Employment Law

Wage & Hour Laws

Wage and Hour laws are comprised of both state and federal laws that may affect an employment situation, depending on the size and type of employer.  State laws vary significantly on these issues and thus, this general guideline is intended to provide a basic backdrop of the federal law that applies to wage and hour related matters. 

 Fair Labor Standards Act

The Fair Labor Standards Act is a federal statute that governs certain aspects of the employment relationship between employers and employees. Among the most critical provisions of the Fair Labor Standards Act are those provisions relating to the payment of minimum wage and overtime pay.  In addition, the Fair Labor Standards Act also governs record keeping related to employees, as well as child labor.  The Fair Labor Standards Act applies generally to employers who engage in interstate commerce and to those enterprises whose annual gross sales are at least $500,000.

Minimum Wage Standards

The current federal minimum wage is $7.25 per hour.  This wage must be paid for all hours worked.  After 40 hours per week, workers who are not exempt from overtime must be paid 1.5 times their regular rate of pay for hours worked over 40 in one workweek.

               Items that the Fair Labor Standards Act Does NOT require:

1. Vacation, holiday, severance or sick pay;
2. Meal or rest periods, holidays off, or vacations;
3. Premium pay for weekend or holiday work;
4. Pay raises or fringe benefits; or
5. A discharge notice, reason for discharge, or immediate payment of final wages to terminated employees

New Overtime Regulations/Misclassification of Employees:       

As stated above, generally employees who are considered to be non-exempt from overtime are entitled to payment of overtime for all hours worked over forty hours in one week and the rate of pay is 1.5 times the normal hourly rate.  The issue has often been wrestled with as to how to determine and classify the employees who are properly considered to be “exempt” from overtime and those that should appropriately be receiving overtime compensation.  The first part of the test to determine whether someone is exempt or nonexempt from payment of overtime is what is called the salary basis test.  In order to meet that test, an individual who is salaried must make at least $694 per week (or $35,568 annually).  This salary basis level required was adjusted as of January 1, 2020 to this level.

 Exempt Employees

Under the Fair Labor Standards Act, there are certain employees that can be classified as “Exempt” which means that the employees are not subject to the minimum wage and overtime pay portions of the regulations.  Among the most common exemptions are the executive, administrative and professional exemptions.  Those exemptions are discussed in greater detail below.

Executive Exemption

To qualify for the executive employee exemption, all of the following tests must be met:

• *The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $684 per week;
• *The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
• *The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
• *The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemptions                                                                                                                             

To qualify for the administrative employee exemption, all of the following tests must be met:

• *The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
• *The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
• *The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met:

• *The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
• *The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
• *The advanced knowledge must be in a field of science or learning; and
• *The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Other Exemptions:

In addition to the exemptions outlined above, there are also exemptions under the Fair Labor Standards Act for computer employees, outside sales employees, and highly compensated employees.  The Fair Labor Standards Act is a complex statute that employers need to be aware of and utilize the assistance of legal counsel when necessary.  The potential penalties that occur when an employer makes an error in classifying an employee under the Fair Labor Standards Act can be significant and employers can also have civil liability to employees who were improperly denied overtime pay.  Thus, this is a significant statute that requires careful consideration by employers.

Conclusion

A basic understanding of wage and hour laws is important for both employers and employees.  The Fair Labor Standards Act provides the basic legal backdrop for most employers and is an important law to understand in order to know rights and obligations.  The risk of liability for inappropriately classifying an employee as exempt is significant and a risk that needs to be mitigated by proper legal advice when needed.