Do you know how vacation and shift differentials affect overtime pay, or if you can pay "comp time-off?"

Do you know how vacation and shift differentials affect overtime pay, or if you can pay "comp time-off?" Find out the answers to these and other tricky overtime questions. --------------------------------------------------------------------------------------------------------

In this article, you'll get the answers to five more overtime questions, including whether you can pay comp time-off instead of overtime, how vacation time and shift differentials affect overtime pay, whether employees can forgo overtime pay, and what state laws regulate overtime.

1. How do shift differentials affect overtime pay?

Extra pay for shift differentials and "dirty work" generally must be considered in calculating the employee's regular rate. (Shift differentials and "dirty work" pay are extra compensation provided for employees who regularly work unpopular shifts or less desirable jobs.) However, when the differential is at least one and one-half the employee's regular rate and is paid under a collective bargaining agreement that establishes certain hours as the regular work day, it may be excluded from the regular rate and also credited against the employer's overtime pay obligation.

2. Is a nonexempt employee entitled to overtime pay if the employee works a full 40-hour week and also takes a day of paid holiday, vacation, or sick leave?

Not unless the employee actually works more than 40 hours in the workweek. According to the FLSA, nonexempt employees must be paid overtime for all hours actually worked over 40 in a single workweek. Thus, in calculating actual working hours for a nonexempt employee, you do not have to count the paid time off in the overtime calculation if the employee did not perform any work during that period. (Note, however, that a limited number of states, such as Rhode Island, require payment of at least time and one-half for employees who work on certain holidays.)

Consider the following example. A nonexempt employee normally works Monday through Friday, eight hours a day. She receives a paid holiday and does not work on Monday. The employee then works Tuesday through Friday, eight hours a day, and is asked to work eight additional hours on Saturday. The employee's pay would be for a total of 48 straight-time hours (40 hours worked and 8 hours paid holiday). Since she actually worked only 40 hours, she would not receive any overtime pay.

As an aside, if you voluntarily pay a premium of time and one-half (the equivalent of overtime) for work on a holiday, weekend, or evening, you should be able to credit this extra compensation towards any overtime actually earned in the same week.

3. Can you give nonexempt employees compensatory (comp) time-off in lieu of paying them overtime?

Private employers may not give comp time-off in lieu of overtime. However, state and local governments can give nonexempt employees comp time-off at the rate of one and one-half hours for each hour of overtime worked, with certain defined limits.

4. Can employees volunteer to work overtime hours at straight-time pay?

No. It may seem like a "win-win" situation – your nonexempt employees would get extra pay for working additional hours, and you would get extra work without having to pay overtime rates. However, the FLSA specifically requires employers to pay nonexempt employees who work more than 40 hours in a single workweek at least one and one-half times their regular rate of pay for each hour worked over 40.

In interpreting the FLSA's requirements, the Supreme Court long ago (in Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945)) determined that employees cannot waive their rights to overtime compensation, and the signing of such an agreement does not have any force or effect. Therefore, you cannot pressure or allow your nonexempt employees to work any hours over 40 in a single workweek without paying them the overtime rate.

5. Do state laws have different overtime requirements?

Many states also regulate the payment of overtime to employees. Most states simply mirror the FLSA's requirements. For example, Illinois requires employers to pay nonexempt employees overtime at a rate of one and one-half times the regular rate for all hours worked in excess of 40 in a single workweek.

A few states, however, have more restrictive overtime requirements and require employers to pay overtime on a daily basis. For example, in addition to weekly overtime, California requires employers to pay daily overtime at the rate of one and one-half the regular rate of pay for all hours worked over eight in a single day and at double the regular rate of pay for all hours over 12 in a single day. California also requires that time and one-half be paid for the first eight hours worked on the seventh consecutive day of work, as well as double time for all hours over eight worked on that day.

And, at least one state limits the number of overtime hours employees may work. In Maine, employers may not require employees to work more than 80 hours of overtime in a two-week period, except for certain "essential services" employees.

Take Overtime Issues Seriously

The issue of the proper payment of overtime is probably one of the most contested areas under the FLSA, and many employers have more legal exposure than they realize. The DOL aggressively pursues wage and hour claims, and it collected over $165 million in back wages in fiscal year (FY) 2004, up 48% from just three years ago. In addition, recent court decisions have resulted in large adverse dollar judgments when nonexempt employees were not paid properly for all their overtime.

Given the successes of the DOL and plaintiffs' attorneys in pursuing wage and hour cases, you cannot afford to be complacent. So, take care and do not let one of the oldest employment laws on the books (circa 1938) sneak up on you.

Exempt Employees Performing Nonexempt Work Q&A

Q: We have an exempt employee (i.e., exempt from the minimum wage
and overtime provisions of the Fair Labor Standards Act (FLSA)) who
would like to work in our call center on the weekends doing nonexempt
work. Can we pay her on an hourly basis for the nonexempt work, in
addition to her regular salary, without affecting her exempt status?

A: As a general rule, an employee is considered to be exempt if she is
paid on a salary basis and her job duties meet the criteria for the
administrative, executive, or professional exemptions. Thus, your
questions raise two related issues: (1) whether the exempt employee
would be performing more nonexempt work than is consistent with her
exempt status; and (2) whether she can still be considered paid on a
"salary basis" under the FLSA if you pay her additional hourly
compensation.

Regarding the first issue, the FLSA salary basis test for white-collar
exemptions requires that most exempt employees be paid a salary of at
least $455 per week and that their "primary duty" must consist of the
performance of exempt work. (Download free report: "FLSA
Exemption Regulations: Understanding The Issues.")
The FLSA regulations, found in 29 C.F.R. §541.700(b), indicate that employees
who normally spend more than 50% of their time performing exempt
work will satisfy the primary duty requirement. However, time alone is
not the sole test, and employees who spend less than 50% of their time
on exempt duties still may meet the primary duty standard if the other
factors support the exemption.

Although these regulations focus on nonexempt work related to the
exempt employee's regular job, the same analysis can be applied when
the employee works in a second, unrelated job. Thus, as long as the
exempt employee devotes over 50% of all of her working time to exempt
job duties, including the time spent in the call center doing nonexempt
work, she should continue to meet that exemption criterion.

The second issue raises the question of whether extra compensation
paid in addition to the exempt employee's salary will jeopardize the
exempt status. The FLSA regulations define "salary basis" as payment
on a weekly or less frequent basis of a predetermined amount
constituting all or part of compensation, without reductions for variations
in the quality or quantity of the work performed.

The regulations specifically allow employers to provide exempt
employees extra compensation without jeopardizing the exemption or
violating the salary basis requirement. According to the regulations,
found in 29 C.F.R. §541.604(a), if the exempt employee is guaranteed a
minimum weekly payment of at least $455, she also may be paid a
commission on sales or a percentage of profits or sales, or even
additional compensation based on hours worked beyond the normal
workweek. This additional compensation can be paid on any basis,
including a flat sum, bonus payment, straight-time hourly amount, time
and one-half, or any other basis, including paid time-off.

Note that this reference to extra payments calculated on an hourly basis
was added to the regulations in August 2004. (Download free report: "FLSA
Exemption Regulations: Understanding The Issues.") The
old regulations also allowed for extra compensation in the form of
commissions and bonuses, but did not address whether employers could
pay exempt employees extra amounts based on hours worked. Some
courts, and the Department of Labor (DOL) in nonbinding opinion letters,
have traditionally allowed employers to pay additional compensation
calculated on hours worked without affecting the exempt status. The
DOL formalized this position in the 2004 revisions.

Training Resources:
* Free HR Policies: Download free company policies for HR, Employment law compliance
* Employee Handbook: Easily create employee policies using Employee Handbook templates.

When Do You Need Written HR Policies?

(Part 1 of 2)

Recent developments in harassment and other discrimination case law show just how risky it can be if you do not have written policies. Find out how to make sure your policies protect, not harm, your organization.

When was the last time you reviewed your organization's policies? If you're like many employers, writing or updating policies is at the bottom of a lengthy "to-do" list. And, you may even question the value of having written policies because of the apparently conflicting advice concerning their usefulness.

On one hand, many HR experts advocate having written policies as a way of communicating your organization's values and practices to employees. Alternatively, a growing number of attorneys are warning their clients that poorly drafted policies may land them in court. So, whom should you believe?

The short answer is both groups. Upon closer consideration, these positions are not contradictory. Well-written policies can both serve as an effective communication device and help you stay out of court, or at least give you a better chance of prevailing. In contrast, poorly executed policies can create unintended contracts and be used of evidence of noncompliance in court.

This week's and next week's E-Tips will help define the underlying issues and make clear why written policies that are carefully developed, updated, and applied are an effective tool that you need. This week, you will find out why written policies are important, who needs to have them, and how to make sure they do not create a contract that you must follow.

Next week, you will learn the difference between supervisory manuals and employee handbooks and find out which policies every employer should have.

1. Why are written policies important?

Sound employment policies provide the framework within which an organization governs its employee relations. A policies and procedures manual guides both managers and employees as to what is expected and can prevent misunderstandings about employer policy. In addition, supervisors and managers are more likely to consistently apply policies that are clearly communicated in writing.

It is true that written policies, like any record, can be used against an organization in a lawsuit. Poorly drafted policies often become the main evidence presented when employees allege that the policies were in fact a contract that the employer violated. However, policies that are carefully written so as not to be contracts actually should protect against these claims and not be a problem. (See number 4, below.) In addition, carefully written policies can be used to illustrate your commitment to a positive work environment and nondiscriminatory employment practices. (See number 3, below.)

2. Are we required to have written policies?

Although written policies in general are not legally required, certain policies may be mandatory or at least be considered an important component in helping employers establish good faith compliance with federal and state law.

For example, the Supreme Court has indicated that employers may protect themselves against liability for sexual harassment by having clearly articulated policies against sexual harassment that include effective complaint procedures. In addition, the Family and Medical Leave Act requires covered employers to provide written information regarding employee rights and employer obligations under the Act. Similarly, certain federal contractors must have written equal employment opportunity policies. And finally, many state laws require written harassment policies and policies informing employees about compensation issues.

3. Does every organization need written policies?

As a general rule, every employer, except maybe those with fewer than 15 employees, should have written policies. Employers with 15 or more employees are covered by federal discrimination laws (such as Title VII of the Civil Rights Act and the Americans with Disabilities Act) and most state discrimination laws. Written policies are a good starting point to show your commitment to nondiscriminatory employment practices. For example, a performance review policy can show the job-related criteria used to evaluate employees and any safeguards used to ensure the process is conducted in a fair and objective manner.

Smaller employers should at least consider creating a handbook since it is likely they already have some policies in writing. For example, employment offer letters may explain vacation and sick leave accrual while other items, like a posted memo, may outline pay procedures. Thus, to ensure distribution to all employees, even the small employer is well advised to compile these memos into a handbook that is given to every employee.

4. Will we create a contract if we have written policies?

The simple act of putting your policies in writing should not create a binding contract if the policies are written as guidelines that explain generally what your requirements are and how employees normally will be treated. However, you can create a contract by using language that conveys rigid rules that must be followed exactly as written in all circumstances.

Therefore, you should build flexibility into your wording and steer clear of any promises that could be interpreted as a contract. Your policies should not, for example:

• State that the organization will "only" or "always" do something or"must" act in a particular way;
• Describe employees as "permanent";
• State that employees will be terminated only for "cause";
• Make promises of job security; or
• Use all-inclusive lists, such as in disciplinary procedures or work rules.

Instead, you should use terms such as "generally," "typically," "usually," and "may" so that managers have flexibility in interpreting and applying the policies. In addition, you should specifically retain management's right to update, change unilaterally, and implement all policies as the organization sees fit. Finally, you should include a strong "at-will" statement that clearly specifies that all employees (who do not have contracts or collective bargaining agreements specifying otherwise) may quit at any time and for any reason or may be terminated at any time and for any lawful reason.