The Top Three FLSA Mistakes Employers Make

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From time to time, new issues arise with regard to the Fair Labor Standards Act (“FLSA”) and how an employer must pay its employees. The FLSA was first drafted in 1932, and many of the issues employers deal with today relate to positions that only developed in the last few decades (see here for a wage and hour lawsuit our employment law firm recently filed dealing with whether a Network Systems Analyst met the administrative exemption). Then there are new arguments asserted on old issues, such as determining if an employee is entitled to pay for “on-call time” when he or she is required to carry a company issued mobile phone and respond to emails. And occasionally we see truly innovative arguments asserted by employers, such as a case our firm recently handled where the owner of a seafood restaurant argued that his waiters were exempt pursuant to a supposed “fish unloaders” exemption. See 29 U.S.C. § 213(a)(5) (while the statute provides that an employee is exempt when employed in a business involving the “unloading” of fish, the Court was not convinced that waiters in a restaurant selling seafood were intended to be included within this group).

The above examples, however, are exceptions to the rule. In practice, employment attorneys are rarely surprised by the FLSA violations they discover. Both in the legal opinions we read and the cases we litigate, the same FLSA violations haunt employers over and over again. Accordingly, we have put together a list of the “top three” FLSA violations we have seen in our Maryland employment law practice. While the FLSA is complex and nearly impossible for an employer to fully understand without the assistance of trained legal guidance, avoiding the following three mistakes will go a long way toward ensuring FLSA compliance.

Violation #1: The incorrect belief that paying an employee a “salary” by itself exempts the employee from the FLSA’s overtime laws.

The assumption seems logical. Overtime is paid at the rate of 1.5 times an employee’s regular rate. (In other words, if an employee earns $10 per hour, the overtime rate is $15 per hour). Therefore, many employers believe that if an employee is paid a salary (as opposed to an hourly wage), the employee is not entitled to overtime.

Wrong! Paying an employee a salary is the beginning, not the end, of the inquiry.

There are two main points to address here. First, meeting the FLSA’s definition of paying employees “on a salary basis” is trickier than it sounds. See generally 29 U.S.C. §541.602. To begin with, there is a minimum salary threshold. The regulations currently provide that an employee must be paid at least $455 a week to meet the FLSA’s salary requirements. Moreover, even if an employee is paid over $455 per week, employers can destroy an employee’s “salary” status by taking deductions from the employee’s pay in ways that violate what the Regulations consider to be a “salary basis.” Two common examples are: (1) taking deductions from a salary for absences of less than a full day off (for example, if the employer docks the employee for half a day’s absence, it can destroy the “salary basis”); or (2) taking deductions from a salary when the employee is ready and able to work, but the business does not require the employee to work (such as days on which the business is closed due to inclement weather). There are plenty of other examples as well, such as docking an employee’s salary for failure to return expensive computer equipment. As is evident, these requirements are not intuitive and require extensive familiarity with the FLSA and its regulations.

Second, most employers are shocked to learn that even if they do properly pay their employees on a salary basis, that is still not enough to exempt the employees from the FLSA’s overtime pay requirements. In addition to a salary, for employees to be exempt they must also meet the “duties” requirements of the FLSA. For most businesses, this means that the employee must be employed in either a “professional,” “administrative,” or “executive” capacity (as defined by the statute and regulations). Determining whether an employee falls into any of these categories requires a careful investigation of each individual employee’s job duties, and consultation with an attorney who is well-versed in the FLSA is highly recommended.

Violation #2: Allowing employees to take their meal breaks at their desk.

The FLSA requires that all non-exempt employees be paid for all time that they are “suffered or permitted” to work. See 29 C.F.R. § 785.11. However, when an employee is completely relieved from all work related duties, such as during their lunch break, they are generally not entitled to receive compensation. See 29 C.F.R. § 785.11.

Seems straightforward enough. However, if an employee is asked to do any work during any part of their meal break (or, in some cases, even if an employee voluntarily elects to perform work) the entire meal period could be considered “working time” and compensable under the FLSA. This could involve something as simple and innocent as asking an employee to eat at his or her desk, to take an item to the post office during lunch, or merely asking them to cover incoming phone calls (even if the phone never actually rings).

Over the course of time, the wages an employer could potentially become liable for as a result of employees working through lunch quickly adds up, particularly if this practice is occurring throughout the employer’s business and with an entire department of employees. And keep in mind, if the employee is already working 40 hours per week in addition to the meal period, the employee would be able to recover for unpaid lunches at their overtime premium rate.

Violation #3: It’s the industry standard!

Adhering to “industry standards” will not insulate employers from liability under the FLSA. A quick Google search will instantly bring up results reporting on the hundreds of millions of dollars businesses have had to pay because they followed standard industry practices when compensating their non-exempt employees. For example, many industries claim that they cannot compete economically unless they treat their employees as independent contractors, thus “saving” the cost of payroll taxes and avoiding the expense of overtime pay. (The FLSA does not apply to independent contractors.) But if those workers actually should have been classified as employees, the fact that it is “industry standard” to misclassify them will not insulate an employer from liability.

And keep in mind, once your industry has been exposed as one which follows a practice which violates the FLSA, your business will have a target on its back for both the Department of Labor and private attorneys seeking to file civil suits. Accordingly, while business owners often mistakenly believe that following the industry standard provides them with a defense, it often actually results in the employer become more, not less, vulnerable to those who prosecute FLSA claims.

And that’s our firm’s list of the top three FLSA violations we see in our Maryland employment law practice. Of course, every situation is fact specific. Employers must always consult with an experienced Maryland employment attorney regarding their unique circumstances. Also, keep in mind that additional state or local laws may impose further obligations on you and your business.

Business owners or employees who have any additional questions about the FLSA or any other issues which might arise in the workplace are welcome to contact Maryland employment law attorney Judd G. Millman. Mr. Millman is licensed to practice law in both Maryland and Texas, and his practice focuses exclusively on employment law. He regularly counsels both employees and employers on the myriad of legal issues which arise in the workplace, including issues relating to working-hours and properly compensating employees for regular and overtime hours. He can be reached directly at (410) 522-1020, or at judd@luchanskylaw.com.