The Department of Labor tackled that question in a recent Opinion Letter. A company asked about this scenario:

A group of store managers were selected to be trained for a possible promotion to district manager positions. Both store manager and area manager are exempt jobs.

But during most of the seven-week training course, the employees performed mostly nonexempt work while they shadowed an existing area manager. The amount of hands-on management (i.e., exempt work) they performed increased as the training progressed.

So the company asked the DOL: Do those employees lose their exempt status during training?

The answer: No.

The Opinion Letter noted that the executive exemption doesn’t apply to nonexempt employees who are training for, but haven’t yet assumed, an exempt position. In other words, a nonexempt employee training to be a manager wouldn’t become exempt during the training.

But in this case, the employees are already exempt. And, the DOL said, attending training doesn’t change the store managers’ primary duty. They’re still employed as store managers, which is an exempt position in this case.

Read the Opinion Letter from the DOL here.

The company tracked absences by dividing the hours employees missed by the hours they were scheduled to work. Employees were disciplined if they’d been absent for more than 4% of their scheduled hours.

Under the policy, time off for FMLA leave was not counted as an absence and not included in employees’ scheduled hours.

An employee was disciplined and later fired for repeatedly violating that attendance policy. However, she sued, claiming she’d have been compliant with the rule if it weren’t for a period of FMLA leave she had taken.

By the company’s calculation, her absence rate was more than 7%. But if those hours she would have worked if she didn’t take FMLA were counted, she would’ve been below 4%.

In other words, she claimed, she was being penalized for taking FMLA.

The company argued the policy was not biased against employees on medical leave, because FMLA was not factored into either part of the equation. But the court didn’t buy it.

The way the policy was set up, employees who took FMLA weren’t allowed as many non-FMLA absences as other employees. Therefore, the policy had a negative impact on employees who took leave.

Cite: Dickinson v. St. Cloud Hospital

To remain exempt, employees must be paid on a “salary basis” — they get the same amount of money every week, in most cases, no matter how many hours they work.

You can deduct from workers’ salaries in whole-day increments when an employee chooses to be absent for personal reasons. So if your office is open, but an employee can’t make it due to the weather, you can deduct from his PTO bank or from his weekly salary.

But what about when the weather’s so bad, you shut down the office for a day or longer?

If it’s anything less than a week, you have to pay exempt employees their full salaries, according to an Opinion Letter from the Department of Labor.

You still have the option of making employees use vacation time to cover the work they’re missing. But when employees have no accrued PTO, they’re still owed a full week’s salary.

Half days

You can also deduct PTO when an employee misses a partial day — by choice or because of a workplace closing.

But again — even when an employee takes a half-day by choice, you can only deduct from his salary in full-day increments. So even if he has no PTO, he still gets paid for the whole day if he does any work at all.

The DOL recently issued an Opinion Letter in response to a question about whether a group of employees’ on-call time was considered hours worked under the FLSA. The employees in this example must:

• be reachable at all times
• abstain from alcohol, and
• get to work within an hour of being contacted.

The employees don’t need to stay on the employers’ premises and are called only on rare occasions.

The DOL’s answer: The on-call time doesn’t have to be paid. Why not?

The key question is whether the employees can still use the time for personal reasons. Personal use of the time might be limited if employees have to stay in one place, need to get to work very quickly after they’re called, or if they’re contacted frequently.

In those cases, the time would need to be paid.

But in this example, an hour is a reasonable response time — employees can go where they want, and the prohibition on alcohol isn’t restrictive enough to put broad limits on how employees use the time.

You can read the entire letter here.

More than 1,400 store managers recently sued Family Dollar Stores, Inc., claiming they weren’t payed OT they were owed.

The employees regularly worked 60-70 hours a week, but, like most employees classified as managers, they were considered exempt.

The managers were the highest-level employees in their respective stores. Therefore, the company argued, it was clear that they should qualify for the exemption.

But that wasn’t enough for the court, which ruled that the actual duties of the jobs made them nonexempt positions. For example:

• The store managers were closely supervised by district managers
• Store managers spent roughly 80% of their time on manual tasks like running registers, stocking shelves, cleaning the store and unloading trucks, and
• Virtually all managerial decisions, such as scheduling shifts, setting store hours, and hiring and firing employees, were made by district managers — store managers simply carried out those decisions.

Family Dollar was forced to give the managers a total of $35 million for unpaid OT.

What managers are exempt?

Given the confusion over who’s really exempt, how can HR figure out who needs to be paid OT?

The court cited the FLSA’s criteria for the executive exemption. To be exempt, managers must:

• be paid a salary of at least $455 per week
• have management as a “primary duty”
• direct the work of at least two full-time employees, or an equivalent number of part-timers, and
• have the authority to hire, fire and promote — or at least have significant influence on those decisions.

Cite: Morgan v. Family Dollar Stores, Inc.

Misapplying the exemptions can cost companies a lot of money.

TAC Worldwide, a Massachusetts-based staffing firm, has just agreed to pay $1.8 million in back wages to 973 employees who sued for being mistakenly classified as exempt from OT.

Most of the affected employees held IT-related positions. Job titles of those who sued include: network engineer, help desk representative, technical writer, software tester and network administrator.

A common classification mistake is focusing on title rather than actual job duties. Employees may have titles that sound exempt — but employers still need to look at what those employees do on a daily basis and make sure the duties match up with at least one of the Fair Labor Standards Act’s OT exemptions.

For more information on the exemptions, click here.

Cite: Chao v. 888 Consulting Group, Inc.

Read the facts of this real-life case and decide: Who won?

The facts:

The employee worked as a mortgage underwriter. Under the company’s payment system, underwriters were paid a salary of at least $48,000 a year and classified as exempt. They had quarterly reviews, and their salaries could go up or down, depending on how many loans the employee had processed — but the pay could never fall below the $48,000 floor. The employee sued for unpaid overtime, claiming the wage policy failed to meet the salary basis test required for OT exemption.

The employer said:

The employees were guaranteed a salary that complied with the FLSA’s exemption rules. Wages could go up or down based on performance, but employees always made at least $48,000.

Who won the case?

Answer: The employer.

Why: Most of the OT exemption rules require that employees are paid based on a predetermined salary and that their pay isn’t reduced based on quality or quantity of work.

However, the FLSA also makes an allowance for employees who receive a “minimum guarantee plus extras” — for example, a salaried employee can still receive variable bonuses or commissions and be considered exempt.

In this case, the $48,000 was the guaranteed minimum, and anything beyond that was an “extra.” The court ruled the payment practice met the salary basis test, and the employee’s case was thrown out.

Cite: Havey v. Homebound Mortgage, Inc.

The computer professional exemption.

It’s a common misconception that all jobs involving computers are exempt. But in fact, the FLSA’s computer employee exemption is very narrow, covering only employees who earn more than $27.63 per hour or $455 per week and:

• apply “systems analysis techniques and procedures,” such as consulting with users to determine hardware or software needs
• design, develop, create, test or modify computer programs based on user design specifications
• design, develop, create, test or modify programs related to operating systems, or
• perform a combination of those duties that requires the same level of skill.

Some examples of employees who don’t qualify for the exemption: employees who repair hardware and help desk professionals whose only job is to fix users’ problems.

Note: IT employees who don’t meet the requirements for the computer professional exemption may still be exempt, based on the FLSA’s administrative, executive or professional exemptions.

Employee handbooks are supposed to protect the company. But thanks to these common mistakes, many policy manuals are a lawsuit waiting to happen.

Mostly, it comes down to the choice of wording. Phrasing policies the wrong way often causes big legal trouble when managers discipline or fire employees.

Here are seven big problems all companies need to watch out for, according to HR consultant Hunter Lott:

1. Illegal overtime policies — A statement that shouldn’t appear in any handbook: “Authorized overtime will be paid at 1.5 times the regular hourly rate.” That policy is illegal under the FLSA — all OT, whether it’s authorized or not, must be paid. You can have a rule against working OT without permission and discipline or even fire someone for it, but you still need to pay them.
2. Vague FMLA language — Policies on FMLA should lay out all of the law’s eligibility rules. Otherwise, employees who wouldn’t have qualified for leave may still be able to sue the company. Also, make sure you’re specific about how FMLA and paid time off intertwine. If employees are required to use FMLA and PTO concurrently, that needs to be in the handbook. If it isn’t, employees may argue in court that their 12 weeks of medical leave didn’t start until after their sick and vacation time was used up.
3. Bans on salary discussions — The only logical reason for a company to ban talk about salary, Lott says, is that its pay structure is unfair and unlawful — which is a possibility employers certainly don’t want to raise. Also, such policies may run afoul of the National Labor Relations Act, which gives employees the right to talk freely about working conditions.
4. Unnecessary probationary periods — Specifying that new hires are on a 90-day probation is appropriate for union or government employees, who are protected from termination in some cases. But for any other company, it doesn’t make much sense. Most employees are at-will — which means they can be fired at any time for any legal reason. Giving everyone a probationary period might negate an employee’s at-will status once the 90 days are over.
   
5. Rules that are too personal — Lott warns against handbook statements like, “Employees are prohibited from dating co-workers.” It makes the company sound like a babysitter and creates a serious enforcement headache. Employers will get a lot more protection from a job-related policy such as: “Any relationship that affects your ability to do your job may be a valid reason for firing.”
6. Salary offers that offer too much — Employees and their attorneys will try to interpret everything the company says literally — especially when it comes to money. For example, telling employees what their “annual salary” is when they’re hired could imply that you intend to pay them for an entire year, no matter what. Instead, the statement should read something like, “an annual salary of (blank), earned and paid biweekly, monthly, etc.”
7. Too many details — Sometimes, listing too many specific behaviors that warrant discipline can make it difficult to discipline for other issues. For example, if a dress code includes 35 things employees aren’t allowed to wear, there’s likely to be some resistance when a manager tries to punish someone for inappropriate dress that hasn’t been explicitly spelled out.

Figuring out which employees do and don’t need to be paid overtime is one of HR’s most confusing tasks. Here are some common slipups the Department of Labor is looking for.

These are big OT mistakes made by many employers, according to labor law attorney Micheal Lorenger:

1. Making all salaried employees exempt — Even if you don’t pay workers an hourly wage, they’re owed overtime if they don’t meet one of the FLSA’s specific exemptions. Most of the exemptions require employees to be paid a salary, but that’s only one test out of several.
2. Improperly deducting from a salaried employee’s pay — For employees to pass the salary test under the FLSA, the company can’t deduct their pay based on quality or quantity of work (except when an employee misses an entire day), or for lost or damaged equipment. Companies can still make workers pay for equipment they damage — you just can’t take the amount directly out of someone’s paycheck.
3. Misclassifying assistant managers — In most cases, managers are exempt from OT — but don’t make the mistake of lumping assistant managers in with them just because of their title. The key is the amount of authority the assistant has. In big departments, they might have the power to make their own decisions regularly. In other cases, the assistant’s job might just be to make sure the manager’s decisions get carried out.
4. Misinterpreting the “administrative” exemption — Though the same terminology is used, the administrative OT exemption has nothing to do with administrative assistants. In fact, most admins do not qualify for an exemption. The administrative exemption refers to people involved in general business operation who use “discretion and independent judgment” in their work.
5. Not correcting previous mistakes — If a company realizes an exemption was misapplied, many companies do nothing and hope no one notices. That’s the easiest option in the short term — but it’s also the easiest way to end up in court fighting a claim for back pay.