The Fair Labor Standards Act is a federal law that sets minimum wage and overtime requirements for covered employees.¹ Under the FLSA, employees must be properly classified as either exempt or nonexempt. Exempt employees are not subject to the minimum wage and overtime protections of the FLSA, whereas nonexempt employees are and must be paid minimum wage and overtime pay (1½ times their regular rate of pay for all hours worked over 40 hours in a workweek).²

The Wage and Hour Division of the U.S. Department of Labor enforces the minimum wage and overtime provisions of the FLSA and can audit an employer at any time. An audit can be triggered due to a complaint from an employee, complaint from a third party, referral from another governmental agency, etc. The DOL normally will not tell an employer how the audit originated.

What are some common mistakes employers make

• Misclassification of employees as exempt versus nonexempt. Exempt employees are paid on a salary (or fee basis) and are not entitled to overtime pay. Nonexempt employees may be paid on an hourly, salary, commission or other basis, but must be paid at least minimum wage for all hours worked each workweek and overtime pay for all hours worked over 40 in a workweek. The form of payment does not determine exemption status. Exempt and nonexempt employees can both be paid on a salary basis (although, typically, nonexempt employees are paid on an hourly basis).Employees may be classified as exempt if they satisfy one of the specified statutory exemptions, the most common of which are the administrative, executive and learned professional exemptions (including the creative professional exemption and the computer employee exemption).³ To satisfy those exemptions, an employee has to meet both a salary basis test (be paid at least the minimum required amount of salary each workweek) and job duties test (have certain job responsibilities).⁴ Just because an employee is paid a salary does not mean they are exempt. The employee must also meet the job duties test. A position’s title is not relevant in determining whether the job duties test is met. The work the employee performs on a daily basis is the main inquiry.
• Failure to pay overtime. Employers are required to pay nonexempt employees for all hours they “suffer or permit” an employee to work, and any hours worked over 40 in a workweek must be paid at time-and-a-half, regardless of whether the overtime was authorized.Employers should be familiar with the overtime thresholds and what time must be counted as hours worked. Any time spent in physical or mental exertion controlled by an employer, and primarily for the benefit of the employer and its business, must be paid in accordance with the minimum wage and overtime requirements of the FLSA and Indiana (or other applicable state) law. This includes work that occurs outside of regularly scheduled working hours and can include time spent responding to emails and phone calls after hours, even if the employer has a policy prohibiting the “off-the-clock” work.
• Improper calculation of overtime (did not include all hours worked in a workweek and/or did not use the correct regular rate of pay). Employers who pay biweekly cannot spread the hours over the two weeks paying overtime only for time worked over 80 hours in a two-week period. Forty hours a workweek is 40 hours a week, and it is based on the regular seven-day workweek, not the pay period. If an employee works 30 hours one workweek and 50 hours the next workweek, that employee is entitled to 10 hours of overtime even if the work is in the same pay period. All compensation, including commissions and non-discretionary bonuses, must be included in the regular rate of pay for purposes of calculating overtime, unless the compensation is one of eight specified types of payment (e.g., holiday gift, birthday gift, discretionary bonus, certain profit-sharing payments, etc.).
• Failure to keep accurate records. The FLSA imposes record-keeping requirements on employers. There is no prescribed form, but employers must keep detailed records on the hours worked each day by non-exempt employees. In addition, the FLSA requires employers to maintain records showing the total hours worked each workweek, the regular hourly pay rate, total daily or weekly straight-time earnings, overtime earnings for the workweek, wages paid each pay period, all additions or deductions made to or from the employee’s earnings, the date of payment and the pay period covered by the payment, the time and day of the week when the employee’s workweek begins, the basis on which employee’s wages are paid, the employee’s sex and occupation, and certain personal identifying information (full name, Social Security number, full address, etc.). No particular timekeeping method is mandated. Most employers use an electronic timekeeping system. Any system is acceptable as long as it is accurate.

What are some common misconceptions about how overtime laws apply to nonexempt employees in Indiana?

• Employees can agree not to be paid overtime. No. Overtime pay is required. If an employee works more than 40 hours in a workweek, they must be paid time and a half. Overtime pay cannot be waived or rejected or the amount of the time-and-a-half pay decreased, even by express agreement between the employer and employee.
• Double-time must be paid for Sundays and holidays. No. An employer may have a policy/practice of paying a premium for those days, but it is not required unless the overtime threshold has been met for that employee’s regular workweek. If so, then the employee must be paid at 1½ times their regular rate of pay for all hours over 40 that workweek.
• Over 8 hours in a workday requires overtime pay. No. This is not required by the FLSA or Indiana law. (As noted below, some states have laws requiring daily overtime, but not Indiana or federal law.)
• An employer cannot force an employee to work overtime. Wrong. An employer can require an employee to work overtime. Neither the FLSA nor Indiana law limits the number of hours employers can require employees to work, merely that nonexempt employees be paid overtime for all hours worked over 40 in a workweek.
• An employer does not have to pay overtime that was not authorized. No. While an employer can have a policy that prohibits working overtime unless approved in advance by the employer, if an employee works overtime in violation of that policy, the employee must still be paid for the overtime but can be disciplined for not following the employer’s policy.

How does an employer avoid these mistakes? Understand the laws and self-audit.

A self-audit can spot potential issues and resolve wage and hour issues before they result in a DOL audit or wage claims.⁵ A self-audit includes examining job descriptions, comparing to actual duties performed and determining if employees are properly classified as exempt or non-exempt, reviewing time records and overtime payments to ensure that all applicable payments are being included in calculating the regular rate of pay and overtime pay, and reviewing time-keeping procedures and whether employees are recording all hours worked or are working “off-the-clock.” The audit should be done in conjunction with experienced wage and hour legal counsel.

The information in this article is provided for general information purposes only and does not constitute legal advice or an opinion of any kind. You should consult with legal counsel for advice on your institution’s specific legal issues.