The Fair Labor Standards Act (FLSA) is a federal law that requires overtime pay to be paid to most employees at the rate of one and one-half times their "regular rate" of pay when employees work more than 40 hours in a week. As is explained below, the regular rate of pay is equal to an employee's hourly rate of pay or higher. The majority of employees in the United States are covered by the FLSA. In addition, employees in the majority of states are covered by state overtime laws, many of which are more favorable to employees than the Fair Labor Standards Act.

Unfortunately, employers violate these overtime pay laws in many different and occasionally creative ways.

Some of the most common ways that employers violate the overtime laws are:

• Improper calculation of an employee's "regular rate," thereby failing to proper calculate overtime pay and underpaying employees each time overtime is paid.
• Failure to count work time in computing overtime pay such as working employees "off-the-clock" or failing to count pre-shift or post-shift activities as work time, and
• Failure to pay employees true time and one-half overtime pay by wrongly claiming that the employees are exempt from the overtime laws.
• Charging tipped employees for uniforms or equipment used in their work.
• Failing to pay for a full 30 minutes as a "meal period," but requiring employees to be on-call or otherwise failing to provide a full 30 minute , duty-free meal period.
• Failing to include bonuses in the rate at which overtime is paid.

Perhaps the greatest misconception among employees is that their employer does not have to pay them overtime if they are paid on a salaried basis. THIS IS FALSE. Salaried employees are entitled to overtime pay unless THE EMPLOYER proves that their ACTUAL job duties somehow fit within one of the exemptions to the overtime pay laws, which are described below. Indeed, in overtime pay cases, courts presume that all employees are entitled to time and one-half overtime compensation. Only those employees who an employer can prove fit within one of the exemptions to the FLSA can lawfully be denied overtime pay.

State laws can provide benefits that are in addition to the benefits provided under the FLSA. For example, some states require employees who are not covered by the FLSA to be paid overtime compensation. In addition, some states require that overtime be calculated at higher rates than the FLSA and some states require overtime to be paid for work in excess of 8 hours a day, as does the Federal government.

Special rules apply to employees of federal, state and local governments in the areas of fire protection and law enforcement, volunteering, and compensatory time. A limited partial overtime exemption applies to law enforcement and fire protection employees. These rules are explained in the sections of this Web site pertaining to fire protection and law enforcement employees. To view those sections, click on the appropriate topic. In addition, as explained below and in the section of this Web site on federal employees, compensatory time can be paid to government employees under certain circumstances.

An overview of the federal overtime laws is set forth below. This explanation is intended as an introduction and overview of some of the overtime rights provided for by federal law. It is not intended to replace the detailed, case-specific analysis of a lawyer.

• Payments Included in the Regular Rate
• How to Compute the Regular Rate for Salaried Employees
• What are Some Commonly Used, But Prohibited, Payment Methods?
• Overtime Must Be Paid In Cash
• When Must Overtime Be Paid?

How to Compute the Regular Rate of Pay (i.e., The Overtime Rate of Pay)

The regular rate of pay is the rate at which overtime compensation must be calculated. For each hour of overtime worked a non-exempt employee must be paid one and one-half times the employee's regular rate of pay. The regular rate of pay does not necessarily equal an employee's hourly rate of pay. Included in the regular rate of pay are work-related payments that are not made for overtime work such as shift differentials, bonuses, longevity pay, and educational incentive pay. Thus, the regular rate always equals or exceeds an employee's hourly rate of pay or, if the employee is salaried, the employee's hourly equivalent.

Included in the regular rate of pay, regardless of whether or not an employee is salaried or hourly paid, are bonuses, shift differentials, educational incentive pay, longevity pay, and, with the exception of the items listed below, any other non-discretionary type of payment. Gifts, discretionary bonuses, pension benefit plans, profit sharing, and thrift saving plans may all properly be excluded from the calculation of the regular rate. In addition, if an employer pays an extra hourly premium that equals or exceeds the time and one-half rate for working on a particular holiday or day of the week, the employer may exclude that premium. Some examples of types of payments included in the regular rate are explained below:

• Shift Differentials -- Some employers pay a shift differential if an employee works at night, on Sundays, or on holidays. If the differential is less than 50% of the employee's hourly rate of pay, it must be included in the calculation of the regular rate of pay used to compute the employee's overtime rate.

• Bonuses -- Some employers fail to adjust an employee's rate of pay after the employer pays the employee a bonus. Non-discretionary bonuses -- bonuses that are tied to working certain hours or achieving certain results -- must be included in the overtime rate paid. Discretionary bonuses, which are in the nature of a gift, may be excluded. In determining the overtime rate, a non-discretionary bonus may be prorated back over the life of the time period for which it is being paid, within reason.

• Longevity pay -- Some employees receive additional pay in recognition of how long they have been employed. These types of payments must be included in the regular rate of pay.

• Incentive pay -- Some employers provide an additional payment if an employee achieves an additional level of education or training. These payments must be included in the regular rate of pay.
  

Salary for Fixed Number of Hours. Most salaries are intended to compensate an employee for his or her regularly scheduled hours during the workweek. To compute the regular rate of pay, the salary plus all other inclusions in the regular rate is divided by the number of hours that the salary is intended to compensate the employee. The employee is entitled to receive one and one-half times his or her regular rate of pay for each hour of overtime worked over 40 hours in a week.

For example, if an employee is paid $1000 a week as salary and works a work schedule of 40 hours a week, the employee's overtime rate of pay is computed by dividing $1000 by 40. Thus, for each hour of overtime over 40 hours worked in a week, the employee is entitled to receive 1.5 times $25, which equals $37.50 an hour.

Fixed Salary for Varying Number of Hours. Some employers pay employees a fixed salary for whatever hours an employee is required to work in a workweek. This is permitted under the U.S. Department of Labor's regulations only if the employee and employer have a clear mutual understanding that the salary is intended to compensate the employee for the straight time portion of his or her hours whatever the number of hours that the employee is required to work. If such an arrangement is properly established, according to the Department of Labor, an employer is obligated to pay only additional "half-time" pay for each hour in excess of 40 hours a week. Some courts and some state overtime laws, however, prohibit this type of calculation method and require that time and one-half overtime pay, rather than just "half-time" pay, be made in addition to employees' salaries.

Salary includes regularly scheduled overtime hours: Another similar method occurs where an employer asserts that a portion of an employee's salary constitutes overtime pay. This is not allowed except under very specific circumstances called "Belo contracts," which can only be used if:

• the arrangement is pursuant to a specific agreement between the employee and the employer, or a collective bargaining agreement,
• the employee's duties necessitate irregular hours of work,
• the fluctuation in the employee's hours is not entirely in the overtime range, and
• the contract guarantees a weekly overtime payment not to exceed 60 hours per week and the employee receives that payment regardless of the number of hours actually worked.

Overtime pay must be in addition to and can not be a part of an employee's salary.

Bonus as part of overtime pay: Some employers pay bonuses to employees and tell them that the bonus includes the employee's overtime pay for working on a particular project or job. Unless the "bonus" is tied to each hour worked, it does not properly constitute overtime compensation.

Under certain limited circumstances, employers are permitted to meet their minimum wage obligations by including the reasonable value of meals and housing. If this is done, the value of meals and housing should increase the overtime rate.

• Employer abuse of "Suffer Permitted" Rule
• Employment violations in the restaurant, grocery, and food preparation industries
• When does travel time count as work?
• When does training time count as work?
• When does an employer have to pay for on-call time, waiting time, and break time?
• Are meal periods and sleep periods counted as overtime?
• Can an employer and employee agree to waive overtime pay?

Employer Abuse of "Suffer or Permitted" Rule

Two types of work primarily are involved when employers violate this rule: 1) Work that an employer orders to be done and then refuses to count as work time, such as many pre-shift and post-shift activities; and 2) Work that an employer knows is being done, or would know about if it made a reasonable inquiry, which the employer ignores.

Pre-Shift and Post-Shift Duties are activities that employees are required to perform before and after their scheduled shift. Any activity that benefits the employer is usually counted as work time. For example, getting a restaurant ready to open for business, meeting with wait staff about evening specials, donning protective gear and preparing equipment in a factory, or law enforcement employees checking in and out their guns are all considered to be work time even if these activities occur before the employer's scheduled shift. Some employers will hold employees after their scheduled hours to wait for a co-worker or to perform clean-up activities. Time spent performing these activities is compensable work time.

Examples of pre-shift and post-shift duties that courts have found to be compensable under the FLSA include showering and cleaning up after work at a battery plant, changing into security guard uniforms, checking in and out firearms, conducting safety inspections and caring for police dogs while at home.

Suffered or Permitted Work is work that benefits the employer in some way, that the employer knows or should know the employee is performing, and which the employer has not taken reasonable steps to prevent from occurring. The typical type of work that falls within this category is where the employer allows the employee to work after hours outside the employer's presence, such as work the employee takes home or an employee who closes up a shop. The FLSA does not permit the employer to accept the benefits of the employees' work time without paying the employee for it.

In addition, employers can not escape the payment of overtime for compensable overtime hours worked by virtue of an announcement that no overtime is authorized without prior supervisory approval. If an employer has such a rule it can not accept the fruits of the employees' labor without paying the employees.

Records of suffered or permitted work time are often incomplete or nonexistent. This does not prevent recovery of damages! Under the FLSA, employers bear the burden of keeping accurate employment records. If the employer fails to maintain records, the courts rely on employees' reasonable estimates of their work time.

Employment Violations in the Restaurant, Grocery, and Food Preparation Industries

FLSA violations are rampant among restaurants, grocery, and other food preparation employers. Remember, no one can "volunteer" to work for free for their employer. Yet, employers try to either trick or to intimidate employees into doing so. Some recent cases illustrate this:

• Chain restaurants have been sued in court for working employees "off-the-clock," failing to pay restaurant managers overtime compensation, and improperly taking a "tip credit" for time in which workers are not working in a job in which tips are paid. These cases have been settled for millions of dollars.
• Restaurants have been sued for taking a percentage of the employees' tips when the employer charges a fixed percentage of patrons' meals as tips. The employer was successfully sued for fraud as well as wage violations.
• Workers at meat packing facilities have sued to recover millions of dollars against facilities for unpaid time spent donning garments and preparing equipment before and after their shifts.
• Grocery works at a grocery chain have successfully sued to recover millions of dollars for off-the-clock work. The employees alleged they worked off-the-clock and their employer engaged in the following unlawful practices:

• Punishing employees who fail to perform assignments within unrealistic time periods thereby encouraging and rewarding employees who perform work "off-the-clock" without compensation.

• Instructing bookkeepers and others to record meal periods as non-worktime even where the employees worked through their meal periods

• Reducing alleged salaried managers pay for disciplinary infractions for periods of less than a day. This can make the managers hourly workers eligible for FLSA overtime compensation.

• Rewarding employees who work off-the-clock by commenting favorably on their working off-the-clock, and encouraging them to do so by suggesting promotions and other benefits may be tied to working off-the-clock.

• Poultry workers are suing for overtime for time spent donning and taking off safety and sanitary gear before and after work hours, and for working them off the clock, and failing to pay for short breaks.
• Chicken catchers are suing for overtime that they were denied when their employer alleged the chicken catchers are "independent contractors."

FLSA violations are rampant among restaurants, grocery, and other food preparation employers. Remember, no one can "volunteer" to work for free for their employer. Yet, employers try to either trick or to intimidate employees into doing so. Some recent cases illustrate this:

• Chain restaurants have been sued in court for working employees "off-the-clock," failing to pay restaurant managers overtime compensation, and improperly taking a "tip credit" for time in which workers are not working in a job in which tips are paid. These cases have been settled for millions of dollars.
• Restaurants have been sued for taking a percentage of the employees' tips when the employer charges a fixed percentage of patrons' meals as tips. The employer was successfully sued for fraud as well as wage violations.
• Workers at meat packing facilities have sued to recover millions of dollars against facilities for unpaid time spent donning garments and preparing equipment before and after their shifts.
• Grocery works at a grocery chain have successfully sued to recover millions of dollars for off-the-clock work. The employees alleged they worked off-the-clock and their employer engaged in the following unlawful practices:

o       Punishing employees who fail to perform assignments within unrealistic time periods thereby encouraging and rewarding employees who perform work "off-the-clock" without compensation.

o       Instructing bookkeepers and others to record meal periods as non-worktime even where the employees worked through their meal periods

o       Reducing alleged salaried managers pay for disciplinary infractions for periods of less than a day. This can make the managers hourly workers eligible for FLSA overtime compensation.

o       Rewarding employees who work off-the-clock by commenting favorably on their working off-the-clock, and encouraging them to do so by suggesting promotions and other benefits may be tied to working off-the-clock.

• Poultry workers are suing for overtime for time spent donning and taking off safety and sanitary gear before and after work hours, and for working them off the clock, and failing to pay for short breaks.
• Chicken catchers are suing for overtime that they were denied when their employer alleged the chicken catchers are "independent contractors."

Generally, travel time conducted for work during work hours is compensable whereas ordinary home-to-work travel is not. Set forth below are some different travel circumstances:

Working While Traveling: Time spent working while traveling is compensable. For example, in the federal government travel time while driving a government vehicle, at least outside of the employee's regular commute, is considered compensable work time.

Travel On Weekends: Travel on weekends is compensable even if no work is performed so long as the work hours cut across the administrative workday for the employee. For example, if the employee's administrative workday is 7:00 a.m. to 5:00 p.m. and the employee travels on a weekend during those hours, the travel time is compensable.

1. Attendance is outside the employee's regular work hours;
2. Attendance is voluntary;
3. The course is not directly related to the employee's job; and
4. The employee does not perform any productive work while attending the lecture.

Attendance is not voluntary if the employee is led to believe that his or her present employment would be adversely affected if he or she did not attend.

Although there is little case law on the issue of whether breaks are compensable, the U.S. Department of Labor's rule is that if a break or rest period is twenty minutes or less, the break time is compensable. Longer breaks, including meal breaks, may be compensable, as well, depending on the circumstances.

Waiting Time is Often Compensable

Time spent waiting while on-duty is compensable, particularly if it is on the employer's premises, is unpredictable and/or is of relatively short duration. For example, a restaurant worker who is required to report to work at a certain time, though he does not have to bus tables until a certain number of customers are present, is probably entitled to compensation for his waiting time.

In addition, in certain occupations employees are hired to be "engaged to wait" for something to occur. For example, fire fighters and emergency workers are hired, in part, to be available to respond immediately to emergencies. Some people are hired to be available to immediately repair expensive machinery. Some truck drivers are hired to wait until assignments come in so that they can leave immediately. All of these employees have been found to be "engaged to wait" and, therefore, their waiting time has been found to be compensable.

Must an Employer Pay Employees for On-Call Time?

Some employees are required to remain available at home or on the employer's premises during meal periods to respond to calls in person, or through a telephone or pager. Clearly, the time spent responding to calls, including time spent at home on the telephone or computer responding to calls or E-Mail, is compensable. With regard to waiting time, however, there is no bright line rule as to whether or not on-call time is compensable or not.

In determining whether on-call time is compensable, the factors that courts have viewed include:

• the average number of calls the employee responds to during the on-call period;
• the required response time: in other words, the amount of time in which the employee has to be at the work site after being called in;
• whether an employee is subject to discipline for missing or being late to a call-back;
• the extent to which an employee is able to engage in other activities while on-call; and
• the nature of the employee's occupation (in some jobs, it is the nature of the job to be paid to be available to respond immediately to a situation).

Meal periods and sleep time spent on the employer's premises are compensable under certain circumstances. Employers who require employees to remain on the employer's premises and to respond to calls and interruptions during an employee's meal periods and sleep time are required, in most circumstances, to pay the employees for their meal periods and sleep time.

On-Duty Meal Periods are Compensable

The Department of Labor's regulations require that meal periods be counted as compensable work time unless the employee is "completely relieved from duty for the purposes of eating regular meals." Thus, employers who impose work-related restrictions on employees during their meal periods, such as answering phones or responding to work related requests should pay employees for their meal periods.

An example of how this test is applied is a case involving telephone line installation workers. Their employer required them to eat lunch at their worksite and to remain there throughout the meal period to ensure that the expensive equipment that they used was not stolen. The entire lunch period was found to be compensable work time.

Some courts apply a different test than the Department of Labor's meal period test. These courts have applied what is called the predominant beneficiary test. Under the predominant beneficiary test, courts determine whether the employer or the employee is the predominant beneficiary of the meal period. Under this test, employees who are required to remain on the employer’s premises in a place which is not a dining room, or some other area which is not an eating facility, are usually found to be entitled to compensation for their meal periods. In these circumstances, the employer has been found to place substantial restrictions on the employee during the meal period for the employer's benefit.

For example, in cases in which police officers and fire fighters have been required to monitor their radios and to remain on the employer's premises during a meal period, the employer is usually considered to be the predominant beneficiary of the meal period and the employer must pay the employees for their meal periods. These cases are particularly strong if the police officers receive 1 or more calls on average during each meal period.

On-Duty Sleep Periods are Compensable

Under Most Circumstances

As a general rule, employers must count on-duty sleep periods as compensable work time. On-duty sleep periods are occasions in which an employee is required to sleep on the employer’s premises and may have his or her sleep interrupted by some type of incident to which the employee must respond.

• Overtime pay cases
• Anti-Retaliation remedies
• How far back can damages be obtained?
• How do employees prove damages? Do they keep their payroll records?

Most state overtime laws prescribe similar or identical remedies.

Most state overtime laws follow the FLSA recovery period, though some are longer.

WARNING! Filing a wage and hour complaint with the U.S. Department of Labor (DOL) does not toll the statute of limitations! For example, if you file a complaint with DOL today and DOL takes a year to investigate your claim without taking any action, you have lost a year of backpay. If you then decide to pursue a case on your own or DOL takes your case to court, the statute of limitations will be determined by going back two years from the date your complaint is filed in court (three years for a willful violation).

The application of the overtime laws to federal, state, and local government employees is, for the most part, the same as the application in the private sector. There are a few noteworthy differences, however.

Police and fire fighters are subject to a partial overtime exemption so that they are not entitled to FLSA overtime until after they have worked more hours than other employees. For information regarding the unique overtime laws applicable to fire fighters and police, click on the one that applies to you.

The rules applicable to state and local government employees differ from those applicable to federal employees. To view the overtime laws applicable to federal employees click here.

The main differences between the application of the FLSA overtime laws in the private sector and in the government are as follows:

1. The payment of compensatory time is permitted to government employees as long as there is an agreement before overtime work commences that compensatory time will be paid. The maximum amount of compensatory time that can be accrued is 240 hours for most government employees (480 hours for public safety workers). Employers can not compel employees to accept compensatory time as payment for overtime work;
2. Employees can volunteer to work for their governmental employer to perform work that is not of the same type that the employee normally performs. For example, a fire fighter can volunteer to be a counselor at a youth facility. Moreover, (s)he cannot act as a volunteer fire fighter for her employer. Private citizens can volunteer for public employers.
3. Governmental employees who are employed by the same public agency may, with their employer's approval, trade work shifts without affecting their overtime compensation.
4. Training time that is required by a higher governmental authority -- such as a state requiring a city to train its employees -- does not have to count as work time.

• General Principles
• What are the so-called "white collar" exemptions?
• How is payment on a salaried basis defined?
• What are the job duties tests for the administrative, professional and executive exemptions?
• Independent Contractors
• Other Exemptions

The FLSA has a number of categories of employees who are exempt from the overtime laws. In some cases, however, state laws cover the employees who are exempt from the FLSA. In addition, exemptions are applied on a workweek basis. Employees who perform non-exempt duties in a workweek typically are not exempt that week and are entitled to FLSA overtime compensation for overtime hours worked that week - regardless of their FLSA status the rest of the year.

• Employees are presumed to be entitled to overtime pay;
• The employer bears the burden of proving that an employee fits within a claimed exemption;
• Job duties, not job titles govern whether an exemption applies. Employers often give employees fancy administrative or professional sounding job titles for purposes of exempting them from overtime pay. Legally, this does not work. In determining whether or not an exemption to overtime pay applies, an employee's actual job duties must be evaluated;
• Lastly, the exemptions to the overtime exemptions are narrowly construed against the employer and if there is a reasonable doubt as to whether an exemption applies, the employee is supposed to receive overtime compensation.

These are the administrative, professional and executive exemptions. They are misnamed the "white collar" exemptions because in today's economy many office workers are covered by the overtime laws.

IMPORTANT! the administrative, executive and professional exemptions do not apply to hourly paid employees. In other words, to apply these exemptions to an employee, an employer must prove that the employee is paid on a salaried basis, and that the employee's job duties fit within the claimed exemption. Many salaried employees are entitled to overtime pay because their duties do not meet the test for the overtime exemption their employer is claiming.

The duty tests for each of these exemptions can be quite complicated. Each exemption sets forth a three-part test which is briefly outlined below. To qualify for the exemption, the employer must prove that the employee's primary job duties meet all aspects of the duty test.

The term primary job duty generally means activities that encompass fifty percent (50%) or more of an employee's work time. The primary job duty requirement means that an employer cannot deny an employee overtime pay on the basis of collateral assignments to the employee that may fit within one of the exemptions.

ADMINISTRATIVE DUTIES TEST

The administrative exemption is limited to employees who make decisions with regard to matters of significance concerning the internal operations of their employer. It is intended to apply to people in jobs such as personnel, labor relations, high level budget analysts, management analysts and other similar types of employees.

To be exempt from receiving overtime compensation as an administrative employee, an employee's primary job duty must involve (1) office or nonmanual work, or staff work, which is directly related to management; (2) the exercise of independent judgment and discretion with regard to matters of significance on a customary and regular basis; and (3) work regularly assisting and directing an executive or owner, or work along specialized technical lines under only general supervision that requires specialized knowledge, training or experience.

Note that the test for the exemption is a three-part test and that all three parts must be established for the employer to exempt employees from receiving overtime pay. Thus, an employee who performs internal functions such as a management analyst may not qualify for the exemption if the employee does not customarily and regularly exercise independent judgment and discretion with regard to matters of significance. For example, someone who simply reviews and summarizes data would likely not be found to be an administrative employee and would be entitled to FLSA overtime compensation.

In addition, the Department of Labor and the courts have applied a production worker/administrative worker distinction in which the workers who perform the day-to-day work necessary for an employer to fulfill its mission can not qualify as administrative employees. Set forth below are some examples of workers who were found by the courts or the Department of Labor to be entitled to overtime pay:

• Escrow workers working for a title company
• Indoor wholesale salespeople working for an electrical supplier
• State police detectives
• Probation officers and district attorney investigators
• Convention planners employed by a tourist bureau
• Electronics technicians troubleshooting repair of satellite equipment
• Insurance claims investigators
• Senior border patrol agents
• Computer specialists performing simple programming
• Television news producers for a local television station
• INS anti-smuggling criminal investigators

PROFESSIONAL EXEMPTION -- LEARNED PROFESSIONS, ARTISTIC PROFESSIONS AND COMPUTER PROFESSIONALS

(1) LEARNED PROFESSIONS

The professional exemption is intended to apply to employees who work in recognized professions that typically require a four year college degree or higher such as doctors, lawyers, engineers, architects, scientists, teachers in a recognized school system, etc. Disputes involving the professional exemption typically arise when an employee has developed an area of expertise through on-the-job experience that the employer attempts to claim is a profession such as equipment technicians or journalists or when a person trained as a professional is not performing professional work such as an accountant who is doing bookkeeping.

There is a three-part duty test for the professional exemption. With two exemptions, an employee who is not salaried can not be exempted from receiving overtime compensation as a professional regardless of the employee's job duties. The exemptions are for teachers, and doctors and lawyers who hold valid licenses to teach, practice medicine or law To exclude an employee from receiving overtime pay as a professional, an employer must prove that an employee meets all three parts of the test.

The first step is that the employee's primary job duty must be to perform the work of a "profession." This means that the work that the employee is performing is the type of work that is typically performed by persons who have developed an area of expertise by obtaining a four year degree through college study or higher in a specialized field. To be considered a professional under the FLSA, the employee must have both practical and theoretical knowledge of the profession.

Second, the employee's work must consistently involve the exercise of independent judgment and discretion with regard to important decisions within the profession.

Third, the work must be intellectual and varied as opposed to routine, mechanical or physical work. It cannot be the type of work that can be easily standardized.

(2) ARTISTIC PROFESSIONALS

Persons employed in the arts are exempt from receiving overtime under the artistic professional exemption. This is most often misapplied to persons who work in fields that have limited avenues for creativity such as draftsman, graphic artists, journalists, technical writers, copy writers and the like.

To be excluded from receiving overtime as an artistic professional, an employee must perform work that is original and creative in nature in a field of recognized artistic endeavor. The results must be dependent primarily on the invention, imagination or talent of the employee.

The work must also require the consistent exercise of discretion and independent judgment, and it must be predominantly intellectual and varied.

(3) COMPUTER PROFESSIONALS

This exemption is limited to computer programmers and computer systems analysts. In contrast, employees who are engaged in the maintenance, operation or repair of computers and software are clearly entitled to receive overtime. Computer systems analysts, computer programmers, and software engineers in the computer software field are exempt from receiving FLSA overtime only if they meet certain tests Congress has established for the computer professional exemption.

The exemption only applies to highly skilled employees who have achieved a level of proficiency in the theoretical and practical application of a body of specialized knowledge in computer systems analysis, programming and software engineering. To be considered an FLSA exempt "computer professional," the employee must work free from close supervision. In addition, these types of employees are exempt only if their primary job duty involves programming, design, or modification of software, or the application of "systems analysis techniques and procedures, including consulting with users to determine hardware, software or system specifications."

In addition, in order for this exemption to apply, the computer professional must either be paid on a salaried basis, or if he or she is hourly paid, they must be paid at least $27.63 an hour. In other words, hourly paid computer employees who make less than $27.63 per hour cannot be excluded from receiving overtime under this exemption.

EXECUTIVE EXEMPTION

The executive exemption applies to managers and high level supervisors who are paid on a salaried basis. A two-part duty test is used to determine whether salaried employees can legally be denied overtime compensation on the basis that they are "executives." (There is a three-part test that is applied to employees who make less than $250 a week).

To prove that its employees meet the duty test, an employer must establish that the primary duty of the employee is managerial. As a general rule of thumb, this means that the employee spends fifty or more percent of his or her time performing managerial duties.

Second, the employer must establish that the employee customarily and regularly directs the work of two or more employees.

In a 1999 decision, a federal court ruled that employees with the title "supervisor" who did not supervise a permanently assigned group of employees were improperly classified as exempt executives. The supervisory employees were found to be more like group leaders or forepersons than managers because they supervised the activities of different employees each week or month.

OUTSIDE SALES EXEMPTION

COMMISSIONED RETAIL SALES EXEMPTION

Employees of retail or service establishments are exempt from receiving overtime if more than half of the employee's earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.

In addition, for this exemption to apply, 75 percent of the employer's annual dollar volume of sales must be recognized as retail sales. This prevents the retail sales exemption from applying to wholesalers.

MOTOR CARRIER EXEMPTION

People who work as employees are entitled to greater legal protections and monetary benefits than independent contractors. Of course, in theory, independent contractors are free from the set work time, discipline and other restrictions that govern employees' conduct.

There is much less regulation involved for employers if they treat their workers as "independent contractors" rather than "employees." Employees have many more legal rights: The right to overtime pay, to unionize, to social security credits, protection against discrimination (age, race, sex, disability, national origin, etc.), unemployment insurance and a multitude of other benefits. Independent contractors primarily only have the right to be paid pursuant to their contract with the employer.

I. Many state and federal laws cover employees that do not cover independent contractors. A sampling of some of the important laws that only cover employees are:

1. Fair Labor Standards Act and state overtime laws: These are laws that require employers to pay time and one-half overtime compensation to employees who work over 40 hours in a week.
2. Laws Prohibiting Discrimination: Generally, only employees are protected from discrimination on the basis of race, color, national origin, disability, religion, sex, age and disability.
3. Family and Medical Leave: Only employees are entitled to leave under the Family and Medical Leave Act and similar state statutes. This can be particularly important if a person is compelled to leave work for a period of time due to illness and wishes to return to work in the same job that the person held when he or she left.
4. Employee Retirement and Related Benefits: Generally, employees retirement and other related benefits are protected by the Employment Retirement and Income Security Act (ERISA), but independent contractors are not.
5. Employment Taxes: The Internal Revenue Code obligates employers to pay employment taxes (unemployment insurance, Social Security, Medicare) and to withhold taxes (income, Social Security and Medicare) for employees. Generally, this is not true for independent contractors. (Of course, independent contractors must pay their own taxes).
6. Right to Organize Unions and Engage in Collective Bargaining: Generally, collective bargaining rights and the protections from retaliation and discrimination under the National Labor Relations Act and similar state laws are afforded only to employees and not to independent contractors.

II. The Tests to Determine Status as Employee or Independent Contractor

Classifying certain workers as employees or independent contractors can be difficult. Currently, there are essentially two tests used to determine whether or not a worker is an independent contractor or employee. The Internal Revenue Service applies the "right to control test." Under the Fair Labor Standards Act (FLSA) and other statutes the courts have applied the "economic reality test."

1. Right to Control Test (also called the Master-Servant or common law agency test):

This test distinguishes independent contractors from employees based on the degree to which an employer exercises control over the worker. The control factors that are considered include:

1. What is the degree of control the employer exercises over the day-to-day work performed?
2. Is the worker engaged in a business or occupation that is distinct from the employer?
3. Is the occupation a specialist job or one usually performed under supervisor?
4. What is the degree of skill involved in the job?
5. Does the employer or the worker supply the tools and equipment necessary to perform the job?
6. How long is the worker employed by this employer?
7. Is the work performed part of the regular business of the employer?
8. Does the worker perform the same type of work for other business entities?
9. Do the parties believe they are creating an employer/employee relationship business?
10. How is the worker paid for his work – by the job or project or by the hour or salary?

These factors are analyzed in their totality to determine whether a worker is an employee or independent contractor.

b. Economic Reality Test

This test is somewhat broader than the control test and it classifies greater numbers of workers as employees. Courts and the Department of Labor look to the "economic realities as a whole" to determine how to classify a worker. Generally, there are seven factors viewed under this test:

1. Amount of the worker's investment in facilities and work equipment;
2. The nature and degree of control retained or exercised by the company over the worker's work;
3. Worker's opportunities for profit and loss;
4. The degree to which the worker's independent initiative, judgment and planning in market competition with others is necessary for the success of the worker's operation;
5. Degree of the permanency of the relationship between the employer and the worker;
6. The extent to which the services are a part of the employer's business;
7. How dependent is the worker on the employer for continued work?

The overtime laws are intended to provide broad coverage. As a result, these factors are construed in favor of a worker having the status as "an employee."

c. Hybrid test

Some courts apply a hybrid test combining the control test and the economic realities test. This is often done in interpreting the law under the Age Discrimination in Employment Act (ADEA) and the federal Civil Rights Act of 1964, as amended in 1991. The hybrid approach includes the factors under the right of control test, but also includes such factors as:

1. The type of occupation;
2. The skill required;
3. Whether the worker is furnished with equipment;
4. How long the worker has been employed by the employer;
5. Whether paid leave is provided;
6. How the employee is paid; and
7. How the work relationship was terminated.

III. OTHER CONSIDERATIONS

In determining how to classify an employee the courts view the purpose and nature of the law (or laws) at issue. The failure to consider a worker as an employee can result in a great diminishment of a person's employment protections and benefits. Thus in close cases, courts often decide in favor of finding an employee/employer relationship rather than independent contractor status.

• Tipped Employees

The minimum wage in the United States is currently $5.15 per hour. An employee's pay must average this amount for each hour worked regardless of whether the employee is paid on an hourly basis, a salaried basis, a task basis or some other type of payment scheme.

Many states and cities have minimum wage rates that are higher than the national law. If an employee works in a city or a state that has a minimum wage that is higher than $5.15 per hour, the employee is entitled to receive the higher wage.

Congress has enacted a special exception to the rules for computing the minimum wage for tipped employees. An employer is permitted to pay tipped employees a "cash wage" of only one-half the 1996 minimum wage ($4.25/hour). This means employers can pay tipped employees a cash wage of only $2.12 an hour, and it may credit tips to make up the rest of the minimum wage.

The tip credit the employer receives may not exceed the value of the tips the employee has actually received. If this amount fails to meet the minimum wage, the employer must make up the difference.

Employers may apply the tip credit only if:

(i) The employee is working in a job in which the employee customarily and regularly receives $30.00 a month in tips;

(ii) The tipped employee has been informed by the employer about the tip credit law and that the employee must be allowed to retain all tips the employee receives, with the exception that tip pooling with other employees arrangements are allowed; and

(iii) Employers cannot require employees to share tips with their employer.

If an employer violates any of these three elements, a tip credit is not allowed.

EXAMPLES OF EMPLOYER ABUSE OF THE TIP CREDIT

There are a number of sources available that provide general information regarding overtime laws. For example, the U.S. Department of Labor's homepage is helpful in providing general information and many states have a homepage if they have a department of labor.

Most cases, however, involve unique circumstances that warrant individual analysis and evaluation by attorneys who are experienced in pursuing overtime wage cases. Over the past forty years, Woodley & McGillivary has successfully handled overtime cases obtaining thousands of dollars for thousands of employees. Employees with individual questions may contact Woodley & McGillivary for free consultations by filling out our questionnaire or writing to us at: