Legal tips and traps in compliance with wage and hour laws, who are exempt from minimum wage and overtime, how overtime is calculated, how regular hourly rate is calculated, and independent contractor issues

2. TRAP 1: Trying to Exempt Employees
Who Shouldn’t Be Exempt to Avoid
Paying Overtime.

3. FLSA Basics
Two categories of employees
– Exempt
– Non-exempt
Correctly distinguish between employees & independent
contractors
Major Provisions of Law
– Minimum Wage
– Overtime Pay
– Child Labor
– Record keeping

4. EXEMPTIONS DO NOT APPLY TO:
(They can almost never be exempt)
Manual laborers/blue collar
workers
production line
maintenance
construction, e.g.
carpenters, electricians,
plumbers
First responders/public safety
workers
police officers & firefighters
paramedics
crime investigators

5. Exempt Employees
The most common FLSA MW and OT exception is often
called the “white collar” exemptions which apply to
certain:
– Executives
– Administrative employees
– Learned Professional employees
– Creative Professional employees
– Computer employees

6. EXEMPT EMPLOYEES MUST BE
PAID ON A SALARY BASIS
GENERAL NEW RULE: must receive salary of not less than $455/week
($23,660/yr.)
EXCEPTIONS:
administrative & professional: can get fee basis for job equal to $455/week
> agreed sum for single job regardless of hours/days
computer professional: $27.63/hour or more
academic administrative: or salary basis at least equal to teacher’s entry level
professionals engaged as teachers or lawyers and doctors, interns, or residents: no
minimum salary requirement
highly compensated: $100,000/year total annual compensation
> includes non-discretionary payments & commissions, but not benefits
> final payment to meet compensation amount
> meets at least 1 duties requirement of any exemption
> performs only office or non-manual work
outside salespersons: no salary requirement

7. Who Can Be Exempt
I. EXECUTIVE EXEMPTION
NEW TEST
GENERAL
– primary duty of managing enterprise, or recognized
department or department subdivision
– customarily and regularly directs the work of at least 2 full-
time employees or equivalent
– authority to hire/fire or whose suggestions/recommendations
re: change of status are given particular weight

8. EXECUTIVE EXEMPTION
Further Guidance
Management must be “primary duty” (no magic %). Includes:
Activities re: employees’ selection, training, pay, hours,
appraisals, discipline, complaints, safety
Maintaining production/sales records for use in
supervision/control
Determining techniques, purchases, sales, work
apportionment
Controlling materials/supplies
Planning the work
Planning and controlling budget
Monitoring legal compliance

9. EXECUTIVE EXEMPTIONS
Nuances
Primary Duty
based on all the facts in a particular case
percentage of time is only one factor
Hint: Include qualifying duties in job description with input from
employees performing job.
“Concurrent duties” (Wal-Mart provision)
concurrent non-exempt work does not defeat management as
primary duty
supervision can be shared with other exempt employee, but
employee’s hours count only once
working manager may be exempt

10. II. ADMINISTRATIVE EXEMPTION
(Toughest and Broadest Category)
Most Often Attacked by DOL
primary duty is office or non-manual work directly related to the
management or general business operations of employer or
customers
> assisting with the running or servicing of the business
- work in functional areas, e.g., finance, accounting, HR, PR
- advisors or consultants to customers
> not production work or sales in retail service establishment
primary duty includes the exercise of discretion and
independent judgment with respect to matters of significance

11. ADMINISTRATIVE EXEMPTION
Further Guidance
“Exercise of discretion & independent judgment in matters of
significance”
Generally involves comparing/evaluating possible courses of action
and acting/deciding thereafter
> more than use of skill in applying techniques, procedures or
standards
Involves “matters of significance”: based on level of importance or
consequences of the work

12. ADMINISTRATIVE EXEMPTION
Specific examples of those generally exempt
insurance claims adjusters
financial services, including analyzing customer info, advising
customers about products and promoting products
- but not if primary duty is selling financial products
team leaders for major projects even if no supervisory role
executive/admin. assistant to business owner or senior executive
human resources managers !
purchasing agents and buyers
Specific examples of those generally not exempt
inspectors, examiners, graders
public sector inspectors or investigators

13. III. PROFESSIONAL EXEMPTION
primary duty of
> LEARNED PROFESSIONAL: work requiring advanced,
specialized knowledge customarily acquired through specialized
higher education
OR
> CREATIVE PROFESSIONAL: work requiring invention,
imagination, originality or talent in a recognized field of artistic or
creative endeavor

14. IV. LEARNED PROFESSIONAL
EXEMPTION
Primary duty test
1. Must perform work requiring advanced knowledge
> mainly intellectual
AND
> requires consistent exercise of discretion and judgment
2. Advanced knowledge must be in a field of science or learning
> recognized professional status
> not mechanical arts or skilled trades
3. Advanced knowledge must be customarily acquired by a prolonged
course of specialized intellectual always instruction
> college degree is not always required but is best evidence
> high school is insufficient

15. LEARNED PROFESSIONAL
EXEMPTION
Examples of generally exempt if courses and licenses Met
health care
> registered or certified medical technologists
> registered nurses but not licensed practical or vocational
nurses
> dental hygienists
> physician assistants
accountants
> CPAs and other accountants who perform similar duties but
not bookkeepers, accounting clerks
chefs
> executive and sous chefs but not cooks
athletic trainers
funeral directors and embalmers

16. LEARNED PROFESSIONAL
EXEMPTION
Special categories
practitioners of law or medicine
> generally exempt as professionals
> general duty test and salary test do not
apply
> degreed interns and residents exempt
> paralegals generally not exempt unless
other degree

17. V. COMPUTER PROFESSIONAL
EXEMPTION
NEW TEST
primary duty of work requiring:
(1) application of systems analysis techniques and procedures,
including consulting with users, to determine hardware, software or
system functional specifications, and/or
(2) design, development, documentation, analysis, creation, testing
or modification of computer systems or programs, and/or
(3) design, documentation, testing, creation or modification of
computer programs related to machine operating systems

18. PROFESSIONAL - COMPUTER
(CONT’D)
Examples of generally exempt if meet duties test
> computer systems analysts
> computer programmers
> software engineers
Examples of generally not exempt
> computer manufacturer
> computer repair
> computer or software users
Examples of generally exempt under another exemption
> administrative: planning, scheduling, coordinating activities
required to develop systems to solve complex problems of employer
or customers
> executive: senior or lead programmer who manages 2 or more
other programmers and whose recommendations as to their
employment status are given particular

19. VI. OUTSIDE SALES EXEMPTION
NEW TEST
No salary requirement
Test: (1) primary duty is making sales and obtaining orders/contracts,
AND (2) customarily and regularly outside the office performing such
duty
No % or time spent outside of office requirement
Primary duty includes incidental tasks, e.g.,
> incidental deliveries and collections
> updating catalogue
> writing sales reports
> attending conferences
> planning itinerary

20. TRAP 2: Improper Deductions
From Salary
DEDUCTIONS NOT ALLOWED
personal/sickness/disability/workers’ comp
absences of less than a full day (if no sick
leave, PTO, vacation available)
jury duty or witness attendance, but can
offset fee paid to employee
military leave, but can offset fee
Reimbursement or payment out of pocket
for lost or damaged equipment or
merchandise, “penalties” for performance
deficiencies

21. EFFECT OF IMPROPER ARG !
DEDUCTIONS
(They Can Kill You)
Exemption is lost for period of improper deduction if facts
demonstrate employer did not intend to pay on salary basis (adopt a
policy to protect yourself)
No loss of exemption for isolated/inadvertent deduction if
reimbursement made promptly
No loss of exemption even after employee complaint if you have:
(1) a clearly communicated policy prohibiting improper deductions
including complaint mechanism, (2) reimbursed promptly, and
(3) good faith commitment to comply in future, unless you willfully
continue deductions
> HINT: Hand out policy at hire, post, re-issue, do training on policy
Potential loss of exemption to all in job categories under same
manager

22. Deductions From Salary
That Won’t Kill You
(You Won’t Lose Exemption)
Personal absences of full day (partial days must be PTO covered)
Sickness/disability/workers’ comp absences of full day if per plan to
compensate for lost pay (can take paid partial days under sick leave plan)
> before, during & after benefits kick in
Unpaid FMLA leave
> can deduct for less than full day increments
New--violations of safety rules of major significance (if policy says this)
> can deduct any amount
New--disciplinary suspensions of full day for violations of workplace conduct
rules (not performance or attendance rules)
> imposed in good faith
> per written policy applicable to all employees (WRITE YOUR POLICY)
First or last week - partial week
Public agency employees, less than full day--§541.710

23. Trap 3: Non-Exempt Workers—How
and When to Pay Overtime
Workweek: A workweek is a period of 168 hours during
7 consecutive 24-hour periods. (Not based on pay
period.)
Hours Worked: Includes all the time an employee must
be on duty, or on the employer’s premises or at any
other prescribed place of work, including time employee
is allowed to work.
Recent DOL investigation here—Includes travel time to
and from jobs; waiting time on premises (and on-call
time under some circumstances); time in company
meetings, such as safety meetings

24. Pay for “Breaks”
Rest and Meal Periods. “Coffee breaks”, cigarette breaks, “rest
periods”, or lunch periods of less than thirty minutes generally
are not deducted from hours worked—they must be paid.
Even lunch periods of over thirty minutes are not deducted
unless employee is generally free from work responsibilities.
Watch out for employees eating lunch at desk, answering phone
calls, or performing other duties during lunch. Have a policy
prohibiting work during lunch hour.

25. Unauthorized Overtime
An employee must be paid for hours worked over 40 per week, even
if the employer has a policy against such work without advance
approval, especially if it knows or has reason to know the work is
being performed.
The remedy is to discipline or fire employees who ignore such a
requirement.
Employers cannot ask employees to work “off-the-clock”, without
pay. ( This should be obvious, but lots of Wal-mart cases on this
issue)
Additional rules for out of town travel, on-call, and out of office
meeting time
Must be paid for pre- and post- work “donning and doffing” of
uniforms or work prep time.

26. Overtime Pay Rate
Regular Rate (RR)
– It is a rate per hour
– Is determined by dividing the total earnings for all hours worked
in any work week by the total number of hours worked in the
week
– It may not be less than the applicable MW
– If RR is higher than the MW, OT must be computed at the higher
rate
If a non-exempt employee is paid on a annual salary
basis, an hourly (regular rate) must be calculated

27. Overtime Pay
Regular Rate (RR) includes:
– Bonuses that are defined or capable of calculation
such as for longevity, attendance, or job performance
– Increases in pay (retro pay, too)
– Example: Aide @ $15,000 per yr, plus $500 longevity
& $500 for college hours = $16,000 [8 hrs per day for
187 days per year]
Regular RR would be $10.70
OT rate would be $16.05

28. Overtime Pay
Regular rate does not include:
– Gifts, such as Christmas or B-Day
– Payments for time not worked, such as holiday, sick or vacation
pay
– Discretionary bonuses
– Profit sharing plans
– Talent fees
– Premium payments
– Stock options

29. Missed lunch breaks
An unpaid lunch break must be paid when the break is
not taken
– Example: Non-exempt employee works from 7:30 am to 4:00
p.m., is scheduled for a 30 minute unpaid lunch break, but
doesn’t take the break.
– How many hours should be employee be paid for?
– If the employee is paid a pro-rated salary, how should that salary
be adjusted?
If a lunch break is interrupted – the entire lunch break is
compensable

30. MOST COMMON OVERTIME VIOLATIONS
Failure to pay overtime pay—at all, or
correctly
Failure to maintain a record of hours
worked on non-exempt employees
Failure to consider untaken meal periods,
travel time and meeting time as hours
worked

31. Another DOL Investigation Area-- Minimum
Wage (MW)
Current federal minimum wage is $7.25
Covered non-exempt employees must be
paid not less than the MW for all hours
worked (remember definition)
Must be paid in cash or equivalent – free &
clear (not subject to deductions)
Each week stands by itself, although there is
no requirement to pay weekly – define
“workweek”

32. Trap 4: Independent Contractors
Who Aren’t
My favorite saying, “If it walks like a duck &
quacks, it’s a duck”. If worker acts like an
employee—he or she is an employee, not
an independent contractor!
This is a favorite area for DOL audits.

33. Tests for I.C. vs. Employee
Handout with main factors DOL, IRS, & TWC
look at—Key often is whether worker is free to
“take it or leave it” on your work assignments or
to do other jobs for other people or themselves
without repercussions.
Recent case example—Oilfield gate keepers

34. BOTTOM LINE
Compliance and Remedies
Although most investigations are initiated by an employee complaint,
they may result from a decision by the Wage and Hour Division to
target a particular industry of which your establishment is a part. –
Health care, construction, restaurants recently.
An employee may bring a private lawsuit against you for FLSA
violations.
Successful employees can recover back overtime for up to three years.
This amount is doubled if the court determines that the violation was not
in “good faith”. – (rarely met) Employers will also have to pay
prejudgment interest and the employee’s attorney’s fees.
“Collective” actions involving many similarly situated employees are
easy and commonly-pursued by plaintiff’s lawyers. Big bucks!

35. FLSA ENFORCEMENT
REMEDIES
Recovery of back wages
– The Secretary of Labor may bring suit for
back wages and an equal amount for
liquidated damages
– Employee may file a private lawsuit for back
pay and an equal amount as liquidates
damages, plus attorney fees and court costs

36. FLSA ENFORCEMENT—The Long Arm
of the DOL
Statute of Limitations: (Applied to Every
Worker Similarly Situated!)
– 2 years applies to recovery of back pay
– 3 years applies to recovery of back pay in
cases of willful violations

37. Additional Information
Wage & Hour homepage at:
– www.dol.gov/dol/esa/public/whd_org.htm
Call the Wage & Hour at:
– 1-866-487-9243 or 1-866-4US-WAGE
Call the Dept. of Labor at:
– 1-866-487-2365 or 1-866-4USA DOL
Use the Dept. of Labor Interactive Advisor system – ELaws
– www.dol.gov/elaws
Call or visit the nearest Wage & Hour Division Office

38. Good Luck!
Adair Buckner
Buckner & Cross, L.L.P.
600 S. Tyler, Suite 1313
Amarillo, TX 79101
(806) 322-7777
adair@bucknercross-law.com
www.bucknercross-law.com
Board Certified in Labor and Employment Law
Texas Board of Legal Specialization