Alexander Passantino’s advice to the lovelorn may not be the makings of the next Sex and the City show, but his pen holds serious sway with hipsters of the payroll specialist in crowd. Alex is the acting administrator of the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD). As the grand oracle of all things exempt and non-exempt, he signs the opinion letters that offer guidance to employers seeking true happiness or just wanting to avoid the heartache of another lawsuit for overtime compensation. This week, we take a look at a few recent nuggets of wisdom from Alex’s pen.
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Reduced hours in a bad economy
As an alternative to laying off employees, some employers have looked at reducing employee hours to retain good employees until the work (hopefully) picks up. Of course, reducing hours saves money only if there is a corresponding reduction in employee pay. That, in turn, raises the question of whether you can reduce an exempt employee’s pay without jeopardizing his exempt status. The answer, according to Alex’s advice to two of his loyal readers, depends on how you do it.
Although the two employers had different systems for implementing a reduced schedule, they shared the same basic framework. When work is slow, employees may be asked to stay home for the day. If the employee has available paid time off (i.e., vacation), he is required to use it. If the employee has exhausted his available paid leave, his salary is reduced in full-day increments.
To be exempt, an employee must be paid a regular salary (at least $455 per week) for any week in which he works (regardless of how many hours). With a few exceptions, any deduction from the salary destroys the exemption, making the employee eligible for overtime for weeks in which he works more than 40 hours. Therefore, an improper deduction — even a small one — can be very costly.
Alex had no problem making employees take available paid time off — so long as it was paid. The employees were still receiving their regular salary each week they worked, so the salary basis was intact. It doesn’t matter that you require the use of paid time — as long as the employee receives the same salary every week. His answer, however, was very different for employees who didn’t have paid time off in their leave bank.
Employers can’t make deductions “for absences occasioned by the employer or by the operating requirements of the business.” In each of the opinion letters, the employers were seeking to have the employee stay home whenever work was slow, which was clearly for the benefit of the employer and therefore an impermissible deduction.
Alex pointed out that you could implement a reduced schedule during an economic downturn and make a corresponding reduction in salary. The difference is a reduction to the regularly scheduled hours (e.g., moving to a four-day workweek), rather than directing employees to stay home on a regularly scheduled day because work was slow that day.
Employers can’t reduce costs by sending an exempt employee home based on the needs of the day, but they can make changes to his regular work schedule for the duration of the business downturn. (DOL Opinion Letters, FLSA2009-14 and FLSA2009-18.)
Alex has been particularly busy dispensing advice to employers seeking to improve their employees’ lot in life through training. The usual question is whether employers have to pay employees for time spent in training. Generally, training must be paid unless:
- it occurs outside regular working hours;
- it is voluntary;
- the course is not directly related to the employee’s job; and
- the employee performs no productive work during the training.
One employer asked about the compensability of voluntary in-service classes conducted after hours to assist employees in meeting state licensing requirements. Since classes were voluntary, after hours, and involved no productive work, the only issue was the third factor — not being directly related to the employee’s job.
Although the in-service classes clearly related to the employees’ jobs, Alex pointed to an exception in which training is for the benefit of the employee and is similar to courses offered by independent bona fide learning institutions. He noted that training is for the employee’s benefit when it allows the employee to work for any other employer in the industry (e.g., obtaining or maintaining a state-required license). Since similar classes are taught by educational institutions, the time does not have to be paid. (DOL Opinion Letter, FLSA2009-1.)
Another employer asked Alex if time spent studying for employer-required classes had to be paid. Because the classes were mandatory, they were clearly not “voluntary,” and therefore, class time was compensable. Time spent outside class studying is not compensable if the studying is not required by the employer. However, when homework is a requirement of the class, the time completing the assignments is compensable.
To avoid abuse, employers could place reasonable requirements on how much time the employee is allowed to complete homework, but the requirement must be realistic. On a related issue, Alex told another employer that time spent taking Web-based lessons that were a prerequisite to a training class would also be compensable. (DOL Opinion Letters, FLSA2009-13, FLSA2009-15.)
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Then there’s the perennial question of whether on-call time is compensable. In this case, employees were on call for one week every eight weeks. During their on-call week, employees weren’t restricted to a particular location but had to be able to respond within an hour of being called. Emergency calls were made only two to five times per month. Alex explained that on-call employees who must stay close by or on the premises must be compensated. Individuals with freedom to use the time for their own purposes, like the ones in this case, do not have to be paid. The time spent working when called in for an emergency, however, must be paid. (DOL Opinion Letters, FLSA2009-17.)
Defining the workweek
Finally, one employer, apparently without enough complications in life, asked Alex whether it could define the workweek differently for different employees. Under its plan, employees worked nine days in a two-week pay period. All employees worked nine hours a day, Monday through Thursday, and eight hours on one of the two Fridays in the pay period. For timekeeping purposes and to limit overtime, employees could choose from one of two workweeks: (1) 11:31 a.m. Friday until 11:30 a.m. the following Friday, with a start time of 7:30 a.m. or (2) 12:31 p.m. Friday until 12:30 p.m. the following Friday, with a start time of 8:30 a.m. Alex pointed out that once set, the workweek, however defined, cannot change based on the employee’s schedule. He nevertheless agreed that these weeks would be acceptable as long as they remained fixed once the employee selected a preference. (DOL Opinion Letters, FLSA2009-16.)
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Take Alex’s advice: Avoid the heartache
Just as too many marriages end in divorce, too many employment relationships end in wage and hour lawsuits. Review your pay practices to ensure that employees are classified properly, exempt salaries are not docked, non-exempt time is recorded properly, and overtime is calculated correctly.