April 04, 2013
FLSA rules for paying nonexempt employee, making deductions from pay

Under the FLSA, non-exempt employees must be paid the minimum wage – currently $7.25/hour at the federal level – and they must receive premium pay for overtime work (any work over 40 hours in a workweek). What else must an employer do to ensure they aren't running afoul of the FLSA (and subjecting themselves to hefty fines) when paying non-exempt employees?

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Non-exempt employees may be hourly, salaried, commissioned, paid by the day, paid by the job, paid a piece-rate, or paid in many other ways, but these requirements still apply.

That said, employers do have some flexibility in terms of scheduling to minimize overtime obligations: "Under the FLSA, a workweek is a fixed, regularly recurring period of 168 hours; that is, 7 consecutive, 24 hour periods." Ted Boehm explained in a recent BLR webinar. This workweek can be set to begin on any calendar day, and the employer can change the workweek and can do so to avoid overtime expense. "However, any time an employer does that, the change must be intended to be permanent. In other words, the employer can’t do it frequently."

How to pay non-exempt employees

If an employer is paying above minimum wage, the next thing to ensure is that pay deductions do not take the pay received below that minimum.

"Most deductions cannot cut into the minimum wage that is paid to the employee." Boehm confirmed. For example, tools-of-the-trade cannot cut into the minimum wage. This includes things like:

  • Uniforms (and maintenance costs associated with them)
  • Cash or inventory shortages
  • Lost or damaged equipment
  • Damage to employer vehicles
  • Expenses incurred for or on behalf of the employer

Overtime is a topic that can often trip up employers trying to stay in compliance with the FLSA.

"You would think that paying overtime is an easy thing, but it proves to be a very difficult concept when you remove it from the theoretical and put it into the practical. Employers must pay nonexempt employees 1.5 times the regular rate for time worked over 40 hours in a seven-day workweek." Boehm told us. The regular rate is all remuneration for employment divided by all hours the pay covers. This usually includes things like bonuses, commissions, incentive pay, and exclusions are very limited. Just like minimum wage, most deductions or payments cannot cut into overtime.

"Consult with an attorney before you make any sort of deductions from your employee’s pay because when an employee gets a paycheck that is less than what he is expecting that is one of the most common triggers for a lawsuit." Boehm explained. Even though there are situations where deductions can be made lawfully, it is still the most common reason a lawsuit is filed or an employee contacts the Department of Labor.

When are pay deductions allowed for non-exempt employees?

FLSA permits employers to make deductions from employees’ wages, even if it takes him/her below minimum wage or overtime due, provided the deductions are required by law. This includes things like state and federal taxes, social security, and child support orders.

In general, an employer may also make deductions for things that cut into minimum wage or overtime provided they are authorized by the employee and they are for the employee’s benefit. That includes things like group health insurance, savings bonds, charitable contributions, and wage advances.

Employers cannot, however, make deductions that cut into the employee’s minimum wage or overtime if the deduction is for the employer’s benefit. This means deductions that would take pay below minimum wage (or cut into overtime pay) shouldn’t be made for things like tools-of-the-trade costs noted above. That said, employee consent may alter this rule.

For more information on paying non-exempt employees in compliance with FLSA regulations, order the webinar recording of "FLSA Compliance: Dispelling Myths and Mastering Pay Policy Challenges for Non-Exempt Employees." To register for a future webinar, visit http://catalog.blr.com/audio.

Attorney Ted Boehm is an associate in the Atlanta office of Fisher & Phillips LLP. Mr. Boehm’s practice focuses the defense of wage and hour claims arising under the Fair Labor Standards Act and claims arising under Title VII.

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