The basics of wage and hour law

Whether deciding when and how much to pay for overtime, keeping proper records or deciding whether to pay accrued vacation to a terminated employee, failure to understand the laws in this area can lead to significant penalties for the improper payment of wages to an employee.

The Fair Labor Standards Act (FLSA) is the federal statute that provides for a minimum wage and the payment of overtime. Many states also have laws that govern the payment of wages. State statutes may provide protection for employees who are not covered by the FLSA or may provide greater protections than the FLSA. Employers must not only be aware of the FLSA’s requirements but also the applicable state laws where your company does business.

Here are some basic rules ­ and misconceptions ­ about wage and hour law under the FLSA. These laws set forth only the minimum statutory requirements; an employer’s obligations may be greater under collective bargaining agreements, employment contracts with the employee or a state statute or regulation. Your business and/or employees might be exempt from these various laws.

Overtime Pay ­ The FLSA provides that 40 hours is the maximum number of hours an employee may work for a particular employer without receiving time and one half of the employee’s normal rate of pay for any hours worked which are in excess of the 40 hours.

A common misconception with regard to overtime pay is that salaried employees are not entitled to receive overtime. Whether an employee is paid hourly or salary is not the relevant inquiry. The key is whether the employee, based upon his or her job duties, is “exempt” from the FLSA’s overtime requirements. Three of the main exemptions include the executive, professional and administrative exemptions. A determination of whether an employee is exempt requires an in-depth analysis of the employee’s job duties and responsibilities.

Rest and Meal Breaks ­ For non-exempt employees, any rest periods or meal breaks that last 20 minutes or less must be counted as hours worked and compensated. By the same token, bona fide meal periods are not work time. Another misconception ­ mainly by employees ­ is that employers are required to provide employees with a set number of rest or meal breaks per day. The FLSA does not mandate a break period.

Deductions from Pay ­Certain deductions from an employee’s pay are specifically allowed, such as state and federal income tax withholdings, court-ordered withholdings such as garnishments and child support, or employee-authorized withholdings accruing to the benefit of the employee, such as pension plans, stock option or stock purchase plans, personal savings plans or union dues. Deductions may also be made for absences for a day or more for personal reasons or as a result of sickness or disability if the deduction is made in accordance with a bona fide plan or policy.

Other deductions may be prohibited under state law. For example, under some state laws, improper withholdings include deductions for cash shortages, inventory shortages, breakage, returned checks, or losses from robberies. A common mistake employers make is deducting for such items out of an employee’s last paycheck. It would only seem fair that an employee terminated for embezzlement should not receive his last paycheck. Such practice, however, often violates state wage payment laws.

Generally, vacation and holiday pay are considered a type of wage. Whether they are “earned wages” depends on the employer’s policy and practice. A common misconception is that an employee has an inherent right to paid vacation, to the payment of unused vacation time, or severance at termination.

Generally, no right to the payment of unused vacation time exists absent a contract provision, whether written or implied as a result of an employer’s policy or practice. The terms of the “contract” may be governed by an employee handbook, although all handbooks should contain employment-at-will disclaimers specifically stating that the handbook is not a contract. Courts may look to the handbook to determine how vacation pay is handled.

For example, an employee handbook can set forth the conditions an employee must meet in order to be paid accrued vacation time. It is not uncommon for an employer to require an employee to give two weeks’ notice of termination before the employee would be entitled to receive paid vacation.

Beware the traps that exist for employers who lack sound wage and hour policies.