is a first offense, it’s OK to be diplomatic and understanding. Acknowledge the employee’s dedication, but explain that the company is committed to ensuring that everyone is paid for all of their hours, and that it’s management’s responsibility to decide whether or not overtime hours will be worked. Finally, if this continues to be a problem, follow up with appropriate discipline. 

Of course, for any of these steps to happen, someone in management has to be aware of the problem. If the supervisor simply accepts the employee’s e-mail and does nothing to ensure that the employee is paid for his overtime, the employer has a problem. HR and payroll can’t be everywhere, and they often won’t know that an employee is working overtime unless the employee’s time is properly recorded. Consequently, it is absolutely vital to train your supervisors on wage and hour law and your organization’s policies. Make sure that they understand that employees must be compensated for all hours worked. If overtime is not going to be authorized, make sure that they set realistic expectations and do not pressure employees to “just get it done” by working off the clock. Make sure that supervisors regularly check employees’ time records to ensure that all employees are properly reporting their time. If your company tracks overtime and labor costs as a measure of supervisor performance, make sure that this is done in a way that does not encourage supervisors to cut corners and tolerate “off the clock” work, and audit time records for signs of abuse like unrealistically low hours or frequent manual edits by the supervisor. 

It is perfectly legal to require employees to obtain authorization before working overtime hours, and to counsel or discipline employees who fail to follow this policy. But denying pay for “unauthorized” overtime may well cost you far more in the long run than you will save in the short term. 

Angry man with cellphoneQ. Our company provides remote access to e-mail for all employees, and some of our hourly employees carry iPhones and Blackberries with access to their work e-mail. Most non-exempt employees only work during regular business hours, but some will occasionally check and respond to e-mail after hours or on weekends. Do we need to pay employees for this time? If so, how do we track it?

A. Yes, employees need to be paid for time spent reading or responding to work-related e-mail. If this occurs only sporadically and the time involved is truly de minimus – for example, if the employee occasionally types out “Thanks” or “OK” in response to a short message – it may not be an issue. However, if you do not have any mechanism for employees to track and report this time, you may have no way to prove that the time spent was in fact minimal. When a disgruntled current or former employee files a complaint asserting that they worked an hour or two extra every week for three years, will you be able to prove otherwise?

 

Continue Reading Do We Have to Pay Employees for Checking E-Mail Outside of Work? [Wage & Hour FAQ]

Equipment11902890.jpgThe question of whether to pay employees for putting on protective gear has plagued employers for years.  While the federal courts are divided over this issue, at least five Appellate Courts – the Fourth, Sixth, Seventh, Eleventh and now the Tenth Circuits – have held that personal protective equipment is included within the meaning of “clothes” under Section 203(o) of the FLSA, and thus not compensable.  Salazar v. Butterball. 

Section 203(o) excludes “any time spent changing clothes or washing” from “the hours for which an employee is employed” if such time “was excluded … by the express terms or by custom or practice under a bona fide collective-bargaining agreement applicable to the particular employee.”  The Plaintiffs in this case were required to “don and doff” aprons, frocks, gloves, plastic sleeves, hard hats, certain footwork, arm guards and other items before and after their shifts and breaks.  The collective bargaining agreement was silent as to donning and doffing pay and the past practice was not to pay production employees for this time.

Similar to the recent district court case we reported on about 8 months ago (McDonald v. Kellogg), the Tenth Circuit refused to defer to the DOL’s 2010 Opinion Letter that found Section 203(o) does not cover such protective equipment, noting the agency’s shifting interpretations on this subject over the years.  The Court determined that the equipment the Plaintiffs were required to wear was not so cumbersome, complicated or otherwise different from traditional clothing to fall outside the definition of “clothes.”  The Court also found there was a continued custom or practice of nonpayment for donning and doffing.  As a result, the Court determined that the time spent donning and doffing such equipment was compensable.

While there seems to be a recent trend of decisions finding similar protective equipment to be “clothes” under Section 203(o) and, therefore the time spent donning and doffing not compensable, employers must be cognizant of the law in their Circuit.  It is also important to remember that claims under state laws may result in a different outcome.

California FlagDo you have employees who visit California for business? If so, now may be a good time to brush up on California wage and hour law. On June 30, 2011, the California Supreme Court ruled that the California Labor Code’s overtime provisions applied to three non-resident employees of Oracle Corporation who performed work within the state. Sullivan v. Oracle Corporation (.pdf).  

Summary of the Ruling

According to the decision, the three plaintiffs, Donald Sullivan, Deanna Evich and Richard Burkow, formerly worked for Oracle as Instructors and were responsible for training Oracle customers on the use of the company’s software products. While Orcale is based in California, Sullivan and Evich reside in Colordado, while Burkow lives in Arizona. They worked mostly in their home states, but also traveled to California and multiple other states. During the time period at issue in the litigation (2001-2004), Sullivan worked 74 days in California, Evich worked 110 days, and Burkow worked 20 days. 

After extensive discussion of the relevant statute and California’s rules for reconciling conflicts among different states’ laws, the California court held that the California Labor Code applies to “overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week.” The Court further held that the state’s unfair competition law applied to the plaintiffs’ claims as to overtime work performed inside of California, but not to overtime work performed outside the state. 

Insights for Employers

On its face, the court’s ruling is limited to non-resident employees of California-based employers who perform work within the state. However, many of the arguments underlying the court’s decision to apply California law to visiting employees would apply equally to employers “based” outside of California, particularly if those employers have a permanent presence within the state. Consequently, employers who regularly send workers to California on business should consider whether they may be subject to the state’s overtime laws.