Medical Business Advisory / Exempt vs. Nonexempt: Where the Dividing Line Is

Exempt vs. Nonexempt: Where the Dividing Line Is

Employers covered by the Fair Labor Standards Act are required to pay nonexempt employees for all hours worked. It sounds simple enough, but many people fail to understand all the forms an hour of work can take. Not understanding the nuances of this principle can lead to payroll mistakes. Below are some pitfalls to avoid.

Improperly interpreting hours worked

According to the Department of Labor, hours worked under the FLSA generally include “all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work.” Hours worked also includes any extra time the employee is allowed to work.

One way to interpret hours worked is to determine whether the employee is “engaged to wait” or “waiting to be engaged.” If the employee is engaged to wait, then the time is hours worked and therefore compensable. But if the employee is waiting to be engaged, then the time is off the clock and not compensable. For example, a firefighter who is paid to spend a shift in the firehouse even when no fires occur is engaged to wait, but a truck driver who has finished a delivery and is off the clock until she returns to prepare for her next scheduled trip is waiting to be engaged. If one of your employees has nothing to do, you cannot require him to clock out while he waits for his next task.

Keep in mind, though, that if you know or have reason to believe that the employee was working, then you must pay that employee for the time spent working — even if you did not authorize it.

Not considering the different aspects of hours worked

When calculating hours worked, employers may need to consider:

  • Regular time.
  • Overtime.
  • Waiting time.
  • On-call time.
  • Meal and rest periods.
  • Meetings, lectures and training time.
  • Scheduled on-site sleeping time.
  • Travel that is part of the job, such as trips between job sites.
  • Travel that keeps an employee away from home overnight.

For more information on these types of hours worked, see the DOL’s Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act (FLSA).

Inaccurately computing overtime

Under the FLSA, hours worked over 40 in a workweek must generally be paid at 1.5 times the employee’s regular rate of pay. Remember that the FLSA excludes certain types of payments from the regular rate of pay calculation. For these exclusions, see the DOL’s Fact Sheet #56A: Overview of the Regular Rate of Pay Under the Fair Labor Standards Act (FLSA).

The employee must physically work more than 40 hours in a workweek to receive overtime pay under the FLSA. If the hours were not physically worked — such as holiday, vacation or sick time — then they cannot be counted as overtime hours.

Also, if you know or have reason to believe that the employee worked overtime, then you must pay the employee overtime wages, even if you did not authorize the overtime hours. While you can discipline the employee for working unauthorized hours, you cannot withhold pay.

Failing to establish a reliable timekeeping system

Make sure you have a system that correctly captures employees’ time, as this is essential to ensuring accurate wage payments and meeting the FLSA’s recordkeeping requirements. Be sure to check state law too, as some states have their own definition of hours worked.

To minimize errors, set clear timekeeping expectations for your employees, explain your stance on off-the-clock work, and educate your employees on the meaning of hours worked. Because FLSA rules can be complicated, be sure to get professional advice if you’re unsure about any provisions.

If you would like to discuss your HR needs, please click here to contact a BlueStone representative.


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