ADP: 10 FAQs on Minimum Wage, Overtime, & More

10 FAQs on Minimum Wage, Overtime, & More

Posted by HR Solutions Blog Team on February 6, 2017 at 9:00 AM

Webcast FAQsDuring our recent webcast, Compliance Resolutions for a Better 2017, we received a number of questions on overtime, exempt vs. non-exempt status, and pay equity. Here are the answers to some frequently asked questions from the event:

Overtime Rule:

Background: On November 22, 2016, a federal judge granted a request to temporarily block the Department of Labor from implementing and enforcing a rule that would have raised the minimum salary required to be classified as exempt from overtime under federal law.

Q: If the block is lifted and the overtime rule is applied retroactively, what does that mean for me?

A: To be well positioned if the overtime rule is applied retroactively, consider tracking your exempt employees’ hours now if they earn less than $913 per week, or restrict their hours to 40 or fewer per week. These practices can help you limit and/or easily calculate any back overtime you would be responsible for if the rule is ultimately applied retroactively. Remember, however, there are several possible outcomes depending on what happens in litigation and whether the Trump administration chooses to modify or repeal the rule. We are closely monitoring the status of the rule and will provide ongoing updates.

Exempt vs. Non-Exempt Status:

Q: I have a senior manager who works 20 hours per week. If she meets the duties test for the professional exemption, does she still have to satisfy the full minimum salary requirement or can I prorate her salary for working fewer hours and still classify her as exempt?

A: Under the Fair Labor Standards Act (FLSA), to be classified as exempt from overtime, an employee must generally satisfy all of the following tests:

  1. Meet the minimum salary requirement (currently $455 per week for the professional exemption);
  2. Receive their full salary in any week they perform work, regardless of the quality or quantity of the work; and
  3. Meet certain primary duties criteria.

Based on these requirements, you can’t use this part-time senior manager’s prorated salary to consider her exempt from overtime. Generally, if you pay the employee a salary less than the current $455 minimum, the employee must be classified as non-exempt.

Q: We’d like to reclassify an employee from exempt to non-exempt. What recommendations do you have for helping the employee with this transition?

A: Notify the employee, in writing, before the change takes effect. Be prepared to address concerns that a change from exempt to non-exempt may be perceived as a demotion. You can do this by explaining some benefits of being classified as non-exempt, such as eligibility for overtime. Also, if the employee was previously misclassified, you may want to consult legal counsel, since he or she may be owed back overtime.

Q: Many of our employees are non-exempt, but we pay them a salary. Is this allowed?

A: While most non-exempt employees are paid on an hourly basis, the FLSA allows employers to pay non-exempt employees on a salary basis, provided the employee’s pay for each hour of work meets or exceeds the minimum wage and the employee is paid overtime whenever he or she works more than 40 hours in a workweek. For this reason, salaried non-exempt employees must track all time worked.

Under the FLSA, calculating a salaried non-exempt employee’s regular rate of pay, for overtime purposes, depends on the number of hours the employer and employee understand that the salary is intended to cover, provided the employee is reasonably expected to work that number of hours.

Example: If the employer and employee understand the salary to cover 45 hours, then the employer may calculate the regular rate of pay by dividing the weekly salary by 45 hours. The five hours over 40 must be calculated at 1.5 times the regular rate, or other appropriate overtime premium. Some states have different rules. For example, California limits employers to dividing the weekly salary by a maximum of 40 hours when calculating the regular rate of pay for salaried non-exempt employees.

Minimum Wage:

Q: We are planning on bringing in an unpaid intern for summer work. Is that allowed or should we pay him at least the minimum wage?

A: In most cases, interns must be paid, unless the relationship meets very specific criteria (see DOL Fact Sheet #71). Generally, if you benefit from the work the intern is performing, the intern is entitled to at least the applicable minimum wage per hour.

Q: My company is headquartered in California, but we have employees working in other states. Which overtime and minimum wage laws should we apply?

A: Generally, the location where the employee performs work, not where the business is headquartered, will dictate which employment laws apply. This is important to keep in mind as more cities are enacting their own minimum wage rates. If an employee is subject to both state and local minimum wage laws, generally the rate that is most favorable to the employee applies.

Overtime:

Q: Do we have to include paid time off when determining whether an employee has worked overtime?

A: No, only time worked must be included when determining whether the employee is entitled to overtime. Paid and unpaid time off is not considered “hours worked” for overtime purposes.

Keep in mind that under the FLSA hours worked includes time actually spent working as well as certain nonproductive time, such as rest breaks, travel time, and training time. For non-exempt employees, all of this time must be included when determining whether overtime is due.

Q: If an employee works an hour of overtime, can I give them 1.5 hours of paid time off instead of overtime pay?

A: Employers in the private sector are prohibited from giving employees time off instead of overtime pay, a practice referred to as “comp time.” With certain conditions, state and local governments may offer comp time in lieu of overtime pay.

Equal Pay:

Q: I’m an employer in Massachusetts. If I’m no longer able to ask applicants about their salary history, how will I know what to pay them?

A: Effective July 2018, Massachusetts employers will be prohibited from asking applicants about their salary history. Instead, review their job descriptions along with external and internal salary data to determine starting salary. Research pay data and develop salary parameters that reflect the skills, experience, and responsibilities required for the position. Additionally, remove salary history questions from your application form and train hiring managers to avoid these types of questions during the pre-employment process. Philadelphia employers should implement similar pay practices since Philadelphia recently passed a comparable ordinance, which takes effect in May.

Q: Can I discipline employees for talking about their salary with other staff?

A: The National Labor Relations Board (NLRB) has taken the position that pay secrecy rules violate employees’ rights to work together to improve wages and working conditions (Section 7 rights). In addition, several states have enacted laws prohibiting employers from barring employees from discussing their wages. For these reasons, avoid rules that prohibit employees from discussing their pay with co-workers.

Leave of Absence:

Q: Are male employees entitled to parental leave?

A: A number of state and local family and medical leave laws, as well as the federal Family and Medical Leave Act, give both the father and mother the right to leave to bond with a newborn or to care for a child with a serious health condition. Review applicable laws to ensure compliance.

Conclusion:

Changes to overtime exemptions, minimum wage increases, and equal pay initiatives are just some of the trends we are tracking in 2017. Continue to monitor the laws and regulations that impact your workplace.

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