Sometimes it’s the little details that business owners miss that can lead to major problems.
When it comes to paying your employees, knowing what times and activities require payment and which ones do not is critically important. If you get it wrong, you could overpay or expose yourself to legal and financial risks for underpayment.
The Fair Labor Standards Act
The Fair Labor Standards Act (“FLSA”) “establishes minimum wage, overtime pay, recordkeeping and youth employment standards.” If your business meets certain criteria, then it must comply with the FLSA. If you have at least two employees and a minimum of $500,000 in annual sales then your business must comply with the FLSA. Hospitals, institutions providing medical or nursing care for residents, schools, preschools and government agencies regardless of their size must also comply with the FLSA. Even in cases where the business does not meet these criteria, employees may still be covered under FLSA by means of the Individual Coverage definition. The odds are that your business needs to comply.
One of the areas addressed by the FLSA is the concept of “compensable hours” which tells employers which activities performed by employees require compensation. It’s not as simple as it seems. As the answers to the quiz (provided below) will show, what is considered “compensable” may surprise you.
The U.S. Department of Labor’s Wage and Hour Division provides a worksheet with an overview of some of the key areas and applications of principles related to employment.
Here’s a pop quiz for business owners:
1. If your receptionist Jim is having lunch at his desk and he still answers calls, do you need to pay for that?
2. Amy just had a baby 3 months ago and needs to express milk several times during the day while at work. Do you need to pay her for the time she spends expressing milk?
3. If you ask William at which telephone number he may be reached at over the weekend just in case there is an emergency is he owed compensation for being “on call”?
4. Nancy’s shift finished at 5:00 p.m but she kept working until 5:30 p.m. to complete the last batch assigned to her. She could have finished it the next day, but she wanted to get it done. Is she owed compensation for the extra 30 minutes?
1. Likely yes. Since Jim is not completely relieved from duty and is still working despite eating his sandwich, the time would most likely be considered compensable.
2. It’s not clear. Under the FLSA, employers are not required to compensate nursing mothers for breaks taken to express breast milk. For this to be considered a break, Amy must be completely relieved from duty. However, the FSLA also states that "rest periods of short duration, running from five minutes to about 20 minutes are common in the industry... [and] must be counted as hours worked." (29 C.F.R. Section 785.18). If the situation arises, its best consult an employment law expert to determine what is appropriate.
3. Not likely. If you require the employee to stay on location or to stay close to work in case you need them, this could be considered compensable hours. But if the employee is just being asked to indicate where they can be reached with no other restrictions then it is unlikely to be considered compensable hours. The greater the restrictions with regard to response time and location and the greater the frequency of calls or curtailment of personal activities, the greater the likelihood that they will be considered compensable hours.
4. Likely yes. The law defines “employ” as “to suffer or permit to work.” By definition, this includes “work not requested but suffered or permitted to be performed.” Therefore Nancy would be owed compensation since this time would fall under compensable hours.
Finally, there are state regulations that also play a role in determining what is and isn’t considered part of compensable hours. In cases where there is a conflict between the state regulations and the FLSA, the law providing the greater protection to the employee generally prevails.
Mike Periu is the founder of EcoFin Media, LLC an independent producer of financial, economic and entrepreneurial content for television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Mike also hosts regular small business webinars on a range of topics relevant to business owners.