August,2006



Welcome!

In last month's article, you found out what it means to be paid on a "salary basis" under the Fair Labor Standards Act (FLSA) exemption regulations. In addition, you learned whether you have to provide paid days off and how to treat absences related to military leave and inclement weather. (If you missed that issue, please click here for a copy.)

This month we are continuing our discussion with you on FLSA exemption regulations. In the article found below, you will learn:
  • Whether you can make deductions for partial day absences and disciplinary suspensions.

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  • If a set number of hours can be required for exempt employees to work and/or if you can track their work hours.

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  • When can extra compensation be provided to exempt employees.

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  • Your potential for personal liability in making exemption decisions and the growing incidence of HR professionals being targeted personally as defendants in employment legal actions against the employer.

SPECIAL NOTICE!
SEXUAL HARASSMENT TRAINING FOR SUPERVISORS

Margaret Jacoby, PHR, in conjunction with Training One Source©,
will be conducting sexual harassment training that meets the requirements of AB 1825.
  • Sexual Harassment training for supervisors is the law for companies with 50 or more employees.

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  • January 1, 2006 was the deadline for completing this training for your supervisors/managers.

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  • What about those supervisors/managers who were hired or promoted since your original training?

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  • What about those supervisors who were unable to attend the initial training?

This fast-paced two-hour interactive workshop is designed to educate participants about sexual harassment, raise their awareness of the causes and impact of harassment in the workplace, and present methods for preventing the occurrence of the problem.

For information on registering for one of the upcoming training sessions, Click Here

September 14 7:30 - 10:00AM
September 28 1:00 - 3:30PM
October 12 7:30 - 10:00AM
October 26 1:00 - 3:30PM
November 2 7:30 - 10:00AM
November 16 1:00 - 3:30PM
December 7 7:30 - 10:00AM


$99.00 Each Participant
5 or More From One Company - 10% Discount
Seating Is Limited ... SIGN UP EARLY!
 
Training Location:
Training OneSource, 110 Pine Ave. Suite 808, Long Beach, 90802

Continue to see this month's article on FLSA exemption regulations.



Exempt Employees and the Salary Basis Test
(Part 2 of 2)

Continuing questions concerning the FLSA salary basis requirement:

  1. May we make deductions from an exempt employee's salary for partial day absences?

    No. Generally, the FLSA regulations indicate that if you make deductions from an exempt employee's pay for absences of less than a day, you are considered to be treating the employee as an hourly worker, instead of as an exempt employee paid on a salary basis.

    Thus, you could be liable for any overtime worked by the employee, as well as all other exempt employees subject to your policy allowing deductions for partial day absences. (As discussed in last month's article, you may make deductions for certain full day absences.)

    Many employers have attempted to avoid the partial day docking issue by requiring exempt employees to use paid leave for these absences. The Department of Labor (DOL), the agency that enforces the FLSA, traditionally has permitted this type of arrangement since the employee
    does not experience an actual reduction in salary.

    And, in the comments to the new regulations, the agency specifically acknowledges that employers may make deductions from exempt employee leave accounts
    without jeopardizing the employee's exempt status. (Of course, if the employee does not have any accrued paid time, you cannot deduct a partial day from his salary.)

    A number of courts have sided with the DOL's position on this issue. However, other courts have disagreed and have determined that this practice does, in fact, treat an exempt employee like an hourly, nonexempt employee and therefore, causes loss of the exemption.

    NOTE: California Labor Commissioner has interpreted the law to mean that salary may not be replaced from vested benefits like vacation or PTO in the event of a partial day absence.

    California appeals court decision ruled that nothing in California law precludes employers from following the federal rule for partial-day absences.

    So, a conflict exists between the Labor Commissioner's interpretation and the appellate court. All California employers should consult their employment law counsel before making partial day deductions from exempt employees' salary.

    Because of the split in the courts, you should consult legal counsel before acting on this matter if you are a private sector employer. (Special rules apply to exempt public sector employees allowing them to be considered exempt even if their pay is reduced for partial day absences.)

    As a practical matter, though, you may find that exempt employees resent being required to use paid leave for partial day absences, particularly if they regularly work more than 40 hours per week. Under this type of policy, they are not entitled to additional pay when they put in long hours, but are required to use vacation or sick leave if they need a few hours off.

    Finally, as discussed in last month's article, the FMLA allows employers to require the use of accrued paid leave for partial day absences for any hours taken as intermittent or reduced FMLA leave, without affecting the employee's exempt status.

  • May we make deductions for disciplinary reasons, such as a suspension?

    Under the 2004 regulations, you may suspend an exempt employee without pay for one or more full days in limited circumstances involving infractions of workplace conduct rules. (Previously, employers could suspend an exempt employee without pay only for a full week.)

    To apply for the deduction, you must have a written policy alerting exempt employees that they may be subject to an unpaid disciplinary suspension that is applied to all employees.

    Note, also, that comments to the final rule point out that the term "workplace conduct" covers only inappropriate conduct, which includes harassment, violence, drug or alcohol violations, and violations of state or federal laws. The term does not cover performance or attendance issues.

    In addition, you may make deductions for penalties imposed for infractions of "safety rules of major significance." These deductions can be in full or partial day increments. Covered infractions include rules relating to the prevention of serious danger to the worksite or to other employees, such as no smoking rules in explosives plants, oil refineries, and coal mines.

    NOTE: While federal regulations and court decisions permit deductions from exempt employee's salary for limited disciplinary reasons, the California Labor Commissioner has issued a legal opinion stating that such deductions are incompatible with California law and will not be permitted. (DLSE Opinion Letter 97.04.28)

  • If an exempt employee works only part of the first or last week of employment, do we have to pay the full week?

    No. You are not required to pay the full salary in the initial or terminal week of employment if the employee only works a portion of the week. You may pay a proportionate part of the salary.

  • May we require exempt employees to work 40 hours a week or to be at work during set times?

    If you require exempt employees to work a specific number of hours or arrive at a specific time, you may appear to be treating them like nonexempt employees and, thus, may jeopardize their exempt status.

    Instead of focusing on the number of hours an employee works or the starting and ending time, you are better advised to focus on the employee's job requirements and output.

    So, for example, if an exempt manager supervises employees who must be at work from 8:00 a.m. until 4:30 p.m., it would be appropriate to require the manager to be available during those working hours to supervise the employees.

  • May we pay exempt employees extra compensation?

    Generally, you may pay extra compensation to exempt employees without jeopardizing the exemption or violating the salary basis requirement. The 2004 regulations clarify the circumstances under which you may make these additional payments.

    Specifically, if the exempt employee is guaranteed a minimum weekly payment of $455, you also may pay 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.

  • May you keep track of the number of hours exempt employees work?

    Yes, as long as this requirement does not affect their pay. The DOL preamble to the 2004 exemption regulations specifically states that employers may require exempt employees to record and track hours without affecting their exempt status.

    If, however, you require exempt employees to account for their work time on an hourly basis, you may jeopardize their status if the accounting has the effect of treating them like hourly workers.

    For example, if the employee's salary fluctuates based on the number of hours worked, the employee most likely will not be considered exempt.

    Thus, you may keep track of hours worked for other purposes unrelated to the employee's pay, such as to account for work time to be billed to clients or for performance under a federal contract. You also may record daily attendance.


    • Monetary Penalties and Your Personal Liability

    The revised exemption regulations do provide guidance for employers on how to implement the salary basis test. But, they also create a number of requirements that can be difficult to comply with, particularly when it comes to disciplinary deductions and partial day absences.

    So, even if you properly classify employees as exempt initially, you can lose the exemption if your policies do not adhere to the salary basis test.

    Under the FLSA, the loss of exemption can be expensive. Specifically, the employer can be liable for back overtime pay for up to two years for any employee who is misclassified as exempt. This back pay liability typically is extended to three years if you are found to have willfully (intentionally) violated the law.

    Perhaps even more importantly, a single misclassification can trigger a loss of exemption for an entire group of employees if the rest of the group has been treated similarly under your organization's policies and practices.

    And as a final legal wake-up call, some recent court decisions interpreting the FLSA have found that the individual decision-maker can be personally liable for any violations under the Act. In other words, you could be personally responsible for any back pay and other penalties.

    Accordingly, you need to take extra care to make sure you are not exposing your organization or yourself to unnecessary legal actions. The best way to do this is to be familiar with the FLSA regulations and the California regulations, in particular those dealing with the salary basis requirements, and then document your exempt classification and deduction decisions.

    A good starting point is to compare your policies that affect exempt employee pay with the eleven questions and answers addressed in both this month's and last month's articles.
     

    _________________________________________
    Source of this article:
    © 2006 Personnel Policy Service, Inc. All Rights Reserved.
    HR Matters is a registered trademark of:
    Personnel Policy Service, Inc.
    159 St. Matthews Ave., Suite 5, Louisville, KY 40207
    Tel: 1-800-437-3735 - Fax: 1-800-755-7011


    ABOUT MJMS, INC.

    President and Principal Consultant: Margaret Jacoby, PHR

    Margaret Jacoby has more than 25 years of Human Resources and professional management experience in a variety of industries. She has designed human resources infrastructure and implemented systems to ensure compliance with state and federal employment laws. She has directed high quality human resources functions for small and emerging businesses, and served as an external consultant to a wide range of diverse organizations, including non-profits.
     
    Her work has included: 

    • Conducting H.R. Needs Assessments
    • Drafting employee handbooks and policy manuals
    • Conducting job analysis and developing position descriptions
    • Conducting on-site compliance audits
    • Counseling management on progressive discipline
    • Drafting and review of employee disciplinary actions
    • Providing mediation in employee/employee conflict
    • Training employees/supervisors/managers in the implementation of human resources systems and policies such as Sexual Harassment
    • Conducting workshops for business owners on H.R. compliance issues.
     
    Ms. Jacoby has earned the nationally-recognized certification of Professional in Human Resources (PHR) from the HR Certification Institute, Society for Human Resource Management (SHRM).
     
    Ms. Jacoby's professional affiliations include:
    • Professionals in Human Resources Association (PIHRA)
    • Society for Human Resource Management (SHRM)
    • National Association of Women Business Owners, Los Angeles
      (NAWBO-LA)
    • California Chamber of Commerce
    • Long Beach Community Business Network (LBCBN)
    • Institute for Management Consultants (IMC)
    • Los Angeles Area Chamber of Commerce


    Phone: 310-798-4569    Fax: 310-798-4121
    margaret@mjms.net •  MJ Management Solutions, Inc.