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The importance of following FLSA regulations

April 1, 2015

By Lori S. Stewart, SPHR® , SHRM-SCP, HCS, Partner, Human Resources Consulting

On March 13, 2014, President Obama declared the federal Fair Labor Standards Act (FLSA) regulations as outdated. He ordered the U.S. Department of Labor to propose new rules that could make millions of additional American workers eligible for overtime pay. Today, employers can declare certain executive, administrative and other professional employees as exempt from overtime, as long as they earn more than $455 per week ($23,000 annually) and meet defined work duty requirements. Most specifically, the Administration is focusing on this salary threshold, which has been updated only twice in the last 40 years (1975 and 2004). It is expected that businesses will oppose these changes during the 18-month process, which includes a public comment period.

Whether or not you agree with the proposed changes, it makes good business sense to set up a regular review of your employees, their declared FLSA status and your pay practices. Position descriptions should be routinely reviewed to ensure they appropriately reflect an employee’s job responsibilities. Non-exempt employees are eligible and must be paid overtime at a rate of not less than one and one-half times their regular rate of pay after 40 hours of work in a workweek.

Some of the most common violations of the FLSA include rounding errors and failure to pay non-exempt workers for all hours worked.

Rounding was established to accommodate employees arriving to work a few minutes early or punching in when a bit late. Paying straight time is the best possible pay practice, but many employers choose to implement rounding.

For example, if an employer tracks employees’ time in 15-minute increments, the FLSA allows an employer to round employee time to the nearest quarter hour. However, if the employer always rounds down, they may find themselves in violation of the FLSA overtime pay regulations. Employee time from 1 to 7 minutes may be rounded down (and not counted as hours worked), but employee time from 8 to 14 minutes must be rounded up and counted as a quarter hour of work time.

There are three practices accepted in rounding. Whether you decide to pay straight time or choose one of the following, it is important to be consistent in your practices in all locations.

  • Interval

    – round up or down to the nearest defined increment (typically 15 minutes)

  • Start-stop

    – round in favor of the employee at punch in and in the employer’s favor at punch out (using the same increments in both cases)

  • Employee’s favor

    – always round in the employee’s favor, which will result in a larger share of worked time for the employee

Whatever your decision, remember that rounding must either be neutral or work in favor of the employee.

Failure to pay for all hours worked

– Often, we admire our non-exempt employees’ loyalty when they take a shorter lunch hour, come in 30 minutes early or work through lunch to get a project completed. While intentions may be good, not paying your employees for that extra 10 or 15 minutes can add up and find you in hot water with the Department of Labor (DOL). Rounding meal periods is never advisable, as the DOL will question whether employees are actually taking a 30-minute duty-free break. If not, the meal period should be treated as a break and, therefore, would need to be counted as hours worked.

So what can an employer do to avoid violations of the FLSA? Establish standardized practices with regard to punching in/out or manually tracking time. Communicate these practices from the time of hire and routinely throughout the year. Even if you tell an employee they cannot work overtime unless authorized, the employer is still responsible for paying the overtime. What happens when an employee continues to disregard established timekeeping practices? An employer is well within their rights to consider disciplinary action, but most often straightforward and consistent communication will help alleviate any problems you might have.

So remember, whether or not the proposed new FLSA rules pass – when in doubt, pay it out! You will save money, time and a challenging audit if you pay your employees following the established FLSA regulations.

This article was previously published in the May 2014 Tri-State Business Times.

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