Category: Compliance

In my never-ending quest to show you how many different ways you can screw up paying your employees under the federal wage and hour laws, today I am going to talk about how to properly calculate overtime payments for salaried, nonexempt employees.

An employer has two choices in how to pay overtime to a salaried nonexempt employee: by a fixed work week or by a fluctuating work week.

For reasons that will be illustrated below, the latter is a much more cost-effective option, and is your best way to save money overtime payments for this class of employees.

Spoiler alert: there is some math involved.

By a Fixed Work Week

1. the employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
2. the straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
3. the straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
4. in addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.

“What is bitcoin? I don’t understand how fake money works.”

These were the words of my 9-year-old last week.

Let me try to help him, and you, out.

Bitcoin is not fake money. It’s digital, or virtual, currency, created in 2009 by an unknown person using the alias Satoshi Nakamoto. It’s used for online transactions — some legitimate (Microsoft, Overstock), and some not legitimate (ransomware, dark web purchases).

It’s also traded online, which has made it very, very valuable. In fact, bitcoins do not have a set value. Their value is based solely on global exchanges and depends on how it’s bought and sold online.

As of mid-February, one bitcoin was trading online for $9,575.

Because of the skyrocketing value of bitcoin, the more forward thinking of employers may want to pay employees in bitcoins instead of dollars. Moreover, your employees may want to accept payment of their wages in these valuable bitcoins.

Tread very carefully, however.

The IRS treats bitcoin and other virtual or cryptocurrencies as property, not as currency.

And, the Fair Labor Standards Act requires that employers pay employees in “cash or negotiable instruments payable at par.”

Because the IRS treats bitcoin as property, it’s very likely that the DOL will not consider it “cash” or a “negotiable instrument” (i.e., a paycheck) for purposes of wage payments.

Thus, if you are not properly paying your employees under the FLSA, you have failed to pay them a minimum wage (a big FLSA no-no), no matter how valuable the bitcoins you’re providing may be.

Let me offer one more wage/hour bitcoin thought. If you and your employees are really into the idea of payment via cryptocurrency, consider offering it as a bonus payments. But, again, tread carefully. Bonuses can be considered part of an employee’s regular rate of pay for purposes of overtime calculations (even if made in kind).

Unless the payment —

Earlier this month, Walmart announced sweeping additions to how it compensates its employees.

Late last week, a federal judge in Texas struck down the Department of Labor’s attempt to raise the salary test for the Fair Labor Standards Act’s white-collar exemptions from $455 per week to $913 per week.

The court held that because the statute defines the administrative, executive, and professional exemptions based on their duties, any salary test that renders the duties irrelevant to the analysis is invalid. Thus, because the Obama-era $913 salary test could overshadow the exemption’s duties in the execution of the exemptions, the new salary level is invalid.

I found footnotes 5 and 6 to be very interesting, but I’m not sure the position they advance are intellectually consistent with the bulk of the opinion.

Compare:

Defending claims for off-the-clock work is one of the most difficult tasks employers face under the Fair Labor Standards Act.

An employee (or worse, group of employees) says, “I (we) worked, without compensation, before our shift, after our shift, or during our lunch; pay me (us).” Often, these employees have their own personal, detailed logs supporting their claims. And the employer has bupkis. It then must prove a negative (“You weren’t really working when you say you were”), which places the employer in a difficult and often unwinnable position. It’s a wage-and-hour game of rock-paper-scissors, where paper always beats air.

When we last examined Allen v. City of Chicago — a case in which a class of Chicago police officers claimed their employer owed them unpaid overtime for their time spent reading emails off-duty on their smartphones — an Illinois federal court had dismissed the claims, holding that most of the emails were incidental and non-essential to the officers’ work, and, regardless, the employer lacked specific knowledge of non-compensated off-duty work.

Last week — in what is believed to be the first and only federal appellate court decision on whether an employer owes non-exempt employees overtime for time spent off-duty reading emails on a smartphone — the 7th Circuit affirmed [pdf].

The court started its analysis with the basic principle that “Employers must … pay for all work they know about, even if they did not ask for the work, even if they did not want the work done, and even if they had a rule against doing the work.” From there, however, the court applied the rule first announced by the 6th Circuit in White v. Baptist Memorial Health Care, that an employer is not liable for unpaid, off-the-clock overtime if:

1. the employer has a policy and process requiring that employees report off-the-clock work;
2. employee(s) ignore the policy and do not report the off-the-clock work for which they are claiming unpaid overtime; and
3. the employer does not prevent or discourage its employees from accurately reporting off-the-clock work and unpaid overtime.

Plaintiffs … worked time they were not scheduled to work, sometimes with their supervisors’ knowledge. They had a way to report that time, but they did not use it, through no fault of the employer …. Reasonable diligence did not … require the employer to investigate further.

In response, the officers argued constructive knowledge—e.g., the employer could have discovered the uncompensated work by comparing the time slips to email records—notwithstanding the employer’s policy. That argument failed, as the 7th Circuit correctly pointed out that the proper legal standard is should have known, not could have known, and that in the face of policy requiring the reporting of uncompensated off-the-clock overtime, an employer’s access to records does not constitute constructive knowledge.

What is the lesson for employers to take away from Allen, and White before it? Employers must have a reasonable process for employees to report uncompensated work-time, and must not prevent or otherwise discourage employees from using that process. Under the FLSA, it is the employee’s burden to show work during non-working time. A policy that underscores that onus by requiring employees to report times during which they were working “off-the-clock” will place employers in the best position to defend against claims for compensation for unreported, off-the-clock time, and should nullify any personal time logs or other records the employees have to the contrary.

In other words, now is as good a time as any to dust off your employee handbook, open to your “overtime” policy, and, as soon as possible, make sure it contains this language to best insulate your pay practices from dangerous and expensive off-the-claim claims.