This session was recorded on March 17, 2022.
Classifying employees correctly and then paying them the right way based on that classification can be complicated. When done incorrectly, it can also be very costly for employers. Learn the basics of exempt versus non-exempt classification and what you need to know about paying non-exempt employees. This session will also cover recordkeeping, overtime calculations, travel time, and more.
Hi, everyone. Welcome. Today we are going to be talking about wage and hour done right, which of course is the best way to do wage and hour. Before we begin, let me introduce myself. My name is Kara and I have been with Mineral for about seven, seven and a half years now. I’m an employment attorney. I practiced employment law and bankruptcy law before coming here. And I spend most of my time looking at federal and state laws and figuring out what they mean for employers such as yourself and translating them into things that you can understand along with action items. So wage and hour, near and dear to my heart forever and ever. Definitely something I litigated back when I had my own firm and I know how easily these small mistakes can become really big problems. So I’m always excited to give this webinar.
Just a little housekeeping, we will get asked repeatedly if we are sending a copy of the slide deck and we will. We’ll actually send you the recording as well. And we’ll do that within about 24 hours. So by the end of this work week you should have this. One of you just asked about continuing education credits, we do not have this pre-approved for credits, but at least for HRCI and SHRM, you should be able to self submit because this is going to be a long enough presentation and the topic is appropriate. So you can self submit if you’d like to get credit from SHRM or HRCI for attending this webinar. We will have a couple of polls. We’d love your participation. Those are fun for everybody. They are anonymous, so don’t worry that if you tell us anything we’re going to share that information.
And then finally, we’ve got the Q and A box open for you. If you want to ask me questions throughout the webinar, go ahead. I will try to pick those off. We do have a pretty good audience today though so if I end up getting a lot of questions, I probably won’t be able to get to all of them. All right. So what’s our agenda today? Well, we’re going to talk briefly about the Fair Labor Standards Act. Well, not too briefly, because it’s the underpinning of everything here. Then we’ll talk employee classifications for a minute because that’s one of the first places you can go wrong with wage and hour, then we’ll go over basic requirements of the FLSA. And then finally we’ll spend some time on danger zones for non-exempt employees.
Someone has chatted in that they can’t hear anything. So this is going to be our first test of whether you guys are paying attention. Can you hear me or is there just maybe one person with an audio problem? If you want to chat in on the Q and A, that would be great. All right. Fantastic. We have tested the system. You guys can hear me. Thank you. If you haven’t answered me yet, you don’t need to. It sounds like the audio is working just fine. Okay. Thank you so much. I appreciate that. All right. We will move on now. So the Fair Labor Standards Acts, some basic overview stuff here. The Fair Labor Standards Acts has been around for a long time, no doubt as any kind of HR professional or even a person who does HR for 10% of the time, you know what the FLSA is, the Fair Labor Standards Act.
It was enacted in 1938. It’s been around for quite some time now. And it created a floor for wages, that would be a minimum wage and a ceiling for hours, meaning beyond a certain number of hours we have to pay overtime. So these concepts have been around for quite some time. The law interestingly is fairly short. So for a federal law, it’s actually shockingly short. I think it’s about 56 pages when I printed it out last. Might be 54, it might be 55, but it doesn’t cover that many things. So it provides us a minimum wage. It tells us that we’re going to have overtime at some point. I think it started at 44 hours. We’ve moved it to 40. It tells us that we need to maintain a bunch of payroll records, particularly for our non-exempt or hourly employees.
It regulates child labor. We didn’t have any child labor regulations prior to that. You could send a five-year-old into a mine, 60 hours a week for $0.17 an hour. And that was a thing that actually happened because as it turns out, children are very small and can get into small places in mines that adults can’t get into. So obviously we’ve changed our perspective pretty significantly on the kind of work kids should be doing. So that’s probably a good thing. And then the Fair Labor Standards Act also regulates who can be exempt from its rules. So we’ve got the minimum wage rules, overtime rules. Those don’t apply to absolutely everyone. So we’ll talk a little bit about that. That’s a big topic, all of its own.
So what does the Fair Labor Standards Act not regulate? Well, of course the answer is everything else, but specifically some things that employers occasionally think there are federal laws about would be vacation or sick leave. So the FLSA does not say a peep about vacation time and whether you have to provide it, whether you have to pay it a termination or anything like that. It doesn’t talk about premium pay for weekend work or holiday work. It doesn’t talk about other fringe benefits. It doesn’t have any rules about termination. It doesn’t dictate severance. And it doesn’t say when final wages need to be paid. One of you said, “Is there a maximum number of overtime hours you can ask an employee to do?” No, that’s not in the Fair Labor Standards Act either. If you want to try and get somebody to work 167 hours out of 168 hours in a week, you can do that by law. Probably won’t go over well. They’ll probably quit particularly in this employee friendly market, but there is no federal rule about a maximum number of overtime hours. That is not covered.
So we don’t usually get employers asking if they’re covered by the FLSA. Most assume that they are. That is a safe assumption. However, if you remember back in 2016, we were going to have these new minimum salaries for exempt employees that were going to be really high, about $48,000 for an employee to be exempt was going to be a minimum. And that got employers asking us, “Does the FLSA apply to me? Are you sure? Do I really have to do this?” So we started answering this question, am I covered by the FLSA? So there are two ways you can be covered. You can be covered through enterprise coverage or individual employees can be covered by individual coverage.
So enterprise coverage applies to any business that has an annual dollar volume of sales or business over $500,000 a year, or I should say at least $500,000. I guess if you hit the $500,000 mark or up, you’re covered, everyone who works for you is covered by the FLSA. If you are a micro business and you’ve just got a couple of employees, you don’t make $0.5 million a year, then we look at each person who works for you and decide if they are engaged in interstate commerce. If they are engaged in interstate commerce, then the FLSA applies to them specifically. Interstate commerce is ridiculously broad, particularly with the way people pay for things these days using debit cards and credit cards. That creates interstate commerce anytime that happens. Also using the internet, buying supplies on the internet, things are crossing state lines. So just assume that your people are engaged in interstate commerce.
Okay. So we’ve established that you are covered by the FLSA, almost certainly. A question we want to look at next is how do I classify my employees? Is there any way they could maybe be exempt from the FLSA? Maybe they’re not the kind of employee that needs to get minimum wage and overtime. So let’s look at those questions. First, do I have an employee at all? Is it possible I’ve got some kind of non-employee worker here? So you might have an independent contractor. To determine if you have a properly classified, independent contractor, we need to look at the IRS and DOL tests. You could potentially have an unpaid intern. That has a test as well. It’s called the primary beneficiary test, and that’s provided by the federal government. If you don’t pass it, you can’t have an unpaid intern.
And then if you’re a nonprofit, you may have some volunteers, of course. So those three types of workers are not employees, but there are certain criteria that have to be met. Since we don’t deal a lot with volunteers and they’re more easily identifiable than employees, we’re not going to talk about volunteers in any length, but we’re going to talk independent contractors for just a minute here, and then unpaid interns. So independent contractors, like I said, there’s an IRS test and a DOL test. Thankfully for employers, they’re extremely similar. If an employee passes the IRS test to be an independent contractor, they will almost certainly pass the DOL test. However, just for good measure and due diligence, and to defend yourself very thoroughly if it ever comes into question, we do recommend you look at both. So pull up the IRS test, pull up the DOL test, run through them and make some notes, say, “Yes, I’m confident that this person passes both of these tests.”
Unfortunately, in my opinion, and the opinion of most employers, these are balancing tests or factors tests. So there’s no certain number of yeses or nos that will confirm that someone is a properly classified, independent contractor, or needs to be an employee. So that makes a rough on employers. You’re really going to have to use your best judgment going through these tests. We do have these both available on the platform. We’ve got actually a great resource that I think I made that can walk you through those. So you can access those tests. We have, I think, quite a bit of information about both of those tests.
So they focus on control over the work and who bears the risk of profit or loss. So who says where the work is done, when it’s done, how it’s done. If you provide a lot of training, you have a lot of requirements about how the work should be done, you require the person to be around for certain hours and do things in a certain way, that person starts to look like an employee. So again, if you’re not sure, if you’ve never checked these tests or look at these tests, it’s definitely worth some of your time, because that can be very expensive to misclassify an employee as an independent contractor. Not only will you potentially owe them back wages if you weren’t paying them enough to cover minimum wage and overtime, but you’ll be in trouble with the IRS in terms of all those taxes that you pay on employees, but didn’t pay on that person while they were improperly classified.
As for unpaid interns, the primary beneficiary of that relationship needs to be the intern, not the company or the employer. There’s seven elements that are pointed out by the DOL, but they say this is non-exhaustive. These are just seven things that you should think about. So no expectation of compensation. Provides training similar to that given in an educational environment and is tied to the intern’s formal education program. So really you need to be affiliated with a school of some kind, right? It might be an apprenticeship program. It could be a beauty school. It could be a college, it could be a university, but it needs to be a formal education program that that person is coming to you from. So you can’t just say, “Oh, they’ve graduated from college already and we’re giving them a learning opportunity. So we don’t have to pay them.” That’s not how unpaid internships work.
So if you are considering whether you can have an unpaid intern, I’d say first of all, they need to be coming to you from some kind of formal education program and then you should look at these other criteria as well. And it really needs to be for their benefit. If you’re getting benefit out of them in a way that you can not hire another employee because the unpaid intern is doing that work, that’s not going to fly either. Basically they shouldn’t be doing good work that is useful to you. They should be learning so much. And it’s such a low level compared to your other employees that they’re not really benefiting you or making you a profit.
Someone asked, “Do individual states have other criteria for classifying employees in addition to the IRS criteria?” Occasionally, yes. What we’ve mostly seen in the last however many years, honestly, is states picking up the federal criteria and just making a state law that includes the federal criteria. And I often wonder why they’re doing that. It’s like did they not know the federal law existed or possibly they just wanted to create another method for employees to sue, or they felt like that was the right way to codify it so that their own unemployment insurance department could use that classification system. We don’t see really states getting pickier than the federal requirements for independent contractors, with a few notable exceptions for states that use the ABC test in the employment context.
So the ABC test is much narrower. California uses it. It basically makes it very, very difficult to have an independent contractor. I think maybe Massachusetts and New Jersey also use it. Don’t quote me on that. You’d want to go check on the platform. We should have that information, but there are a few states with narrower tests for independent contractors. A few states may also have narrower criteria for unpaid interns. Although from my recollection, that’s probably not true anymore. I feel like the federal test for unpaid interns is pretty darn narrow. At this point, I would be surprised if any states had narrower requirements for that. But good question, because it’s always a good idea to look for state law. This is focused on federal requirements, this webinar is. States can pile on. They can add additional requirements.
So if we know we’ve got an employee now, they’re not some other kind of worker like an independent contractor, we might want to know are they exempt? Can I make them exempt from minimum wage and overtime under the Fair Labor Standards Act? And you certainly can do that. And we all know that there are exempt employees. Many of you listening to this are probably exempt employees. What a lot of employers don’t understand is that just saying someone is a manager or paying them on a salary basis is not what makes them an exempt employee. So job title really doesn’t matter. You can call someone a manager or supervisor all day long, that doesn’t mean they’re automatically exempt. Likewise, you can pay someone on a salary, that doesn’t mean you’re actually allowed to do that. So that’s not a determinative factor. What you do need to do is look at the applicable tests for each employee.
So yes, we have more tests. And generally we’re talking about the white collar exemptions. Those are the ones that employers probably screw up the most and certainly use the most as well. So we’re looking at executive administrative, two types of professional exemption, an outside sales exemption, a computer employee exemption, and a highly compensated employee exemption. Again, these are federal state laws, don’t necessarily recognize all of these. Certain states don’t pick some of them up like the highly compensated employee exemption. Each of these exemptions has its own test, its own duties test that you need to look at. And you just say, “Is the employee doing those things?” And if they’re not, they can’t be exempt.
So just one example, the executive exemption, that’s the one we’re generally applying to managers and supervisors. You can only use that if the person is managing two or more full-time employees or the equivalent of two or more full-time employees. So if you’ve got someone who’s only managing three halftime employees, they do not actually qualify for that exemption. It’s possible you could put them under the administrative exemption or the professional exemption if they pass those tests, but they don’t actually qualify as a supervisor in those cases. So you want to be checking those tests because they are very specific. And if your employees don’t pass them and you’re having them do a lot of unpaid overtime, that could become a really significant wage claim in the future.
All right. We’re going to pause for just a moment here and take a poll. Now that I’ve talked to you for a few minutes about employee classifications, let us know how confident are you that your employee classifications are correct. Again, this is anonymous. We’re not going to share what you say with anyone else. Our answers here are very confident. I understand the tests and I know our workforce is properly classified. Ah, moderately confident might need to check a few. Maybe after this webinar you’ll use the download or go to the platform and look some things up. Not confident. Not sure if we’ve ever checked classifications at all. I know a lot of people come into the HR role and are adopting it. They’re taking it from someone else and you have no idea if past HR people were thinking about classification. That’s totally fair and a good reason to investigate that on your own if you’re not feeling confident.
And then what are these tests you’re speaking of? About 10 of you are like, “Whoa, what’s this? What are these tests?” So hopefully this will be helpful for you in the future. And again, you can download it and get pointed in the right direction for things you should be looking for. So I think we’ll share those poll results now. I don’t know if you can see them or not, but it looks like 60% of you said you’re moderately confident. Might need to check a few. 26% said very confident, which is great. I’m actually surprised to see the number that high, but that makes me feel good for all of you. And then about 14% of you are not confident or very not confident. So cool. Thank you for participating. That’s interesting information for sure.
All right. Let’s move on now to some basics of the Fair Labor Standards Act. Minimum wage, overtime, record keeping, posting. First up, minimum wage. This is not much of a new slash because the federal minimum wage has been the same for a very long time now. It is $7.25 per hour or $2.13 with a tip credit. Mind you though, more than half of the states have a higher than federal minimum wage. So just because a federal minimum wage exists doesn’t mean you get to follow it. This is not a situation where federal trumps state. This is a situation where state gets to fill in and be more protective for an employee. So I don’t think this is a surprise to any of you. Additionally, many, many cities now have higher minimum wages and you of course need to pay the highest applicable rate.
Overtime is ostensibly an easy concept. If an employee works more than 40 hours in a work week, we have to pay them at least one and a half times their regular rate of pay. One and a half times is what’s set by federal law. A few state laws do get into daily overtime. So that’s something to be aware of. Always worth checking for. California, of course is one of those. But where we see a lot of employers getting a little confused with overtime is they think that they can work it on a pay period basis. So they’ll think, “Oh, I’ve got an employee on a two-week payroll period. As long as they don’t exceed 80 hours in that payroll period, we’re good. Right? So we can have him work 50 hours the first week and then if we give them 10, few hours the next week, and they only do 30 hours, adds up to 80, no biggie, because our system is running on this two-week cycle.”
Well, that’s not how it works. As far as federal law is concerned, we are looking at a one week period at any given time, one work week, 168 hours and tracking time within that week to see if employees go over 40. So in this 50-hour week followed by a 30-hour week, we need to pay 70 hours of straight time and 10 hours of overtime. This is not something a ton of employers are screwing up, but we get the question often enough that it is worth raising. Record keeping for non-exempt employees is pretty intense. Again, excuse me, let me back up a little bit. We are talking about non-exempt employees now. So that last overtime slide was about non-exempt employees. If you have a properly classified exempt employee, then yeah, we can have them work 50 hours and then 30 hours or 50 hours and 50 hours and we still don’t have to pay them overtime.
But for non-exempt employees, these are the rules and record keeping can be a little intense. We need to store these for three years from the date the record was created or perhaps it should have been created. So you want to keep all the stuff for at least three years, even if the employee is terminated and goes away. And three years is I would say a minimum. Most wage and hour statute of limitations do stop at three years, but if an employee were to come back and sue you for a breach of contract or something, you might want to have these records for longer than three years. Thankfully I think with things being very electronic, very digital these days, it’s not that hard to hang onto records for a good long while.
There is also a mandatory poster. So I love this poster because it refers to itself. The poster says you have to hang this poster. I just find that hilarious even though probably nobody else does. So here’s your poster. Most employers I think buy a all-in-one poster that also includes their state law stuff and they stick that on a wall somewhere conspicuous. That’s fine. If you’re not buying that all-in-one poster from a poster source, then you want to make sure you’re printing the sky out and sticking it somewhere like the lunch room or the copy room, someplace where most employees are going to see it.
All right. Now let’s move on to wage and hour danger zones. So we’re going to talk about just some issues that we get a lot of questions on. Many of you are asking if you will get a copy of the slide presentation, yes, you will. We cover that right at the beginning, but I know a lot of people roll in a couple minutes late because they’re refreshing their coffee. So we will send you a copy of the slide presentation and the whole audio recording, the whole thing. So you don’t need to take notes. I guess you don’t even need to stay till the end if you need to be somewhere, we will send you a copy of this. Okay.
So let’s get into our first danger zone if you will. That is calculating the irregular rate of pay. So when you’re paying an employee overtime, a non-exempt employee who’s entitled to overtime when they work more than 40 hours in a work week, we need to pay them that one and a half times rate based on their regular rate of pay. So the catch here is that if your people are receiving commissions, peace-rate pay, on-call pay, any non-discretionary bonus, which is almost everything. Almost every bonus is a non-discretionary bonus at the end of the day or shift differentials, we need to make sure that we’re including all of that in their regular rate in order to determine their overtime rate.
So we will look at an example here. Let’s say we’ve got Anna who earns $10 an hour. Clearly we’re in a state that doesn’t have its own minimum wage law or it might be higher than $10 an hour. We’re not in California here. Anna earns $10 an hour for working inside sales and $15 an hour when we’re having her do bookkeeping work. So she does both for us. We’re a small company and people have different roles. So this week she’s working 24 hours in inside sales, 20 hours as a bookkeeper, she’s doing a little more than 40 hours and she also received $50 in commissions from those inside sales she was doing. So what is her regular rate of pay? I’m not going to read you guys all these numbers, but the point is we’re not basing it just on $10 an hour or just on $15 an hour. We have to blend those two and we also have to add in the $50 of commissions.
So we’re going to look at all the money she earned divided by all the hours she worked to get her overtime rate or her regular rate and then we’re going to multiply that by one and a half to get her regular, sorry, to get her overtime rate. So again, you can look back at this later if you want to, but basically you need to be keeping in mind that if your people don’t just have a singular base rate of pay that applies all of the time without any bonuses or commissions, you need to be thinking about regular rate and what all that includes.
Okay. What about late or incomplete time sheets? This is fairly common for employees to not get them in on time or not do them correctly, to have omissions. What do you do about this? Well, most employers want to withhold pay, “Oh, I can’t pay you until you fill out your time sheet.” And they figure that will incentivize people to do it. And that’s probably true. It probably will incentivize them to fill out their time sheet correctly if you will withhold their pay, but that’s not legal. So don’t do that. It is fundamentally your responsibility at the end of the day as the employer to track employee time, that is the FLSA and the DOLs position.
So I get that that doesn’t seem practical and particularly with remote employees. We can’t see what people are doing. We can’t keep our eyes on that many employees at once and we don’t want to be chasing them around the office, but it is, again, at the end of the day, your job to figure that out. So we of course can ask them to fill out time sheets. We can require them to fill out time sheets and terminate them if they don’t. But if they don’t fill one out correctly, we need to make our best guess and we need to pay them based on that best guess. And it should be a good face best guess, not, “Oh, I didn’t see you every minute. So I’m going to assume you did a 20-hour week instead of your usual 40-hour week.” If the person usually works 40 hours, you should pay them for 40 hours. And if adjustments need to be made later, you can do that.
Of course, like I said, you’re going to discipline them, right? This is a big pain. It’s a problem for you if they don’t fill this out and you have to make adjustments later. So we want to pull these employees in, talk to them, discipline them, make sure they understand that this is unacceptable, but we don’t want to withhold that paycheck. That won’t end well. That will likely end in various wage claims. We also want to be really specific in our policies about how time is tracked and who employees should talk to if they are confused. And we don’t want to be shaming employees for not being able to figure out our time keeping system, otherwise they may just continue to do things wrong if they’re afraid to ask questions. So we want to make it clear, the questions are okay and let them know who they should ask those questions of.
Someone asked, “If you wind up overpaying them, do you take that out of the next paycheck?” So you want to check state law on that. Generally, that’s acceptable. I mean, particularly if it’s a couple hours, it’s probably not going to be a problem. However, if there was a clerical error and you massively overpaid someone, it could be a problem to just take the whole thing out of their next paycheck. So like I said, generally okay to do that for overpayments, but please do check state law first because there may be some hoops you need to jump through. And of course, if it’s a massive overpayment, it could be a little more complicated. It might take some time to get the money back.
Unauthorized work is another issue we see with non-exempt employees. Sometimes this is happening because you’ve got managers who are making employees do off the clock work. We’ll talk a little bit more about that on the next slide, but this can happen really any sort of way. It could be that someone is doing overtime you didn’t ask for. That’s fairly common. And employers sometimes have policies that say if you do unauthorized overtime, we’re not going to pay for it. That’s not acceptable either. You have to pay for the time that was worked, whether you wanted it to be worked or not, but you can discipline the employee for doing that. So say, “Hey, we have a policy that says no unauthorized overtime. We’re paying you for this, but next time you do it, you’re going to be suspended or terminated or whatever.” Whatever seems appropriate to you.
But we do need to talk to employees about that because the option again is not to withhold pay. That will end in a wage claim or could end in a wage claim. Not every employee has the will to sue their employer. So often you can get away with minor wage issues for a long time because employees don’t feel like coming after you for a small amount of money or they don’t know you’ve violated the law, but that doesn’t mean that an employee next week or next year couldn’t know the law, or have a bone to pick and come after you for a significant sum of money. So just because you’ve been getting away with something for a while, maybe not paying for unauthorized overtime, doesn’t mean that you will continue to get away with it in the future.
So we also have off-the-clock work and sometimes this is work like I said a minute ago, that managers are actually asking employees to do and then the employees know they’re not going to get paid. I mean, I know my understanding is that this is rampant in the restaurant industry where you have somebody clock out and then keep working and definitely not legal. Might you get away with it for a while potentially, was it illegal all along? Yes. If you’ve got managers doing this because they’re trying to meet deadlines or budgets, I would strongly encourage you to stop that practice and discipline managers who are engaging in it. But we also have the problem of off-the-clock work that’s happening because employees are overachievers or because they can’t get off their phones.
So I’m checking my email and my Slack constantly on my phone, middle of the night, first thing in the morning, whatever, but I’m an exempt employee. So that’s okay and not a problem. However, if you’ve got non-exempt employees who have their phone glued to their hand and have a bunch of business apps on that phone and are constantly checking their email, they may be doing a lot of work or even small amounts of work that’s off-the-clock and not being recorded. And that might seem fine now, right? You’ve told them, “Hey, I don’t expect that.” And they’re like, “Oh, no, no. I want to.” I just love being so responsive to clients.”
That might not seem like a problem today, but a year from now, if they leave under a cloud and decide to come after you because they’re offended by whatever situation led to their termination or their leaving, they could call the State or Federal Department of Labor and say, “Hey, I did a whole bunch of work off-the-clock that my employer knew about, that I never got paid for.” And now you’ve got a wage claim. Whether you wanted them to do it or not and even if at the time they were totally willing and happy to do it, you’ve got an issue now. So you want to be trying to capture that off-the-clock work and making it on-the-clock work. Have the employee log the five minutes they spent responding to clients, or if it was 20 minutes over the course of the work in 90-second intervals, have them log that during the week so you can capture it and pay for it. There’s really no excuse for not paying employees for that extra time.
Meal and rest breaks are another big issue. So federal law, the FLSA doesn’t require meal or rest breaks of any kind. However, I mean, we do require some lactation breaks for employees who are lactating and need to pump or breastfeed. And then if an employee takes a break that’s under 20 minutes, federal law says you should be paying for that. However, most states do have a meal and rest break law that comes in and says there’s a 10-minute paid break every four hours. That’s a pretty standard requirement and possibly an unpaid lunch period in the middle of the workday. That’s also pretty standard.
So if you do have a state law that applies, then you don’t need to worry really about the federal requirement of breaks under 20 minutes being paid. But if you’re in a state with no meal or rest break requirement, then you need to be careful that you’re actually paying people for these breaks. And of course, a 19-minute break is not very short, but theoretically, in those states you should be paying under federal law for those breaks. So that’s something you’ll want to manage, but you’ll also maybe want to make sure that you’re currently paying for those breaks.
You can certainly try to limit them. One of the funny follow ups I get on this is are smokers entitled to smoke breaks? No. No, they’re not. You don’t have to give smokers smoke breaks and pay for them or anything like that. But they’ll definitely want to make sure that you’re either following state law to the latter because those claims can stack up or that if you’re not subject to any state law that you’re making those breaks under 20 minutes paid. And if you don’t want a whole bunch of under 20 minute breaks to be paid, then you need to make some rules about how many breaks employees can take. All right.
Let’s talk about travel time now. I’ve got a couple slides on this. So we’ve got the extended commute slide and then the away for a weekend or a week slide. So let’s talk about those. Travel time during an employee’s workday should be paid. That’s pretty straightforward. We’re asking them to travel from the office to a client lunch. We don’t get to say, “Oh, that’s your lunch break.” Now that is work. We are having them do work. It has to be paid for. We also need to pay for out of the ordinary commuting. So let’s say an employee usually spends 30 minutes getting to work in the morning, but we’re asking them to leave a whole hour early and instead go to a client’s office, which is 90 minutes away, we need to pay for that extra hour of driving because basically driving is considered work. That’s pretty much the rule.
So if you’ve got them going somewhere that is on top of their regular commute, the regular commute with driving does not have to be paid, but anything that’s extra, you should be paying the difference. One of you says, “Is there a threshold for extended commute? What about an extra 10 minutes?” I’d pay the extra 10 minutes. And this doesn’t mean they’re stuck in traffic for 10 extra minutes getting to their usual workplace. No, this is you’re sending them somewhere else. They’re doing something extra. You’re making them stop on the way in to go to the post office and retrieve a package or whatever. The federal law has a de minimis rule where if something is a de minimis amount of time, it doesn’t need to be paid, but de minimis essentially means it’s so small and so difficult to track that it wouldn’t make sense to track it. So a seconds here or seconds there. 10 minutes is very trackable.
So yeah, I would say whatever your minimum amount of time on your time clock is, if they do enough that it rounds up to that minimum amount, I would definitely… I would pay it. There’s just no reason to play around with wage and hour claims over small things like that. All right. So let’s look at traveling away. So again, this is federal law. California has its own rule and it never hurts to check state law just to see if they’ve said anything about travel time. But in general, federal rule here, time spent in transit, meaning literally moving, their body is moving, whether it’s in a plane, in a train or an automobile or doing work during their normal work hours regardless of the day of the week, should be paid.
So let’s say they’re usually a Monday through Friday 8:00 to 5:00 employee, if you’ve got them traveling to a trade show on Saturday, and they’re traveling all day long, 8:00 to 5:00 PM, we’re going to pay them from 8:00 to 5:00 PM even though that’s not their usual workday. We’re also going to pay them for time after that usual workday if they’re still doing work. And that includes even things that might be fun like entertaining clients. We can’t pay them in kind with Bordeaux and a nice steak and say, “Oh, we don’t have to give you hourly pay because you’re getting a nice dinner.” That’s not how that works. We need to pay them for that time. If they’re not in transit or working though and they can use time however they like, you don’t need to pay for it.
So if they’re not moving around, let’s say they’re sitting in an airport for an extended layover and they’re not doing any work, then they’re not in transit and they’re not working and it doesn’t need to be paid. However, if you suspect that they are bopping in and out of their Slack messages, just pay them for it. Again, this is not really worth the wage claim to get nit-picky with people. Or if you think they’re working, just pay for the time. So somebody said, “What about air travel pay until they land? If it’s during their normal work hours, then we are going to pay them if they’re on a plane. If they’re on a plane after their normal work hours, they work 8:00 to 5:00, the plane is in the air from 5:00 PM to 10:00 PM, we don’t have to pay for that unless they’re working on the plane.
So if we think they’ve got their laptop open, if they’re using the WiFi and responding to Slack messages, then in theory because they are not the one piloting the plane and they are outside of their regular workday and they are not doing any work, then we don’t need to pay for that. Again, asterisks, that doesn’t apply in California and potentially other states. All right. Let’s look at waiting time now. So if an employee is waiting around, do we pay them? Well, if they’re engaged to wait, we will pay. The department of labor gets really cute with engaged to wait versus waiting to engage. I think they’re super not helpful because they sound too similar. But basically if they’re engaged to wait, we’ll pay them.
That’s like in a receptionist, right? Reading a book between customers or a fireman who’s hanging out at the firehouse waiting for the next alarm. They can’t go elsewhere. They need to be there right then because at any second they could have work to do. They’re engaged to wait. On the other hand, someone might be waiting to engage. The example is a truck driver who arrives at their location and they know that they are completely relieved from work until the next day at 8:00 AM. So you arrived at 8:00 PM, you unpacked your truck or whatever and you know you don’t have to drive until the next morning, they are waiting to engage. They know they don’t have to do anything. They can use that time for themselves. So that time does not need to be paid.
On-call time. So is the employee required to stay on the premises or very nearby? If the answer’s yes, they need to be paid. They can’t use their time for their own benefit. If not, if they can leave the premises, then we say, all right, how effectively can they engage in personal activities? How close do they need to be? And how often are they interrupted? If they could probably get through a whole movie, they could drive home and have dinner with their family, then that on-call time doesn’t need to be paid. If they’re getting interrupted though every five minutes and they need to be within three miles of the workplace, that on-call time probably does need to be paid. This is going to be one of those factors/balancing tests. The DOL doesn’t give us precise amounts of time or precise distances. You’re going to have to use your best judgment on that one.
All right. Let’s talk about pay deductions. So when can you take a pay deduction or not? A lot of employers are under the impression that they can take a pay deduction for anything that seems logical. That’s definitely not the case. Of course, we can take government mandated deductions. We can take voluntary deductions for the benefit of the employee like for health care and… Sorry, let me pause there. So yes, there are deductions we can take. You’re probably doing a lot of deductions just on the assumption that they’re okay and they are okay because they’re government related. That’s not government related. You might want to think a little bit harder about it. So uniform costs, for instance. A lot of employers want to take deductions for those out of an employee’s paycheck when they issue uniforms or whatever. You want to check state law there. That is not necessarily legal and it could potentially be illegal under federal law.
If you’re paying them at minimum wage and taking a deduction for uniform costs, that’s going to be problematic. Also other deductions that take an employee below minimum wage will be illegal even if you have jumped through the appropriate state law hoops. So for instance, let’s say you issue an employee a laptop. You say, “If you don’t return this at the end of employment, you owe us $500.” And let’s say this employee doesn’t make a whole lot more than minimum wage. So they quit employment, they don’t return the laptop. You take $500 out of their paycheck at the end. Even if you got all the signatures and the approvals required by your state law, if that $500 deduction takes them below minimum wage for that final pay period, which it probably will, you have violated the Fair Labor Standards Act.
Also some states are very, very persnickety about… Of course, California included, about when you can take a deduction at all, period. So you do want to check state law before taking any deduction. Okay. We’ve got one more, I think just one more poll question here. Have you ever dealt with a wage and hour claim or threat the wage and hour claim? Again, anonymous, not sharing this with anybody. Options are no, never had to deal with this, woo-hoo. One or more employees have threatened, but they haven’t followed through. You didn’t even get a letter from an attorney. They just scared you a little bit and then did nothing. Pretty standard. We’ve dealt with complaints, but settled them out of court.
And that could just be you got a nasty gram from an attorney saying you owe my client $3,000 and you’re like, “How about $300?” And they were like, “Okay.” That could be that. That would be settling out of court. You didn’t end up getting sued. So good news there. And then no, we’ve actually been through the court system to settle a complaint, which is of course where nobody wants to be. All right. So we’ve got pretty good response here. And it looks like most of you have not had to deal with a wage and hour claim, which is awesome. 77% of you say that you haven’t had to deal with one at all. And maybe that’s because 60% of you feel good about your employee classifications because that’s certainly where a lot of these problems start. So it seems like our audience today is pretty comfortable with classification.
And perhaps as a result, I don’t want to do too much correlation causation mixing here, but perhaps as a result, you haven’t had to deal with wage and hour claims. So that’s great. Why does it matter? I don’t know that we need to spend a lot of time on this, but because you’re all here, you clearly think it matters enough to show up for a webinar, but I’ll just give you one quick example. This was probably my very first wage and hour claim when I was practicing on my own. An employee had been hired for… Or a person I should say, had been hired for $800 a week to cook for an entertainment group that was going to go on tour for 10 weeks.
This was back when the minimum wage in Oregon was probably under $10 an hour. Yeah. It was probably $8.25 or something. So getting paid $800 a week was a lot of money for my client who was basically a line cook. So she agreed to this. She went on tour with the company. She worked 17 hours a day. It was pretty grueling. She didn’t really have any complaints about the work. The problem was her paychecks bounced. So she saved up all her paychecks to cash at the end and they all bounced. So she came to me just because she wanted new paychecks, but then she tells me her story. And basically the employer was treating here her either as an independent contractor or as an exempt employee. And so they weren’t looking at minimum wage and they weren’t looking at overtime.
So basically we did the math and she was owed the original $8,000 that they’d promised her and also at least $28,000 more. We actually settled the case for about $80,000. But anyway, these things stack, right? So if you’re in a state that has its own state laws, which most of them do, regulating minimum wage and overtime, it’s very possible that an employee who hires a lawyer or goes to the State Labor Department is going to get both state penalties and federal penalties. So they can add up very quickly. Again, really you just want to take your classification seriously and your time tracking seriously as well. All right. That is the end of my content. There are a ton of questions. So I’m going to take just a moment to have a drink of water and start reading through your questions. There are a bunch. I’ll be back in just a couple of seconds to start off.
All right. A number of you have asked throughout the presentation where you find the tests that I’ve mentioned. So unfortunately, I should have checked search terms for the platform ahead of time so I could help you find them, but IRS test, DOL test, hopefully that will get you there. And then in the platform, yeah, I can’t guarantee that you’ll find them right away, but they are in there. So if you go to the platform and you just try IRS test, DOL test, you can even try different kinds of resources, I believe we have videos on both of them and a tool you can work through or possibly just a lost page that lists the test.
All right. Lots of questions here. Does an email for a traffic ticket deduction through payroll suffice? So I think what’s happening here is one of your employees received a traffic ticket. You, the company paid it because you owned the vehicle and then you’re emailing the employee to tell them that you’re going to take a deduction. And I couldn’t tell you. You’ll need to check state law. There’s a decent chance that will not suffice. Often with deductions, the employee has to agree in advance. Of course, you can have a conversation with employee where it’s like, “We’re going to discipline you if you don’t pay for this traffic ticket.” But again, check state law and consider whether that’s really sensible. How much is it going to hurt that employee to pay the traffic ticket?
If it’s happening constantly, there should be discipline and you may not want to keep employing that employee because if they’re driving that fast all the time, they’re probably creating more liability for you then just through traffic tickets. But we would often say just consider that a cost of doing business. The $60 ticket is not worth arguing with the employee about or potentially ending up in a wage claim. All right. [inaudible 00:56:15] more questions here. How do you evaluate if you’re paying the employee at a minimum rate after a voluntary deduction? So voluntary deductions like for health insurance, that doesn’t count, right? That can’t take them below minimum wage, for things like that or for taxes.
But if it’s a deduction for let’s say that laptop example I was giving, right? Basically you just need to say, “Okay, their paycheck was going to be $600 for however many hours of work. We’ve taken $500 out of that. So they’re only to get $100. If we divide $100 by how many hours they worked, is that still minimum wage or not?” And if it’s not, then you need to reduce your deduction accordingly. And again, this is assuming that you’ve done the other things required by state law.
One of you asked, “Can an exempt employee earn overtime?” Yeah, you can. There’s a method by which you can give an exempt employee extra money for doing extra work. It’s a little bit squirrely. If it’s too much extra money for too much extra work, the Department of Labor could say, “Ah, you’re actually treating them like a non-exempt employee and you need to make up your mind.” But there is a very specific method by which you can give an exempt employee extra money for extra hours. It’s not required by law. And it’s certainly not standard. Most employers don’t want to do that, but if you really wanted to, yeah, there are ways that that could be done.
Does the FLSA have language that specifies whether an employee must be paid by salary versus hourly rate? Well, that’s the crux of this whole thing, right? The FLSA is very specific that basically any worker, any employee needs to be paid minimum wage and overtime unless they are exempt under one of these categories. And I talked about the white collar categories. So executive, administrative, professional, outside sales, creative, and highly compensated. And then for each of those six, the FLSA or at this point the DOL has given us tests. So yes, there is very specific language about who can be exempt and who cannot be exempt.
And then similar question, is a salaried employee considered an exempt employee? Not necessarily. I’ve got a slide on that early on. Just because they’re salaried doesn’t mean they’re exempt. They have to pass these tests. You need to look at that specific language and make sure that they are properly classified. Does waiting time in line count as engaged to wait or waiting to engage? If they are waiting in a line on your behalf, I’d say they’re just working. It’s not really waiting time at all. If you’ve told them, “Go to the post office and ship this thing,” and they’re standing in line for 25 minutes waiting to ship it, that’s not waiting time. That’s just working time. They’re doing something that you sent them to do.
All right. One more question here. Do exempt employees get vacation or sick hours? Well, it depends. Do you give them vacation or sick hours? And is that required by law? There is no federal law that requires that any employee get vacation or sick time, exempt or non-exempt. There are a number of states now that do have mandatory sick time where employees earn it throughout the year and are entitled to use it. And there are also a couple states that have general PTO laws like that, Maine in Nevada, I think. And then about a dozen states that have sick leave laws and almost all of those apply to all employees. Interestingly enough, Washington sick leave does not cover exempt employees, which I find very strange. I believe all of the others do cover both exempt and non-exempt employees, but you’ll want to check state law because that’s where that requirement is going to come from.
If there’s any PTO or sick leave requirement, that’s coming at the state level, not the federal level. And most employers are just providing that out of the goodness of their heart to create a good workplace where people want to be. So good question. All right. Thanks everybody so much for your time today. Final reminder, we will send you a copy of the presentation, both the audio presentation and the slide back. So you’ll get that by the end of the work week. Thanks so much for attending and we hope to see you again at a future webinar.