Category: FLSA

January 10, 2019

FLSA Motor Carrier Exemption

The federal Fair Labor Standards Act (FLSA) covers most employers in the United States. It requires them to pay minimum wage and overtime to most employees, subject to some exceptions. In addition to the general “White Collar” exemptions, the FLSA also establishes some industry or job-specific exemptions. One of these is the “motor carrier exemption” from the FLSA overtime pay requirements.

[Click here for more on the industry-neutral Administrative, Executive, Outside Sales, and Professional exemptions.]

Motor Carrier Exemption

The FLSA’s overtime provisions do not apply to employees subject to the motor carrier exemption found in section 13(b)(1) of the act. This exemption applies only to certain employees subject to maximum hours requirements set by the Secretary of Transportation. These are employees who are:

Employed by a motor carrier or motor private carrier;
Drivers, driver’s helper, loaders, or mechanics whose duties affect the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce; and
Not covered by the small vehicle exception.

What Is a “Motor Carrier”?

An employer qualifies as a “motor carrier” if it provides motor vehicle transportation for compensation.

“Transportation” includes movement of either passengers or property, and services related to that movement.

The exemption also applies where the employer is a “motor private carrier”. These are “persons other than motor carriers transporting property by motor vehicle if the person is the owner, lessee, or bailee of the property being transported, and the property is being transported for sale, lease, rent, or bailment, or to further a commercial enterprise.”

In applying the motor carrier exemption, it’s often not necessary to distinguish between “motor carriers” and “motor private carriers.”

Which Employees Qualify?

Drivers, driver’s helpers, loaders, and mechanics might qualify for this exemption. However, even workers in these categories must actually perform “safety-affecting activities” on a motor vehicle used for transportation on public highways in interstate or foreign commerce. They need not do that work all the time. It can be just part of their jobs, as long as it’s not a trivial or de minimis aspect of their duties.

The transportation involved must include interstate commerce. This usually means that the transportation must (1) cross state or international lines or (2) connect with an intrastate rail, air, water, or land terminal and continue an interstate journey of goods that have not come to rest at a final destination.

The safety-affecting employees do not have to travel out-of-state themselves. The exemption can still apply to an employee so long as the employer is involved in interstate commerce and the employee could reasonably be expected to make an interstate trip or work on a motor vehicle that is safety-affecting.

The motor carrier exemption applies for 4 months from the date the employee last could have been called on to or actually did engage in a motor carrier’s interstate activities. An employee continually involved in such activities retains the exemption perpetually (unless/until changing to non-exempt work for a period of 4 months or more).

Small Vehicle Exception

Yes, there is a critical “exception” to this “exemption”. If the exception applies, then the employer must pay overtime for time worked beyond 40 hours in a week even to employees who would have otherwise met the exemption requirements.

The exemption does not apply in any week where the employee’s work as a driver, driver’s helper, loader, or mechanic affecting the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce includes work on small vehicles weighing 10,000 pounds or less.

But wait, there’s even an exception to the exception (to the exemption)!

The small vehicle exception does not apply if the small vehicles involved only include vehicles:

designed or used to transport more than 8 passengers, including the driver, for compensation;
designed or used to transport more than 15 passengers, including the driver, and not used to transport passengers for compensation; or
used in transporting hazardous materials, requiring placarding under Department of Transportation regulations.

In other words, weight isn’t the only factor in determining whether a vehicle is “small.” Its function is also relevant.

When an employee does work on a small vehicle, the exemption could be lost for that week even if the employee also works on other “larger” vehicles in the same week. (Note: this issue is still somewhat unsettled as a matter of law.)

Who’s Not Exempt?

The motor carrier exemption does not apply to employees of non-carriers. This includes commercial garages and other companies that maintain and repair motor vehicles even if motor carriers own or operate the vehicles. It likewise does not apply to employees of companies that lease or rent motor vehicles to carriers (unless the employer itself is separately also a motor carrier).

The motor carrier exemption also does not apply to employees not directly working in “safety-affecting activities”. Thus, dispatchers, office personnel, and even loaders who are not responsible for proper loading do not fall under the exemption. In other words, they’re eligible for overtime pay (unless a different exemption applies).

Don’t Forget State Law

Remember, the FLSA is a federal law. It applies throughout the United States. But there are also state laws that address minimum wage and overtime requirements. As with other FLSA exemptions, the motor carrier exemption might not excuse an employer’s state law overtime obligations. Accordingly, motor carriers must separately review and apply any state overtime laws in tandem with the FLSA to avoid liability for unpaid overtime.

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April 6, 2018

PAID Program Hits Snag for New York Employers

The U.S. Department of Labor recently launched the nationwide Payroll Audit Independent Determination (PAID) program. The PAID Program encourages employers to conduct self-audits of their minimum wage and overtime payment practices. Employers who discover violations and self-report them may avoid penalties under the Fair Labor Standards Act (FLSA).

But . . . New York Attorney General Eric Schneiderman isn’t a fan of this federal program. In response to the launch of the U.S. DOL’s PAID Program, Schneiderman proclaimed:

“The Trump Labor Department’s ‘PAID Program’ is nothing more than a Get Out of Jail Free card for predatory employers.”

Is the Attorney General right? Let’s take a look at what the PAID Program offers, focusing on what all this means for employers in New York.

How the PAID Program Works

This “pilot” program is available to employers across the country. It has three basic components.

Self-Audit

To begin the process, an employer would conduct a self-audit of its compensation practices. If the employer finds compliance concerns it wants to resolve through the U.S. DOL, it must then (according to the DOL):

Specifically identify the potential violations;
Identify which employees were affected;
Identify the timeframes in which each employee was affected; and
Calculate the amount of back wages the employer believes are owed to each employee.

Self-Report

With this information ready, the employer would then contact the U.S. DOL’s Wage and Hour Division (WHD). The WHD will advise the employer what information must be submitted. This apparently will include:

The back wage calculations described above, along with supporting evidence and methodology;
A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
A certification that the employer reviewed all of the PAID Program’s information, terms and compliance assistance materials; and
A certification that the employer meets all eligibility criteria of the PAID Program.

Payment

The WHD will then follow up with the employer to determine resolution. This will likely include payment of back wages due to employees.

Eligibility Restrictions

Most employers subject to the FLSA are eligible to participate in the PAID Program.

However, an employer cannot participate if the:

WHD or a court has found within the last 5 years that the employer violated FLSA minimum wage or overtime requirements by engaging in the same compensation practices addressed by the self-audit;
Employer is a party to any litigation asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements.
WHD is investigating the compensation practices at issue in the self-audit;
Employer is specifically aware of any recent complaints by its employees or their representatives asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements; or
Employer has previously participated in the PAID Program to resolve potential FLSA minimum wage or overtime violations resulting from the compensation practices in the self-audit.

The WHD may otherwise decline to accept any employer into the PAID Program at its discretion.

New York’s Opposition

New York has its own minimum wage and overtime requirements for most private-sector employers. Like the FLSA, these laws include liquidated damages penalties where an employer failed to pay minimum wage or overtime properly. This means that employers found guilty of these wage violations may have to repay twice the amount originally owed. Employees can also recover their attorneys’ fees for these claims. Under New York law, employers may be found liable for unpaid wages going back as far as 6 years from the date of the claim. This is longer than the 2- (sometimes 3-) year statute of limitations under the FLSA.

New York’s Attorney General’s statement against the PAID Program demonstrates that he feels it is not enough that employees will receive the wages they should have been paid in the first place:

Employers have a responsibility under state and federal laws to pay back stolen wages, as well as damages intended to deter them from breaking the law again. The PAID Program allows employers to avoid any consequences for committing wage theft, while blocking lawsuits intended to vindicate employees’ rights.

I want to send a clear message to employers doing business in New York: my office will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.

The most straightforward counterargument to Schneiderman’s position is that discouraging employers from self-auditing and self-reporting may mean that employees never recover the wages they should have earned. The state/federal DOLs and private claimants are highly unlikely to uncover every instance of failure to compensate employees properly for minimum wage or overtime.

What This Means in New York

First, it was not a given that the PAID Program would be a great deal for all employers anyway. There are various downsides to self-reporting minimum wage and overtime violations. Beyond having to pay back wages, this may negatively affect employee morale, public image, etc. But the program may benefit some employers depending on their specific circumstances.

Now, however, Attorney General Schneiderman’s announcement raises a major red flag for companies with employees in New York. By raising their hand to participate in the federal PAID Program, these employers would put a target on their backs for state enforcement. FLSA violations would most likely correspond to violations of New York minimum wage/overtime laws. And even if paying back wages arguably precluded further litigation for the same payments, New York’s longer statute of limitations may at least leave employers open to up to 4 more years of liability, including liquidated damages and attorneys’ fees.

Any employer contemplating participation in the PAID Program should definitely consult with an attorney with experience dealing with both the U.S. DOL and New York State DOLs before self-reporting any possible violations. Even if the attorney agrees there has been an underpayment, they may offer better options than the PAID Program. Or, if you go forward with the program, they can assist you in navigating the process appropriately.

If nothing else comes from the PAID Program, employers should use these developments as motivation to review their compensation practices. Misclassification of workers for minimum wage and overtime purposes is one of the most common and costly mistakes employers make.

February 1, 2018

Calculating the Overtime “Regular Rate”

The Fair Labor Standards Act requires employers to pay non-exempt employees overtime if they work enough hours (usually over 40/week). Overtime must be paid at one-and-a-half times the employee’s “regular rate” of pay. Unfortunately, it’s not always so easy to calculate the employee’s regular rate.

Here we’ll look at some of the most common regular rate calculation issues. This article focuses on the federal FLSA. State overtime requirements often borrow the same overtime calculation rules, but state requirements may vary.

Defining the “Regular Rate” of Pay

The FLSA’s statutory definition of “regular rate” is almost as long as this blog post. The first few words define “regular rate” to include “all remuneration paid” to the employee. However, the next several hundred words identify exclusions.

More briefly stated than in the statute itself, these exclusions include certain:

sums paid as gifts;
payments made for occasional periods when no work is performed;
reimbursements for traveling expenses;
discretionary bonuses;
profit sharing;
payments made for employee benefits;
additional compensation for hours worked beyond a specified number in a day/week or outside the normal workday/week;
premium compensation for work on weekends or holidays; and
income derived from qualifying stock transactions.

Many of the items below are more nuanced than described here. So, don’t automatically exclude a payment just because it looks like it might fit on this list.

Significantly, the “regular rate” is an hourly rate. It’s always an hourly rate, even for employees who aren’t paid hourly. Many non-hourly employees are exempt, so it’s not necessary to calculate their regular rate. But some salaried employees are eligible for overtime. And some hourly employees also receive compensation beyond their base pay that counts toward their regular rate for overtime purpose.

When the Regular Rate Differs from the Base Hourly Rate

If a non-exempt employee receives any compensation other than their base hourly rate, the employer must consider what else to include in the regular rate when calculating overtime.

The regular hourly rate of pay of an employee is determined by dividing their total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked in that workweek.

Let’s look at how this work in several common situations.

Salaried Employees

If an employee’s only form of compensation is a fixed salary per week, then you compute the regular rate by dividing the salary by the number of hours that the employer reasonably intends the salary to compensate. So, if the employee is paid $800 per week to work 40 hours, the regular rate is $20 per hour. If that employee works 50 hours in a given week, then they would need to receive total pay of $1100 [$800 base salary for the first 40 hours and $300 ($20 x 1.5 x 10 hours) for the overtime].

Hourly Wage Plus Commissions

Some hourly employees are eligible to receive commissions or incentive bonuses based on a percentage of sales or another fixed formula. This additional compensation factors into the employee’s regular rate for overtime calculations.

The calculation may be relatively straightforward where commissions are paid weekly. Then you just divide the commissions for the week by the number of hours worked in the week and add it to the base hourly rate earned in the week to determine the overtime regular rate. Take for example a non-exempt employee who works 45 hours with a $10/hour base rate. The employee also earns $90 in commissions in a given week. Their regular rate in that workweek is $12 [the $10 base rate plus $2 ($90 in commissions / 45 hours worked)]. Their total compensation for the week, including overtime, must be $570 [$480 ($12 x 40 hours regular time pay, including commissions) + $90 (5 overtime hours x $12 regular rate, including commissions x 1.5)].

If, however, commissions are not earned and paid weekly, the calculation becomes more complicated. If the amount of commissions earned cannot be determined until after the regular pay day for the workweek in which the employee performed the work that results in the commissions, then the commissions don’t have to be included in the regular rate and paid as overtime on that payday. But, once determined, the commissions will eventually affect the regular rate, and may require additional overtime calculations and payments. The U.S. Department of Labor has specific rules for calculating the regular rate and allocating the commissions over earlier workweeks in order to fully compensate the employee for overtime earned.

Employees Working at Two or More Rates

Sometimes employees receive different rates of pay depending on what jobs or tasks they perform. By default, the regular rate is then determined by taking the weighted average of the separate rates earned. This means that the regular rate of an employee who spends 30 hours working for $15 and 20 hours working for $10 would be $13 per hour ($450 + $200 / 50). So the employee’s total compensation would be $715 [$450 + $200 + $65 (the half-time portion of the 10 overtime hours, since the regular time portion is already included here)].

An employer may, however, have the option of instead paying overtime calculated at 1.5 times the rate for the specific work performed during the overtime hours. Using the previous example, if the employee had worked all of the overtime in the job that pays $10 per hour base, then the regular rate for the overtime could be just the $10, rather than the weighted average wage. But the employee would have to apply this approach consistently, such that if the employee’s overtime (i.e., the last hours worked in the week beyond 40) were in the higher paying job, then the regular rate would be $15 rather than $10. For the employer to use this approach, the employee must know of and be willing to work under this overtime structure before beginning the work.

The second method might be disallowed if an employer uses it to systematically reduce an employee’s overtime pay. This might be case where the employer always requires the employee to perform the lower-rate work at the end of the week. Then the employer may need to revert to the weighted average method.

Many More Regular Rate Scenarios Exist

These are just some of the most common methods for determining regular rate of pay for FLSA overtime purposes. The U.S. Department of Labor has permitted various other exceptions and approaches, either based on direct statutory instructions or as enforcement practicalities. Employers facing non-routine overtime issues should confer with experienced legal counsel. Mistakes in overtime calculations can lead to significant underpayment liability for employers, including liquidated damages and potentially attorneys’ fees.