Articles

You've Got to Be Kidding - We Have to Pay Overtime for That?

We have retained a Team Building consultant to train our supervisors and work group leaders at a weekend retreat at a nice country club at no cost to our employees.
Our IT department changed our computer operating system and word processing software. We are training employees on three consecutive days during the lunch hour and are serving them a nice catered lunch at no cost to the employees.
We are planning a Summer picnic for employees and their families, with activities planned by the employees.

Each of these scenarios could arise in your company. Leadership and team building, computer training and Summer fun are benefits to employees, right? True enough, but your employees may be entitled to an additional benefit as well-wages for participating in these activities. See if you can determine whether overtime pay is due any employees under those scenarios.

The federal Fair Labor Standards Act (FLSA) governs the circumstances under which employees may be entitled to overtime pay. The general rule is that all employees who are not in bona fide executive, professional or administrative positions are entitled to overtime pay at a rate of time-and-a-half for work-related activities in excess of a forty-hour work week.

The exemption for executive, professional and administrative employees is more complicated than it seems.

An executive employee:

Is one whose "primary duty" (50% of his or her time) is managerial; and
Directs the work of two or more full-time employees; and
Has authority to hire and fire employees or to make such recommendations; and
Regularly exercises discretion and independent judgment; and
Does not devote more than 20% of his or her time to non-managerial functions; and
Is paid a salary of at least $155.00 per week.
OR
Is one whose "primary duty" is managerial; and
Is paid a salary of at least $250.00 per week; and
Directs the work of two or more employees.

An administrative employee:

Is one whose "primary duty" is office or non-manual work directly related to management policies or general business operations of the employer or the employer's customers; or
Performs functions in the administration of a school system; and
Customarily and regularly exercises discretion and independent judgment; and
Regularly and directly assists a proprietor, or an employee in a bona fide executive or administrative capacity; or
Performs under only general supervision work along specialized or technical lines requiring special training, experience or knowledge; or
Executes special assignments and tasks under only general supervision; and
Does not devote more than 20 percent of his or her time to non-administrative duties; and
Is paid a salary of at least $155.00 per week
OR
Is paid a salary of at least $250.00 per week and whose primary duty is performing non-manual work directly related to management policies or general business operations of his or her employer or customers and exercises discretion and independent judgment.

A professional employee:

Is one whose "primary duty" is work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of study as distinguished from a general academic education or apprenticeship; or
Performs work that is original and creative in character in a recognized field of artistic endeavor and the result of which depends primarily on the invention, imagination, or talent of the employee; or
Teaches or lectures as an employee of an educational institution; or
Performs work that requires theoretical and practical application of highly specialized knowledge in computer systems and is employed as a computer systems analyst, software engineer, programmer, or other similarly skilled computer field; and
Regularly and customarily exercises discretion and independent judgment; and
Performs work that is predominantly intellectual and varied in character and cannot be accomplished according to a specific time schedule; and
Does not devote more than 20% of his or her time to non-professional functions; and
Is paid a salary of at least $170.00 per week;
OR
Is paid at least $250.00 per week; and
Performs work that requires the consistent exercise of discretion and judgment or work requiring invention, imagination or talent in a field of artistic endeavor.

You can see that the FLSA's definitions of the terms "executive," "professional," and "administrative" is not as simple as their dictionary definitions. This requires you to be thoroughly familiar with the terms and federal regulations defining them before deciding whether you are required to pay an employee overtime pay.

The need to be familiar with the FLSA and its regulations also is essential because any employer who violates the minimum wages and hours provisions of the FLSA is liable to employees for their unpaid wages plus liquidated damages in an equal amount and attorney's fees and costs. Department of Labor also may pursue criminal prosecution of violations.

One of the most common problems involving overtime pay is with regard to "supervisors," "foremen," and "managers." The title given to an employee does not determine whether he or she is exempt from the wages and hours limitations under the FLSA. For example, many foremen, supervisors and managers work along side the employees he or she supervises. The foreman, supervisor or manager may be salaried, while the supervised workers are hourly employees. If the supervisor does not spend at least 20% of his or her time supervising, as opposed to working along side the other employees, the supervisor is not exempt and is entitled to overtime.

Second, many professionals and executives have executive or administrative assistants who are salaried employees. In many cases, these administrative or executive assistants do not exercise discretion and independent judgment in their jobs-they are aides or secretaries-and are entitled to overtime pay.

Third, most employers limit the amount of sick leave that employees can take, including administrative and professional employees. If an exempt employee has exhausted his or her sick time, and calls in sick (as opposed to taking a day off for personal business), the employer may not deduct less than a full day's pay from the exempt employee's pay, or the employer risks losing the exemption. This is because exempt employees must be paid a certain amount per week, whether they work one or six days. Courts that have addressed this issue have held that an employer that reduces a salaried employee's compensation for fractions of days the employee is absent from work turns the employee from a salaried employee into a non-exempt hourly employee entitled to overtime pay.

Another pitfall is disciplinary suspensions. Exempt employees may not be suspended without pay, (except for infractions of safety rules of major significance) unless the suspension is for an entire week, because exempt positions are paid on a weekly salary basis, whether the employee works one day or six.

Illinois also has a Minimum Wage Law. Like the federal FLSA, the Minimum Wage Law requires employers to pay overtime at a rate of time-and-a-half for work in excess of forty hours, and adopts the FLSA exemptions for executive, professional and administrative employees.

Last, but not least, Illinois has the "One Day of Rest in Seven Act." This statute requires employers to provide full time employees who work more than 20 hours during the week at least twenty-four consecutive hours of rest every calendar week. This statute also requires employers to provide employees who work at least seven and one-half continuous hours at least 20 minutes for a meal period This statute also requires employers to keep time records showing the names and addresses of employees and the hours they work each day and to make the book open for inspection by the Illinois Department of Labor.

What were your answers to the three scenarios?

TEAM BUILDING

Team building can be enriching for employees. It enhances their personal and professional skills-as well as their compensation. If an employer requires employees to attend training sessions during or outside the regular working hours, the time spent in the training is compensable. Of course, the exemptions for executive, administrative and professional employees apply. The fact that the training takes place at a location off premises at no cost to employees does not change the result.

COMPUTER TRAINING

Computer training is a necessity. So is a lunch period. It is likely that the time spent on lunch hour undergoing computer training is compensable and counts toward the forty hour work week limitation for otherwise non-exempt employees. The computer consultant conducting the training, probably will be deemed exempt-so there, computer guru, for changing our system.

SUMMER PICNICS

As a general rule, activities outside the normal work day that are voluntary, such as picnics, parties and informal get togethers, do not count toward the forty-hour work week limitation. What about the picnic organizers? If non-exempt employees are asked to organize the picnic, they are entitled to count the time spent toward their hourly time. This is because the employer has authorized the additional duties and must compensate the organizers for it. If the organizers must also attend the picnic and organize activities or cook, it is arguable that this time is compensable, too.

Complicated? Yes. If you would like any further information or have any questions as to specific job descriptions, please do not hesitate to contact the firm.

Momkus McCluskey, LLC
1001 Warrenville Road,
Suite 500
Lisle, Illinois 60532
(630) 434-0400