The federal Fair Labor Standards Act ("FLSA") - commonly called the wage and hour laws - applies to virtually all employers, including associations. The FLSA primarily establishes the minimum rate of pay for employees and rules regarding the payment of overtime compensation. There are no special FLSA provisions for tax-exempt organizations, but there are unique applications of the FLSA to trade and professional associations. The following is a guide to several important overtime issues that continue to plague the association community.
Exempt Versus Non-Exempt Employees
The FLSA provides that employees (but not independent contractors) are entitled to 1½ times their "regular rate" for compensable time worked in excess of 40 hours per "workweek." A workweek consists of 168 hours, or seven consecutive 24-hour periods. However, the FLSA exempts several classes of employees from the overtime requirements, including executive, professional and administrative employees. To qualify as an exempt executive, administrative or professional employee, the worker must satisfy both a salary and a duty test.
To satisfy the salary test, an employee's compensation essentially cannot be directly or indirectly based on the number of hours worked; the employee must be paid the same compensation regardless of the quality or quantity of work performed. To satisfy the duty test, an employee generally must (i) spend at least 50% of his or her time on managerial responsibilities (i.e., hiring, training, directing the work of others) (executive employees); (ii) be in a learned profession (e.g., attorneys, accountants) or have job responsibilities that are creative or original in character (professional employees); or (iii) have duties which directly relate to management policies or the general operations of the association, which involve the exercise of discretion and independent judgment with minimal supervision, and which involve relatively significant matters.
The Pay Docking Rule
The salary test is a trap for the unwary association. The Department of Labor and the courts continue to hold that an employee will not satisfy the salary test - and thus will not qualify as an exempt employee and must be paid overtime - if the employer takes certain deductions (or has a policy of taking certain deductions) from the employee's pay.
While deductions for full day absences are generally permissible, an employee will not meet the salary test if the employer has a policy or practice - even if the policy has never been enforced - requiring deduction for partial day absences from employees' pay, even if employees have exhausted all of their accrued leave. Pay deductions must be for at least a full day in length or else the salary test will be defeated. This is a dangerous trap for the unsuspecting employer, and can have the effect of voiding what might otherwise clearly be exempt status - forcing employers to pay years' worth of retroactive unpaid overtime to present and former employees. Beware: Disgruntled, former employees are often the most likely to bring suit against your association to enforce this rule.
After a 1997 U.S. Supreme Court decision, it now appears clear that deductions can be taken from employees' accrued leave for partial day absences without defeating the salary test - but only if the employer maintains an explicit written policy providing that if and when leave is exhausted, there will be no deductions from pay. This is because, according to the Supreme Court, merely being subject to salary deductions for partial day absences (even if such deductions have never been taken) will defeat the salary test. (Note: If an employee abuses the system by continuing to take unwarranted partial day absences even after his or her leave is exhausted, the association is not without recourse - the employee can be terminated, or warned that he or she will be terminated if the practice continues.)
There is one exception to the pay docking rule: Employers may make deductions from pay for absences of less than a full day so long as the deduction relates to time being taken under the federal Family and Medical Leave Act, and if approved in advance in accordance with the provisions of the Act. The Act only applies to employers with 50 or more employees.
Finally, the Department of Labor has held that disciplinary action against employees which results in any deduction from accrued leave or pay, except for safety violations, is inconsistent with the requirement that a salary be paid regardless of the "quality of work," and thus will defeat the salary test and void the exempt status of an otherwise exempt employee.
Comp Time
Frequently, associations provide their employees with compensatory time (or "comp time") in lieu of a monetary payment for overtime worked. For example, the employee may be given one hour (or one and one-half hours) of paid "comp time" leave for each hour of overtime worked. Such arrangements are common in the association community, especially in conjunction with meetings and conventions. While an association is free under the FLSA to award comp time (without restriction) to its exempt employees, this is almost never permissible for non-exempt staff. Comp time arrangements present an FLSA trap for the unsuspecting association.
The FLSA requires an employer to pay overtime in cash, not in kind, even when the employee wants comp time instead of a monetary payment. The courts have unambiguously held that giving "comp time" does not satisfy an employer's obligation to pay overtime. In addition, the value of the comp time must be included in the calculation of the worker's "regular rate." This, in turn, increases the amount of overtime the employer must pay.
The only limited exception to this rule for non-exempt employees (the only instance where comp time may be substituted for overtime pay) is where an employer gives an employee the option (in lieu of overtime pay) to take -- or requires the employee to take -- time and one-half off (comp time) in one week to offset overtime worked in another week within the same pay period. For instance, if a non-exempt employee works 50 hours during the week of the association's annual conference, if the following week falls wihin the same pay period, the association can require the employee to take comp time of 15 hours (time and one-half for the hours worked over 40 in the preceding week) during that following week. Comp time can also be used in a single-week pay period solely to prevent an employee from exceeding 40 hours worked in that same week - in other words, giving a non-exempt employee the balance of the week off once the 40-hour mark is reached. This limited exception is designed to enable employers to maintain a constant wage for employees.
Failure to Count All "Hours Worked"
A common problem among associations and other employers is keeping inadequate track of hours worked by non-exempt employees. All hours worked during a week must be counted to determine whether the employee has worked more than 40 hours so as to be entitled to overtime pay for the over-40 portion.
Early Arrivals/Late Departures from the Office. Non-exempt employees who are permitted to come in early or stay late must be paid for any extra time worked, even if there are "understandings" that those employees will not be paid for the extra time. Even where the employee agrees to the understanding and may benefit from a transportation standpoint, the association is exposed to the threat of later litigation if it "suffers or permits" the employee to work more than 40 hours per week without paying overtime. Even if the association orders a non-exempt employee not to work outside normal hours, and the employee voluntarily disobeys the order with the association's knowledge, the association is required to pay for the hours worked. To avoid this result, associations should use disciplinary procedures to prevent employees from accumulating unwanted hours of work.
Meal Time and Breaks. Merely permitting non-exempt employees to work through lunch (even though they are not required to do so) may result in the same problem as above. Consequently, non-exempt employees should be required to take daily meal breaks, and such breaks should be required to be taken away from their desks. Bona fide meal breaks of 30 minutes or more are not compensable work time. To be a bona fide meal break, the employee must be relieved of all duties to perform work during the break. For example, a receptionist who is required to answer the telephone while having his or her lunch is not on a bona fide meal break and must be compensated for his or her time. Rest time of 5 to 20 minutes is common and is deemed to be compensable work time.
Down Time. Virtually every job has a period of down time - that is, a period during the work day when the employee does not have any work to do. Whether down time is compensable will turn on the facts of each case. Typically, periods where an employee is completely relieved of duty and can use the time as his or her own are not "work time" and therefore not compensable. If, however, an employee has a period of inactivity but is not free to use that time for personal reasons, then the down time is compensable. Compensable down time includes time spent by a non-exempt employee reading a book while waiting for someone to give him or her work.
Travel Time. Ordinary home-to-work travel does not constitute compensable time. In other words, an employee's daily commute to and from the office is not compensable time. By contrast, all time spent traveling once an employee starts the work day is compensable. In addition, if an employee must travel to another city and return on the same day, the employee must be paid for all time spent traveling to and from the location and working on the one-day assignment, though time spent traveling from home to the point of departure (e.g., airport, train station) may be excluded. With regard to overnight, out-of-town travel, only the time spent traveling that overlaps with the employee's normal working hours constitutes compensable time. However, this is true even if the travel takes place on a Saturday or Sunday when an employee is not normally working. For example, if an employee must travel from Washington, D.C. to Los Angeles, California for an overnight association meeting, and the flight is in the air from 10:00 a.m. to 3:00 p.m. on a Saturday, the flight time is compensable. By contrast, if the flight leaves after 6:00 p.m. (and this is after the normal working hours of the employee), then the flight time is not compensable.
Meetings and Conventions. During an association meeting or convention, non-exempt employees must be compensated for all hours worked (including all hours spent at functions the employee is required to attend, or where the employee is led to believe that non-attendance would adversely affect his or her employment), even if such hours fall outside of the employee's normal working hours. An employee's attendance at an association function such as a dinner is not counted as hours worked if the meeting is held outside of normal working hours and attendance is purely voluntary (and the employee is not led to believe that non-attendance would adversely affect his or her employment). "Free" time spent by an employee in his or her hotel is also not considered compensable time, even though the employee is at the hotel on association business.
Employee Time Records. In the event of litigation, the burden is placed on the association to support its position as to an employee's hours worked through adequate records. Personal records kept by the employee without the association's knowledge may be particularly damaging if the association has no means of proving the hours worked by its employees. In addition, evidence that an association has directed employees not to record time actually worked will be used against the association. Time clocks are not required for non-exempt employees, but some comparable means of keeping records of hours worked (such as weekly time sheets) are essential to protect the association.
Exempt Versus Non-Exempt Employees
The FLSA provides that employees (but not independent contractors) are entitled to 1½ times their "regular rate" for compensable time worked in excess of 40 hours per "workweek." A workweek consists of 168 hours, or seven consecutive 24-hour periods. However, the FLSA exempts several classes of employees from the overtime requirements, including executive, professional and administrative employees. To qualify as an exempt executive, administrative or professional employee, the worker must satisfy both a salary and a duty test.
To satisfy the salary test, an employee's compensation essentially cannot be directly or indirectly based on the number of hours worked; the employee must be paid the same compensation regardless of the quality or quantity of work performed. To satisfy the duty test, an employee generally must (i) spend at least 50% of his or her time on managerial responsibilities (i.e., hiring, training, directing the work of others) (executive employees); (ii) be in a learned profession (e.g., attorneys, accountants) or have job responsibilities that are creative or original in character (professional employees); or (iii) have duties which directly relate to management policies or the general operations of the association, which involve the exercise of discretion and independent judgment with minimal supervision, and which involve relatively significant matters.
The Pay Docking Rule
The salary test is a trap for the unwary association. The Department of Labor and the courts continue to hold that an employee will not satisfy the salary test - and thus will not qualify as an exempt employee and must be paid overtime - if the employer takes certain deductions (or has a policy of taking certain deductions) from the employee's pay.
While deductions for full day absences are generally permissible, an employee will not meet the salary test if the employer has a policy or practice - even if the policy has never been enforced - requiring deduction for partial day absences from employees' pay, even if employees have exhausted all of their accrued leave. Pay deductions must be for at least a full day in length or else the salary test will be defeated. This is a dangerous trap for the unsuspecting employer, and can have the effect of voiding what might otherwise clearly be exempt status - forcing employers to pay years' worth of retroactive unpaid overtime to present and former employees. Beware: Disgruntled, former employees are often the most likely to bring suit against your association to enforce this rule.
After a 1997 U.S. Supreme Court decision, it now appears clear that deductions can be taken from employees' accrued leave for partial day absences without defeating the salary test - but only if the employer maintains an explicit written policy providing that if and when leave is exhausted, there will be no deductions from pay. This is because, according to the Supreme Court, merely being subject to salary deductions for partial day absences (even if such deductions have never been taken) will defeat the salary test. (Note: If an employee abuses the system by continuing to take unwarranted partial day absences even after his or her leave is exhausted, the association is not without recourse - the employee can be terminated, or warned that he or she will be terminated if the practice continues.)
There is one exception to the pay docking rule: Employers may make deductions from pay for absences of less than a full day so long as the deduction relates to time being taken under the federal Family and Medical Leave Act, and if approved in advance in accordance with the provisions of the Act. The Act only applies to employers with 50 or more employees.
Finally, the Department of Labor has held that disciplinary action against employees which results in any deduction from accrued leave or pay, except for safety violations, is inconsistent with the requirement that a salary be paid regardless of the "quality of work," and thus will defeat the salary test and void the exempt status of an otherwise exempt employee.
Comp Time
Frequently, associations provide their employees with compensatory time (or "comp time") in lieu of a monetary payment for overtime worked. For example, the employee may be given one hour (or one and one-half hours) of paid "comp time" leave for each hour of overtime worked. Such arrangements are common in the association community, especially in conjunction with meetings and conventions. While an association is free under the FLSA to award comp time (without restriction) to its exempt employees, this is almost never permissible for non-exempt staff. Comp time arrangements present an FLSA trap for the unsuspecting association.
The FLSA requires an employer to pay overtime in cash, not in kind, even when the employee wants comp time instead of a monetary payment. The courts have unambiguously held that giving "comp time" does not satisfy an employer's obligation to pay overtime. In addition, the value of the comp time must be included in the calculation of the worker's "regular rate." This, in turn, increases the amount of overtime the employer must pay.
The only limited exception to this rule for non-exempt employees (the only instance where comp time may be substituted for overtime pay) is where an employer gives an employee the option (in lieu of overtime pay) to take -- or requires the employee to take -- time and one-half off (comp time) in one week to offset overtime worked in another week within the same pay period. For instance, if a non-exempt employee works 50 hours during the week of the association's annual conference, if the following week falls wihin the same pay period, the association can require the employee to take comp time of 15 hours (time and one-half for the hours worked over 40 in the preceding week) during that following week. Comp time can also be used in a single-week pay period solely to prevent an employee from exceeding 40 hours worked in that same week - in other words, giving a non-exempt employee the balance of the week off once the 40-hour mark is reached. This limited exception is designed to enable employers to maintain a constant wage for employees.
Failure to Count All "Hours Worked"
A common problem among associations and other employers is keeping inadequate track of hours worked by non-exempt employees. All hours worked during a week must be counted to determine whether the employee has worked more than 40 hours so as to be entitled to overtime pay for the over-40 portion.
Early Arrivals/Late Departures from the Office. Non-exempt employees who are permitted to come in early or stay late must be paid for any extra time worked, even if there are "understandings" that those employees will not be paid for the extra time. Even where the employee agrees to the understanding and may benefit from a transportation standpoint, the association is exposed to the threat of later litigation if it "suffers or permits" the employee to work more than 40 hours per week without paying overtime. Even if the association orders a non-exempt employee not to work outside normal hours, and the employee voluntarily disobeys the order with the association's knowledge, the association is required to pay for the hours worked. To avoid this result, associations should use disciplinary procedures to prevent employees from accumulating unwanted hours of work.
Meal Time and Breaks. Merely permitting non-exempt employees to work through lunch (even though they are not required to do so) may result in the same problem as above. Consequently, non-exempt employees should be required to take daily meal breaks, and such breaks should be required to be taken away from their desks. Bona fide meal breaks of 30 minutes or more are not compensable work time. To be a bona fide meal break, the employee must be relieved of all duties to perform work during the break. For example, a receptionist who is required to answer the telephone while having his or her lunch is not on a bona fide meal break and must be compensated for his or her time. Rest time of 5 to 20 minutes is common and is deemed to be compensable work time.
Down Time. Virtually every job has a period of down time - that is, a period during the work day when the employee does not have any work to do. Whether down time is compensable will turn on the facts of each case. Typically, periods where an employee is completely relieved of duty and can use the time as his or her own are not "work time" and therefore not compensable. If, however, an employee has a period of inactivity but is not free to use that time for personal reasons, then the down time is compensable. Compensable down time includes time spent by a non-exempt employee reading a book while waiting for someone to give him or her work.
Travel Time. Ordinary home-to-work travel does not constitute compensable time. In other words, an employee's daily commute to and from the office is not compensable time. By contrast, all time spent traveling once an employee starts the work day is compensable. In addition, if an employee must travel to another city and return on the same day, the employee must be paid for all time spent traveling to and from the location and working on the one-day assignment, though time spent traveling from home to the point of departure (e.g., airport, train station) may be excluded. With regard to overnight, out-of-town travel, only the time spent traveling that overlaps with the employee's normal working hours constitutes compensable time. However, this is true even if the travel takes place on a Saturday or Sunday when an employee is not normally working. For example, if an employee must travel from Washington, D.C. to Los Angeles, California for an overnight association meeting, and the flight is in the air from 10:00 a.m. to 3:00 p.m. on a Saturday, the flight time is compensable. By contrast, if the flight leaves after 6:00 p.m. (and this is after the normal working hours of the employee), then the flight time is not compensable.
Meetings and Conventions. During an association meeting or convention, non-exempt employees must be compensated for all hours worked (including all hours spent at functions the employee is required to attend, or where the employee is led to believe that non-attendance would adversely affect his or her employment), even if such hours fall outside of the employee's normal working hours. An employee's attendance at an association function such as a dinner is not counted as hours worked if the meeting is held outside of normal working hours and attendance is purely voluntary (and the employee is not led to believe that non-attendance would adversely affect his or her employment). "Free" time spent by an employee in his or her hotel is also not considered compensable time, even though the employee is at the hotel on association business.
Employee Time Records. In the event of litigation, the burden is placed on the association to support its position as to an employee's hours worked through adequate records. Personal records kept by the employee without the association's knowledge may be particularly damaging if the association has no means of proving the hours worked by its employees. In addition, evidence that an association has directed employees not to record time actually worked will be used against the association. Time clocks are not required for non-exempt employees, but some comparable means of keeping records of hours worked (such as weekly time sheets) are essential to protect the association.