Overview of State and Federal Wage and Hour Laws

1. Introduction.
The Fair Labor Standards Act (FLSA) is a federal statute that was enacted in 1938. It governs minimum wages, hours, overtime, and recordkeeping requirements. This outline is intended to provide a general overview of the FLSA, discuss which employers and employees are covered by the FLSA, examine the exemptions available under the FLSA, and discuss some practical applications of the FLSA.

2. Who are Employees Under the FLSA.

The FLSA applies only in situations where an employer/employee relationship exists. The FLSA broadly defines "employee" as "any individual employed by an employer." The FLSA also specifies that covered employment includes arrangements in which one party "suffers or permits" another person to work. The Supreme Court has ruled that, for purposes of the FLSA, an employer/employee relationship often exists where it may not exist under the rules of common law. Such a relationship is to be tested by economic reality rather than technical concepts.

The courts have given primary consideration to the amount of control and supervision exercised by the employer over the work of the individual concerned in determining whether or not a worker is an "employee." If this control is extensive, the courts have usually found that the worker is an employee. This classification is made despite the existence of any other agreement which may describe the person as an independent contractor.

There is no single rule or test for determining whether an individual is an independent contractor or employee for purposes of the FLSA. Among the factors which the courts consider significant are:

The degree to which the employer controls and directs the manner in which work is performed;

Whether the individual worker's opportunity for profit or loss depends upon the worker's managerial skill;

Whether the worker's duties are performed for the employer on an ongoing or permanent basis;

Whether the service performed by the worker is an integral part of the employer's business;

The extent of the individual worker's investment in equipment or materials needed to perform the job;

The degree to which the worker is engaged primarily for the benefit of the employer;

The opportunities for profit and loss;

The degree of independent business, organization and operation;

The degree of independent initiative, judgment, or foresight exercised by the one who performs the services.

A determination of whether or not an individual is an independent contractor or employee depends upon all the facts and circumstances and should be analyzed using all of the above factors.
The FLSA does not limit employment to work performed in a specific location and individuals who work from their home may be considered employees under the FLSA. The analysis of employment status of home workers is made based on the same factors as in other independent contractor cases.
Undocumented aliens are FLSA employees, even though the Immigration Reform and Control Act prohibits employment of undocumented aliens and provides sanctions against employers who do so. The argument for FLSA coverage in such cases is that it reduces the incentive to hire illegal aliens, thereby discouraging illegal immigration.

3. Employer Coverage.

Any "enterprise" engaged in interstate commerce is covered by the FLSA. Any employer is engaged in interstate commerce if during the period it uses in calculating its annual sales, it regularly and recurrently has two or more employees who either are engaged in commerce or in the production of goods for commerce, or are engaged in handling, selling or otherwise working in goods or materials that have been moved in or produced for commerce.

An enterprise may be directly engaged in interstate commerce or it may be engaged in the production of goods for interstate commerce without any direct involvement in interstate commerce. This may range from producing or manufacturing goods for interstate commerce to handling or in any other manner working on goods for interstate commerce during the production process.
In addition, the FLSA covers employers that do not actually produce, handle or work on goods for commerce if the activities they perform are closer related and directly essential to the production of goods for interstate commerce.
Enterprises with an annual business volume of less than $500,000 are not subject to the FLSA. However, even if the enterprise is under this dollar limit or is otherwise excluded because it is not an enterprise operating in interstate commerce, individual employees can still be covered by the FLSA if they are engaged in interstate commerce, produce goods for commerce or work in activities closely related and directly essential to the production of goods for commerce. This includes employees who work in communications or transportation; regularly use the mails, telephones, or telegraph for interstate communication; handle, ship, or receive goods moving in interstate commerce; regularly cross state lines in the course of their employment; or work for independent employers who contract to do clerical, custodial, maintenance, or other work for firms engaged in interstate commerce or in the production of goods for interstate commerce.

In today's national/international markets it is rare to find any manufacturing business that is not covered by the FLSA. In addition, almost all forms of transportation, distribution and retail businesses are also covered by its provisions. The most frequent exemptions occur in local construction and service firms. Even in these cases, however, state law imposes many of the same kinds of requirements that the FLSA imposes.

4. Exemptions from Minimum Wage and Overtime.

a. General.
While coverage of the FLSA is intended to be broad, numerous exemptions to the minimum wage and overtime pay requirements are covered in Sections 13(a) and 13(b) of the FLSA. For the most part, the application of the exemptions is based upon the work actually performed by the individual employee, although a few exemptions may be industry-wide or may apply to an entire establishment.
The exemptions under the FLSA are defined by the regulations promulgated by the Department of Labor. All exemptions are narrowly construed against the employer. The burden of proving the entitlement to an exemption falls entirely upon the employer.

As a general rule, exemptions are figured for individual employees on a work-week basis. Therefore, changes in employee duties from week to week may change their status from exempt to non-exempt and require compliance with the FLSA requirements on minimum wage and overtime. Caution should therefore be exercised in changing employee duties.

b. Industry and Occupation Exemptions.
There are a large number of industry and occupation exemptions from overtime requirements, minimum wage requirements, or both. Among those industries and occupations are the following:

i) Airlines (employees engaged in activities necessary to or related to air transportation);
ii) Amusement & recreational establishments (operations must be seasonal);
iii) Apprentices (special certificate required);
iv) Auto, farm implement, boat, aircraft dealers (some sales men, partsmen, and mechanics are exempt from overtime requirements);
v) Domestic service workers in private household (limited exemptions);
vi) Drivers and drivers' helpers (restrictions apply);
vii) Foreign employment (services performed within a foreign country);
viii) Forestry or logging (8 employees or less);
ix) Gasoline stations (with small sales volume);
x) Handicapped workers (subminimum rates may be paid under special certificate);
xi) Holly-wreath manufacture (certain homemakers);
xii) Hospitals and nursing homes (special overtime rules);
xiii) Hotels, motels, & restaurants (overtime exemption for some employees);
xiv) Learners (subminimum wage rates may apply);
xv) Messengers (subminimum wage rates may apply);
xvi) Motion picture theaters (overtime exemption);
xvii) Motor carriers (limited overtime exemption);
xviii) Newspaper delivery;
xix) Newspapers (small local circulation);
xx) Outside Salesman;
xxi) Petroleum distributors (limited overtime exemption);
xxii) Professional, executive, and administrative personnel;
xxiii) Radio & TV broadcasters (limited overtime exemption);
xxiv) Railroad, steamship companies (limited overtime exemption);
xxv) Retail-service establishments (limited overtime exemption);
xxvi) Retail commission salesmen (overtime exemption);
xxvii) Retail-manufacturing units (limited overtime exemption);
xxviii) Seamen exemption only for seamen on foreign vessels;
xxix) Students in agriculture, students in higher educational institutions, and students in retailing (limited subminimum wage may apply);
xxx) Substitute parents for institutionalized children (limited overtime exemption);
xxxi) Taxicab drivers (overtime exemption); and
xxxii) Telephone exchanges (limited exemption).
For details with respect to specific exemptions, see applicable provisions of the FLSA and regulations thereunder.

c. "White-Collar" Employee Exemptions.
The designation "white-collar employee" does not appear in the FLSA or other laws. The term is, however, a recognized description of one of the large general classes of employees covered under the exemptions found in the FLSA. The white-collar category comprises the most broad-based of exemptions to the Act and cuts across the whole-spectrum of industry classifications. Virtually every employer under the law faces the problem of deciding which white-collar employees may qualify for exempt status.

Whether a worker qualifies for a white-collar exemption will depend on a determination of the primary duty of the employee. The courts have held that an employee's "primary duty" cannot be ascertained by applying a time standard that contrasts the amount of time an employee spends each day on exempt and non-exempt work. The essence of the test is the determination of the employee's chief or principal duty and, at least under the short test, the employee's primary duty will be what the employee does that is of principal value to the employer, rather than the collateral tasks performed. That is true even if the collateral tasks consume more than half of the employee's time.

Included in the white-collar class are executive employees, administrative employees, professional employees, school administrators and certain teachers and outside salesmen. The Secretary of Labor is expressly authorized to define these exempt categories.

i) Executive employee exemption. The exemption tests for executives limit the exemption to persons "whose duties include some form of management authority -- to persons who actually direct the work of other persons."
The tests for exempt executives focus upon management and supervisory functions and apply only if the employee receives a salary of $155 or more per week. An employee will be considered to be paid on a "salaried basis" if the employee regularly receives a predetermined amount each pay period, on a weekly or less frequent basis. The "predetermined amount" may not be subject to reduction because of variations in the quality or quantity of work performed.

Generally, in order to qualify for the exemption, the employee must receive the full "salary" for each pay period, irrespective of the number of hours actually worked. Deductions may not be made for absences caused by the employer or the by the operating requirements of the business. In addition, deductions may be made only for jury duty, attendance as a witness or temporary military leave and then only to the extent of any amounts received as jury, witness fees or military pay. See 29 C.F.R. 541.118(a).

Deductions may be made for absence of a day or more for personal reasons or as a result of a sickness or disability, but only if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by sickness and disability. 29 C.F.R. 541.118(a)(2) and (3).

A letter ruling from the Wage and Hour Division states that deductions from the salary of an otherwise exempt employee for absences of less than one (1) day for personal reasons or for sickness or disability could have the effect of negating the exempt status of such an employee.

D.O.L. regulations currently provide a five-part test for determining whether or not employees meet the executive employee exemption. For employees paid more than $250 per week only a two-part test is required:

a) the primary duty must consist of the management of the enterprise in which he is employed or the customarily recognized department or subdivision; and
b) such primary duty must include the customary and regular direction of the work of two or more employees in the establishment or department.

ii) Administrative employee exemption. To be considered an administrative employee, the worker must meet the same salary levels imposed upon executive employees. If an employee earns over $250 per week, only the following two tests must be met in order for that employee to be considered as an administrative employee:

a) The employee's primary duty must consist of the performance of office or non-manual work directly related to management policies or general business operations of the employer or his employer's customers. This test is intended to distinguish between activities relating to the administrative and to the production operations of the business. It limits the exemption to persons who perform work of substantial importance to the management or operation of the business. The phrase "directly related to management policies or general business operations" may cover the duties of a wide range of employees who carry out major assignments in conducting the business or whose work affects business operations to a substantial degree.
b) The employee's job must include work requiring the exercise of discretion and independent judgment.

NOTE: If the salary does not meet the $250 per week level, the employee must "customarily and regularly exercise discretion and independent judgment" to qualify, a much more stringent test.

If the employee does not meet the $250 per week standard, a more extensive list of requirements must be met in order for the employee to be considered an administrative employee.

iii) Professional employee exemption. The exemption for professional employees is the most complex of all the white-collar exemptions, since it covers a wide variety of occupations. These range from the practice of law and medicine -- the traditional professions -- to designing, writing, acting and other so-called artistic professions. The salary floor for exemption as a professional employee is $170 per week -- slightly above the salary levels required for the executive and administrative employee exemptions.

Professional employees paid at least $250 per week qualify for the exemption if their work meets either of the following tests:

a) The employee's primary duty consists of the perfor mance of work requiring knowledge of an advanced type in a field of science or learning, including work which requires the consistent exercise of discretion and judgment; or
b) The employee's primary duty consists of the perfor mance of work requiring invention, imagination, or talent in a recognized field of artistic endeavor.

Employees making less than $250 a week are subject to several additional tests.

d. Special Situations.

i) Outside salesmen. The FLSA recognizes the difficulty of controlling the hours of salesmen who spend their time calling on customers and prospects outside the office. Outside salesmen are exempt from both the minimum wage and maximum hour restrictions.
The definition of "outside salesmen" is relatively broad. It includes any employee whose job meets the following specifications:

a) The purpose of the employment is to make sales or to obtain orders or contracts for services or for the use of facilities for which the customer or client will pay.
b) The employee customarily and regularly spends time in such work away from the employer's place of business.

c) The amount of time the employee spends in work that does not fall within the above categories does not exceed 20% of the workweek of other employees of the company who are not exempt. Work which is incidental to sales activity, however, and which is performed in conjunction with it, counts as selling time. Examples include writing sales reports, attending sales conferences or making incidental deliveries or collections.

ii) Computer related employees. The Wage and Hour Division has issued final regulations that exempt certain computer-related employees from overtime pay requirements. The regulations provide that employees engaged in work that requires theoretical and practical application of highly-specialized knowledge in computer systems and analysis, programming, and software engineering and who are engaged in these activities as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in a computer software field are eligible for exemption as professionals. To qualify for the exemption, a computer professional must either meet the salary requirements or must be compensated on an hourly basis at a rate in excess of $27.63 per hour.

The D.O.L. regulations make clear that the exemption will not cover trainees or entry-level employees, and the level of expertise and skill necessary to qualify for the exemption is generally attained through a combination of education and experience in the field. No particular degree or license is required.
The exemption does not include employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs, such as engineers, drafters, and others skilled in computer-aided design software. Exemption of these employees must depend upon their status as an administrative employee.

iii) Motor carrier employees. Employees who are subject to regulation by the Department of Transportation under the Motor Carrier Act are exempt from the overtime, but not the minimum wage, provisions of the FLSA. Generally this exemption applies to employees engaged as drivers, drivers' helpers, mechanics, and loaders in interstate bus, trucking or related operations, if the employee's work directly affects the safety of operations of motor vehicles. Private carriers engaged in "intrastate" as opposed to "interstate" commerce are not exempt.

It does not matter whether the Department of Transportation has issued regulations controlling the employee's hours; it is sufficient merely that the Department has authority to do so. Thus, the fact that D.O.T. regulations currently exclude vehicles under 10,001 lbs. from regulation does not preclude the possibility of D.O.T. regulation in the future. Thus, the D.O.T. and not the D.O.L. has jurisdiction over the hours and wages of drivers of all vehicles over which it has authority to regulate.

Employees employed as clerks, unloaders, or other ancillary positions are not exempt from the FLSA since their work doesn't directly affect the safety of operations of motor vehicles.

iv) Employees of auto, truck, and farm machinery dealers. The FLSA provides an exemption from the overtime pay requirements for any "salesman, partsman or mechanic primarily engaged in selling or servicing automobiles, trucks or farm implements," so long as the worker is employed by a non-manufacturing enterprise, primarily engaged in the business of selling such vehicles or implements to ultimate purchasers (in other words, a dealer). These employees are not exempt from the minimum wage requirements of the FLSA.

The FLSA also provides an overtime exemption for salesmen primarily engaged in selling trailers, boats, or aircraft, if the salesman is employed by a dealer.

Repairmen employed by a mobile home dealer who repair and service trailer running gear, such as wheels, axles, brakes, hitches, and lights would qualify as mechanics and be exempt from overtime requirements. On the other hand, those who check plumbing, electric and gas systems, doors, windows, and other structural features are not "mechanics" under the statute. Furthermore, a service employee/delivery person employed by a company that sells new and used mobile homes is not a mechanic when mechanical work occupied a small percentage of his time and his chief work was delivering mobile homes, setting them up and servicing them.

v) School administrators and teachers. The FLSA exempts "any employee employed in the capacity of academic administrative personnel or a teacher in elementary or secondary schools."

To qualify for the administrative exemption, school administrators must meet all the other tests to qualify for the administrative exemption, except that the salary requirement will be met if the employee receives a salary at least equal to the entrance salary for teachers in the education institution where he or she is employed.

Teachers will be considered exempt if they meet the requirements for a professional employee, except that there is no salary requirement.

Coverage of the FLSA was extended in 1967 to all employees of public and private elementary and secondary schools. The minimum wage and overtime provisions apply to such school employees as lunchroom workers, custodians, maintenance employees, and clerical personnel.

5. Recordkeeping.

a. Basic Requirements.
Employers must maintain and preserve certain records specified by the Wage and Hour administrator to document their compliance with FLSA's minimum wage, overtime, equal pay, and child labor provisions. Different recordkeeping rules apply for agricultural and non-agricultural employees.

b. Non-Agricultural Employees.

For each covered non-agricultural employee, an employer must maintain records containing the following information:

Name in full -- Records must show each employee's full name as used for Social Security purposes. If it is the employer's practice to use a number or symbol on timecards or other records in lieu of the employee's full name, such number or symbol also must appear on the record.

Home address -- Employers must maintain an employee's current address on the same record containing the employee's full name. Employers are expected to check periodically with the employee to ensure that the recorded address is current and accurate.

Date of birth -- Records must show an employee's birthday if the employee is under 19 years of age. If there is any question whether an employee is a minor, the employer must make every effort to determine the actual age. In lieu of entering a minor's age, the employer can keep as part of its records an age certificate, a work certificate, or other proof of the employee's age.

Sex and occupation -- An employee's gender must be recorded because of FLSA's equal pay provisions. Information about an employee's occupation is important for determining equal pay compliance, and also is relevant to some of FLSA's statutory exemptions. A single designation of occupation at the head of the payroll records is sufficient where all of the employees in the work force perform the same work.

Workweek -- Records must show the time of day and the day of the week on which an employee's workweek begins.

Regular rate -- An employee's regular hourly rate of pay must be shown for any workweek in which overtime is worked and overtime pay is due. The record must be sufficiently detailed to allow Wage-Hour inspectors to reconstruct the exact method used to compute overtime compensation.

Regular rate exclusions -- Records must show the amount and nature of each payment that is excluded from the regular rate.

Wage basis -- An employer must enter the wage, salary, or other earning rate used in determining the employee's straight-time earnings or wages for each pay period.

Hours worked -- An employer must record each employee's total hours for each workday and workweek. Employers are responsible for recording the time at which the employee actually begins and ends work. Although employers have an obligation under the law to record all time worked, they generally can disregard insubstantial or insignificant periods before or after the scheduled working hours that cannot as a practical matter be precisely recorded for payroll purposes.

Straight-time earnings -- An employer must show an employee's total daily or weekly straight-time earnings or wages -- all earnings or wages received on the basis of hourly rates, piece rates, commissions, or salary, but excluding overtime excess compensation.

Weekly overtime pay -- Records must indicate the total weekly overtime excess compensation -- compensation for statutory overtime hours over and above all straight-time earnings for those hours.

Deductions from and additions to wages -- Employers must record deductions from and additions to wages for each individual employee. Such separate accounts must show the types of items added or deducted, separate credited or debited amounts, and the dates involved.

Pay period covered -- Records must show the date each em ployee was paid wages and the pay period covered by the payment. The date of payment can be either the date on which the employee is paid in cash or the date on which the employee receives a check. Where all the employees in the work force are paid on the same day and for the same period, it is sufficient for the employer to make a single notation of the pay day and period.

Wages paid -- An employer must record the total wages paid to each employee in each pay period. This figure should include the employee's straight-time earnings or wages, total weekly overtime excess pay, and additions to or deductions from wages.

Retroactive payments -- Where government officials are supervising an employer's payment of back wages to an employee, payment of such back wages must be indicated in the employer's records. Such notations must identify the employee receiving the payment and show the amount of such payment, the period covered by the payment, the date of the payment, and receipt of payment. Triplicate reports of supervised payments must be made on authorized receipt forms -- the original to be filed with the Wage- Hour Department, one copy to go to the employee, and the other to be kept by the employer. (29 CFR 516.2)

c. Agricultural Employees.

Agricultural employers are required to maintain and preserve payroll records containing the following information with respect to each worker:

Name in full;

Home address;

Sex and occupation in which employed;

Letters or other symbols separately identifying those employees who are members of the employer's immediate family and laborers who harvest by hand; and

The number of "man-days" each employee (except members of the employer's immediate family) works each week or each month.

A man-day is defined as any day during which an employee (excluding members of a farmer's immediate family) performs agricultural labor for at least one hour. Agricultural establishments using more than 500 man-days of agricultural labor during any calendar quarter in the preceding calendar year must keep the following additional information:

Time of the day and day of the week on which the employee's workweek, or the workweek for all employees begins;

Basis on which wages are paid -- for example, $0.75 per bushel or $3.00 per hour;

Hours worked each workday and total hours worked each workweek;

Total daily or weekly earnings;

Total additions to or deductions from wages paid each pay period;

Total wages paid each pay period; and

Date of payment and pay period covered by payment. (29 CFR 516.33)

d. Exempt Employees.
Where an employee is exempt from the FLSA, the employer is spared some of the recordkeeping required for covered employees -- such as regular rate and overtime pay -- but also may be subject to certain special record-keeping requirements to substantiate the claimed exemption. Since employers have the responsibility for proving the applicability of any claimed exemption from the act, maintaining adequate records for exempt employees is as essential as maintaining adequate records for covered employees.

For executive, administrative, professional, and outside sales employees who are exempt from FLSA's overtime and minimum wage requirements, employers must keep the following information:

The basis on which wages are paid -- for example, $195 per week, $755 per month plus 2 percent commission, or $1,200 semi-monthly;

Total remuneration -- pay plus fringe benefits -- or sufficient information so that total remuneration can be calculated.

Employers need not record for white-collar exempt employees the following items ordinarily required under FLSA: regular rates, regular rate exclusions, hours worked, straight-time earnings, and weekly overtime pay. (29 CFR 516.3)

e. Special Wage-Hour Practices.
When an employer elects to use an alternate procedure under the Fair Labor Standards Act for determining overtime or minimum wages -- such as crediting tips or facilities as wages or retail commissions as overtime, using piece rates, or using Belo plans or guaranteed weekly pay -- the employer must keep records to document compliance with the particular FLSA rule. The following discussion is confined to the recordkeeping requirements associated with these special wage-hour practices.

i) Tips. In general, an employer can count tips received by employees toward fulfilling up to 50 percent of the minimum wage. Employers that elect to use the tip-credit rule must record, in addition to the information ordinarily applicable to covered employees, the following information:

Employees whose wages are determined in part by tips by placing a letter or symbol on their pay records;

Weekly or monthly amount of tips reported to the em ployer by the employee (this can consist of reports made by the employees on IRS Form 4070);

Amount of tips credited toward each employee's wages (not to exceed 50 percent of the minimum wage obligation);

Hours worked each workday in which the employee does not receive tips, and the total daily or weekly straight-time payment made by the employer for such hours; and

Hours worked each workday in which the employee receives tips and the total daily or weekly straight-time earnings for such hours. (29 CFR 516.28)

ii) Belo plans. Employers generally must keep all of the employee data required for covered employees, except for total daily or weekly straight-time earnings, which are not applicable to Belo plans. In addition, employers must record:

Total weekly guaranteed earnings; and

Total weekly compensation in excess of the weekly guarantee.

Employers also must preserve the contract or collective bargaining agreement containing the Belo plan agreement or a written memorandum summarizing the agreement if it is not in writing. (29 CFR 516.24)

iii) Board, lodging, and other facilities. Employers can count certain non-cash items -- board, lodging, and other facilities -- as wages, subject to certain limitations. Employers that furnish non-cash items as wages must maintain the records necessary to substantiate the cost of furnishing each item and any related depreciation for employer-provided facilities such as housing.

Recordkeeping requirements generally can be met by keeping records on the costs associated with each class of facility furnished, rather than keeping records for the cost of each item. Thus, in the case of housing, combined original cost and depreciation records can be kept for groups of houses acquired at the same time and maintenance costs for all houses can be shown together. Moreover, the costs of facilities that are provided together and are not easily separable -- such as housing and electricity -- can be treated as a single "class." (29 CFR 516.27)

iv) Piece-rates. Employers that pay non-exempt employees on a piece-rate basis are subject to all of the recordkeeping requirements ordinarily applicable to covered employees. In addition, the employer must show the following items in the pay records for each employee:

Each piece rate at which the employee is employed;

Number of units completed at each applicable piece rate during hours worked in excess of the statutory workweek; and

Total weekly overtime excess compensation at each applicable rate. (29 CFR 516.25)

f. Preservation of Records.

i) Three-year retention. The following employer records must be preserved for at least three years:

Payroll and other records containing information required by the recordkeeping regulations;

Sales and purchase records relevant to determining whether an enterprise meets FLSA's "business volume" test;

Collective bargaining agreements that set terms under which facilities are provided to employees;

Plans, trusts, employment contracts, and union contracts involving exclusions from regular pay rates;

Contracts and memoranda pertaining to "Belo-type" contracts that guarantee fixed weekly pay for fluctuating hours;

Agreements basing overtime pay on piecework, hourly, or basic rates; and

Certificates and notices mentioned in the recordkeeping regulations, including certificates authorizing the employment of learners, apprentices, handicapped workers, students, homeworkers, and child laborers. (29 CFR 516.5)

ii) Two-year retention. "Supplementary records" -- those serving as the source documents for other payroll records maintained by an employer -- must be preserved for at least two years. Supplementary records include the following:

Basic employment and earnings records -- This require ment extends to all materials that substantiate payroll and other records, such as timecards or "production cards."

Wage rate tables -- These can be hourly, daily, weekly, or pay period wage rate tables, or piece-rate schedules. They must be kept for two years from their last effective date.

Work-time schedules -- These include all schedules or tables of the employer that establish the hours and days of employment of individual employees or of separate work forces. These schedules can be in any form, such as notices, company letters, or office memoranda. Such schedules must be preserved for two years from their last effective date and in the same form as they actually were used.

Order, shipping, and billing records -- These include all customer orders or invoices, incoming or outgoing shipping or delivery records, bills of lading, and non-cash billings to customers, which the employer retains or makes in the course of its business. Either originals or copies can be kept. (29 CFR 516.6)

g. Where Must Records be Kept?
Records must be kept at the place or places of employment or at one or more established central recordkeeping offices where such records are customarily maintained. If kept at a central recordkeeping office, other than the place of employment, such records shall be made available within 72 hours following notice from the wage hour administrator. All records shall be available for inspection and transcription by the administrator or authorized representative. (29 CFR 516.7)

h. Posting Requirements.
Employers employing any employees subject to the act's minimum wage requirements must post and keep posted notices informing employees of their rights under the act. There is a general notice poster in English (WH 1088) and in Spanish (WH 108Sp), and special notices for state and local government employees (WH 1385), patient workers (WH 1417), and sheltered workshops (WH 1284). These can be obtained from any regional office of the Wage Hour Division or the Washington D.C. office.

Employers of employees to whom the act's overtime requirements do not apply because of an exemption of board application to an establishment may alter or modify the poster with a legible notation to show that the act's overtime provisions do not apply. (29 CFR 516.4)

i. Form of Records.
The regulations do not prescribe any particular order or form of records. Records may be maintained and preserved on microfilm or automatic word or data processing memory as long as adequate projection or viewing equipment is available, reproductions are clear and identifiable by date or pay period, and extensions or transcriptions of required information are made available upon request. (29 C.F.R. 516.1)

The use of time clocks for the purpose of recording hours of work is not required. Recording time worked to the nearest tenth of an hour is satisfactory, so long as the system does not result in employees' not being compensated for all hours actually worked and so long as the information concerning actual hours worked is available elsewhere in the employer's records. (WH Adm.Op., Aug. 28, 1964)

6. Overtime.

The FLSA requires that most non-exempt employees be paid "time-and-a-half" for hours worked in excess of forty in a week. In calculating the "regular" hourly rate for the first forty hours, certain types of compensation may be excluded. Some of these include discretionary bonuses or gifts, pay for time not worked (e.g., holiday, vacation, or sick pay), pension, profit-sharing, or welfare plan contributions, and premium pay (e.g., for working on a holiday or weekend).

a. Non-Discretionary Bonuses and Incentives.
Bonuses or incentives that are not discretionary are generally included in calculating the "regular" rate for overtime purposes. This includes bonuses based, for example, on the quantity of goods produced, and it includes piece-rate compensation. The "regular" rate is taken by dividing the total compensation by the total number of hours worked. Overtime is then calculated by adding an additional half-hour of compensation for each hour worked in excess of forty.
b. Piece-Rate Compensation.
In some cases the use of the total compensation divided by total hours method of computing the "regular" rate is inappropriate. In cases where employees are normally compensated differently for different types of work, the employer may use a separate "regular" rate for each type of work rather than an average based on the different types of work performed that week. Likewise, if an employee is paid on a piece-rate basis, the piece-rate may serve as the basis for the "regular" rate: in other words, the employee can be paid at one and one-half times the piece rate for piece-rate work performed over forty hours.

c. Salaried Employees.
Salaried employees are also entitled to overtime compensation for hours worked over forty, but the calculation is somewhat different. Rather than receiving additional compensation at one and one-half times the "regular" rate, the salaried employee generally is entitled to additional pay at only one half of the "regular" rate. The application of this rule depends on whether the employee's work schedule is fixed or variable. If the employee is expected to work a set number of hours that exceeds forty, he is entitled to receive additional compensation of one-half times the "regular" rate for the hours in excess of forty. That employee is entitled to one and one-half times the "regular" rate for hours that are in excess of the normally expected work hours. For example, if a salaried employee normally works forty-two hours per week, but works forty-five during the week in question, he will receive overtime calculated at one-half times the "regular" rate for the first two hours over forty and at one and one-half times the "regular" rate for the remaining three hours. If, however, the employee's hours are not fixed, but vary from week to week, the overtime rate is one-half of the "regular" rate for all hours worked in excess of forty; further, the "regular" rate, since it is calculated by dividing the weekly salary by the total number of hours worked, will vary depending on the number of hours worked.

d. Belo Plans.
Employees whose work necessitates irregular hours may be compensated under "Belo" contracts. Employees under a Belo contract are paid a guaranteed weekly amount regardless of the hours actually worked up to an agreed number of hours, not to exceed sixty per week. The maximum number of hours must be specified in the agreement, which can be an individual agreement or a collective bargaining agreement. The agreement must also specify a "regular rate of pay" and the guaranteed weekly amount must calculated such that it would satisfy the minimum wage and overtime provisions of the law if the employee worked the maximum number of hours at that hourly rate of pay. Hours worked in excess of the stated maximum must be compensated at one and one-half times the regular rate.

7. Minimum Wage.

The federally mandated minimum wage is currently $5.15 per hour. It applies to most businesses and to most employees. Generally, its application is very straightforward and easy to recognize. An employer must, however, keep the minimum wage provisions in mind when designing and applying a system of creative compensation. For example, a piece-rate system that yields a good wage under most circumstances, may run afoul of the law if, under unusual circumstances, it yields a rate of pay that is less than the minimum wage. If a non-exempt salaried employee works an excessive number of hours such that his effective hourly rate (salary divided by number of hours worked) dips below the minimum wage, the minimum wage law will require additional compensation. For purposes of the calculations discussed in the overtime section, above, the "regular" rate can never be below the federal minimum wage.

a. Piece-Rate Compensation.
In the case of piece-rate work, employees' compensation must be sufficient to exceed the minimum wage based on the number of hours actually worked each week. In weeks where the piece rate results in an average hourly compensation that is below the minimum wage, covered employees must receive additional compensation. In the case of employees who work part of the time on an hourly basis and part of the time on a piece rate basis, the minimum wage provisions apply to the hours worked on each basis separately.
b. Tips.
For "tipped employees" -- those whose compensation regularly and customarily exceeds $30 per month in tips -- an employer may credit the tips received toward satisfying up to half of the minimum wage. A service charge (even if called a "tip" or "gratuity") that is automatically added to a customer's bill is not considered as a tip received directly by the employee for these purposes. Tips that are pooled or shared by employees may be credited for this purpose by employers, so long as the pooling or sharing is done on a voluntary basis and is not required by the employer. Employers attempting to rely on this credit must be very careful in their record-keeping. (See earlier discussion regarding record-keeping requirements.)

c. Commissions.
Employees who are compensated on a commission basis are, unless they are exempt as provided above, subject to overtime and minimum wage laws. If they are employed part of the time on a wage or salaried basis and part of the time on a commission basis, then they must receive compensation of at least the minimum wage for each separate type of work. The law does not prohibit an employer from calculating commissions on a monthly basis, but the employee must still receive pay on a weekly basis (i.e., when receiving the regular pay check for that week) in an amount sufficient to satisfy minimum wage and overtime requirements. The use of a draw against commissions can be used to achieve this result, but if there is a "deficiency" at the end of the month, the employer cannot recover it.

d. Sub-Minimum Wage.

i) Certain industries. A lower minimum wage is permitted in some industries under certain circumstances. Employers operating retail or service establishments, farms, or higher education institutions, may employ students at 85% of the minimum wage if they obtain an authorizing certificate. The affected employees must be full-time students, and they may not be employed more than twenty hours per week, except during vacations. Except in the case of higher education institutions, an employer may have only six employees hired under this exemption without a finding by the Department of Labor that there is no adverse affect on full-time employment opportunities.
ii) Disabled employees. Certain disabled or handicapped employees may be exempted from the minimum wage laws, but only if they have obtained an certificate from the Department of Labor. Exempt employment is limited to the terms and conditions of the certificate and compensation must be commensurate with that paid to employees who are not disabled or handicapped.

iii) Others. Exceptions to the $5.15 per hour minimum wage also exist for "learners" of semiskilled occupations, "student-learners" who are working in connection with their pursuit of a bona fide vocational education training program, "apprentices" in skilled occupations, and "messengers" who deliver primarily letters and messages rather than packages. Generally, these exceptions are not automatic, but require some sort of approval or certification. Under the 1989 amendments to the Fair Labor Standards Act, a "training wage" was permitted for employees who were 16 to 19 years old. The training wage was limited to 180 days per employee and to 90 days per employer. The authorization for this training wage, however, lapsed in 1993.

8. Hours Worked.

An employee is generally entitled to compensation for all hours he works on behalf of the employer. As indicated above, employers are required to keep records of the hours worked by their employees. In most cases, it is fairly easy to ascertain the number of hours an employee has worked. Questions often arise, however, when employees are engaged in unusual activities or work patterns.

a. Compensable Time.
Employees are generally entitled to compensation for time spent performing their principal work activities of regular work, regardless of where or when the work is performed. Hours of work include time spent on incidental activities such as setting up equipment, picking up mail, doing paperwork, and waiting and traveling time during normal work hours. Rest periods of less than twenty minutes count toward hours worked. For employees on duty for less than twenty-four hours, permitted sleeping time is generally included in calculating hours worked. Attendance at training programs, seminars, or meetings are generally included in hours worked unless attendance is voluntary, outside the hours of regular work, and not related directly to the employee's work.
b. Non-Compensable Time.
Time spent traveling to and from work is generally excluded from hours worked, as are unrestricted meal periods of longer than thirty minutes. Time that is required to be spent at the beginning or end of each work day changing clothes or washing may be excluded by the express terms of a collective bargaining agreement applicable to the employee or by a custom or practice with respect to such employee. If an employee is on duty more than twenty-four hours, then up to eight hours of sleep may be excluded, provided such is by agreement and provided further that at least five of the hours of sleep are uninterrupted. Time spent "on-call" -- for example, where all that is required of the employee is that he be accessible by telephone -- may be excluded if the employee can effectively use this time for his own purposes.

c. Timekeeping.
An employer should take particular care to ensure that the time records or system of calculating time worked is accurate. "Rounding" of work time to the nearest time interval (not exceeding a quarter of an hour) is permitted, so long as it is done on a consistent basis and results in employees, over a period of time, being compensated for the time actually worked. An employee who clocks in early, and who performs no work until the scheduled beginning time for his shift is generally not entitled to compensation for this waiting time. In the event of a wage and hour audit, however, the burden may well be on the employer to establish that the employee was not actually working during this time. If an employer does not intend to pay for any time worked prior to the scheduled starting time or after the scheduled ending time, it should so inform its employees and train its supervisors to prevent work from being done during improper times. A time card is strong evidence of the hours actually worked by an employee, but it can be rebutted under the appropriate circumstances. It is important for this reason that employers keep good records and train their supervisors adequately on wage and hour and record-keeping issues.

Employers must be careful in communicating to its employees about work times because the wording can take on very significant meaning. For example, requiring an employee to be at his work station and ready to work at the time scheduled for the start of the shift generally will not result in the employer having to pay for any time prior to the shift beginning; telling the employee that he must arrive at the plant at least fifteen minutes early in order to be ready to start work on time, however, may result in the employer having to compensate the employee for those fifteen minutes.

9. Enforcement.

a. Individual Lawsuits.
The wage and hour laws can be enforced through lawsuits brought by the government or by individual aggrieved employees. A lawsuit claiming a wage and hour violation can be brought in state or federal court and it can be joined with related claims brought under state laws. An individual plaintiff may sue under the federal law for the full amount unpaid wages, plus interest or liquidated damages, which can double the amount of the judgment. Attorneys fees and costs must be awarded to successful plaintiffs under the federal law. Applicable state laws often allow for similar remedies. In addition, an employee who is terminated for asserting his rights under the federal law may also be entitled to an order of reinstatement.
b. Exhaustion of Remedies.
If an employee is covered by a collective bargaining agreement or other employment agreement, he may be required to exhaust any applicable grievance procedures, including arbitration. It is not clear whether a negative arbitration decision will serve as a successful bar to a private suit by the losing employee. (Earlier cases suggested not, but recent Supreme Court decisions cast doubt on that conclusion.)

c. Government Action.
Lawsuits to enforce wage and hour claims may also be brought by the Secretary of Labor. In addition to damages, the Secretary may seek injunctive relief in appropriate cases. Upon the filing of a complaint by the Secretary of Labor, no affected individual is permitted to file his own private suit while the government's case is pending. Some defenses available to employers in individual cases (e.g., failure to exhaust administrative remedies and deferral to arbitration), are not available in suits brought by the Labor Secretary. On the other hand, there is no provision for the plaintiff to recover attorneys fees in government cases.

d. Criminal Sanctions.
Criminal sanctions for Wage and Hour violations are rare; they are generally available only in cases of "willful" violations. For these purposes, "willful" is defined as deliberate, voluntary, or intentional: no criminal intent is required. Court cases have also defined "willful" for Wage and Hour law purposes, as knowing or showing reckless disregard as to whether the conduct was prohibited. In cases where criminal sanctions are warranted, fines of up to $10,000 may be imposed; in cases of second convictions, imprisonment of up to six months may also be imposed.

e. Statute of Limitations.
The applicable statute of limitations in actions under the FLSA is generally two years. This applies to both civil and criminal actions. The limitations period may be extended to three years in the case of "willful" violations.

10. Wage and Hour Audits.

The dreaded wage audit is a procedure that is instituted by the Wage and Hour Division of the Department of Labor. There is virtually no "reason" or basis of suspicion that is necessary for an audit to be commenced. It may be provoked by the complaint of an employee, a former employee, a union, or a competitor. A Wage and Hour auditor may choose a business at random or it may target a certain industry or area. The scope of the auditor's investigation may go beyond the specific complaint, if any, that led to the investigation.

a. Inspection of Records.
The Wage and Hour auditor may inspect such records as the Wage and Hours Administrator deems necessary or appropriate. This power can be enforced through an administrative subpoena, and there is no requirement of "probable cause" beyond allegations of relevancy and statutory authorization. A subpoena is not a license to rummage through an employer's records and files; it is merely a directive that records be produced. In order to enter a premises and "seize" documents a warrant issued by a court may be necessary. A warrant is generally not required, however, for the auditor to enter public areas of a business for the purpose of serving an administrative subpoena.
b. Audit Schedule.
When the auditor shows up, the employer can try to find out the reason for the audit, and the specific problem the auditor expects to find. More than likely, the auditor will not be very specific, but perhaps some useful information will be discovered. The employer should then try to find out exactly what information the auditor wants. The auditor will probably want to review various records and interview several, if not all, employees. At this point, the employer should try to set an appointment at a reasonably later time to compile the records and to set up the requested interviews. Note that the auditor's perception of a "reasonable" delay may differ from that of the average employer.

c. Settlement Conference.
After the auditor finishes reviewing records and interviewing employees, a conference will be scheduled. If the auditor determines that violations have occurred, a proposed agreement will be presented that outlines the alleged violations and states what employees are purportedly owed what amount of additional compensation. The employer will be given some time to consider this proposal before agreeing to it and, if there are available defenses to some or all of the claims, the terms of the agreement can be negotiated. Prior to this conference, an employer may want to talk to some of the interviewed employees to find out what was discussed during the interview with the auditor. The employer must avoid the appearance of intimidation in this setting or risk the possibility of claims of harassment. If done properly, however, these employee discussions can help the employer to anticipate what the auditor is looking for. It might also disclose facts that may undermine the auditor's proposed "settlement."

If the auditor's conference results in no finding of a violation, the employer should try to confirm this fact in writing. Although the failure of the auditor to find a violation does not prohibit a later private action by an employee, it can still be useful in such a suit or in the event of a later investigation by the Wage and Hour Division.

11. Additional Defenses.

In addition to the various defenses that have been referred to above, an employer's good faith may be a defense to a claim for liquidated damages or for criminal sanctions. The burden of establishing this defense is on the employer and it must be rooted in reasonable ground for believing that the action did not violate the FLSA. The Labor Department's regulations suggest a further requirement that the employer's intention is honest and satisfies a "reasonably prudent man" standard. It is not clear that reliance on an attorney's opinion is a sufficient defense.

B. EQUAL PAY ACT

1. Introduction.
The Equal Pay Act of 1963 ("EPA") amended the Fair Labor Standards Act ("FLSA") making it illegal to pay different wages based on gender for equal work on jobs requiring equal skill, effort, and responsibility, and which are performed under similar working conditions. 29 U.S.C.A. §206(d). The amendment simply added a new subsection to the federal minimum wage statute. Exceptions are permitted for wage differentials based upon seniority systems, merit systems, systems that measure earnings by quality or quantity, or a differential based on any factor other than gender. Employers are specifically prohibited from reducing the wage rate of any employee in order to comply with the EPA.

Employers engaged in commerce or in the production of goods for commerce must comply with the EPA at each establishment. Generally, this means comparisons of wages at the same physical location. Separate locations can be treated as one location if a single department hires all employees, sets pay rates and assigns employees between the different locations and the employees have virtually identical duties performed under similar working conditions. Unions are also prohibited from attempting to cause an employer to violate the EPA. The EPA covers the same employees as the rest of the FLSA: in addition, it covers employees normally exempted under the "white-collar exemptions"-executives, administrators, professional employees, and outside sales people. Responsibility for administration and enforcement of the EPA lies with the Equal Employment Opportunity Commission ("EEOC"), however, complaints alleging a violation may also be submitted to the Wage and Hour Division of the U.S. Department of Labor. The EEOC will investigate the complaint and may file a lawsuit on behalf of employees seeking back-pay and injunctive relief for the alleged violations. Individual employees may also bring an action against the employer for back-pay. Successful employees may also be entitled to reasonable attorney's fees and costs, subject to the court's discretion. Employers that willfully violate the EPA are subject to criminal prosecution, fines up to $10,000, and possible imprisonment. (29 C.F.R. §1620.22).

Gender-based wage bias claims actionable under the EPA may also violate Title VII. Some appellate courts have held that violation of the EPA also is a violation of Title VII.

The federal courts have not extended the equal pay standards to include the controversial comparable net worth theory, which attempts to show sex discrimination in wages between employees performing dissimilar jobs of "comparable value" to the employer. Courts have generally recognized the difficulty in evaluating the intrinsic worth of different jobs.

2. Evaluating Jobs Under the EPA.

While the statute uses the term "equal" to describe the appropriate work standard when comparing jobs, courts have interpreted the term to mean only "substantially equal" rather than identical. The jobs at issue must be evaluated in light of all the circumstances. Minor differences in the degree or amount of skill, effort, responsibility, or working conditions required for the performance of the job will be ignored. The "substantially equal" test reflects a lesser standard than requiring that the jobs be identical, but a greater standard than that they merely be comparable. A wage differential can be justified if it compensates for an appreciable variation in skill, effort, responsibility, or working conditions between otherwise comparable work activities.

An employee believing his employer has violated the EPA must prove that the employer paid different wages to employees of the opposite sex for substantially equal work on jobs, the performance of which required equal skill, effort, and responsibility, and which were performed under similar working conditions. Exactly what constitutes equal skill, effort, or responsibility cannot be precisely defined.

a. Skill.
Experience, training, education, and ability are all components that must be considered when evaluating the skill needed for a particular job. A pay differential cannot be based on skill an employee has but that is not used in the actual job. The skill must be measured in terms of the performance requirements of the particular job.
b. Effort.
Both the physical and mental effort needed for the performance of a job will be considered. Different kinds of effort required in the performance of a job will not make such jobs unequal if the amount or degree of effort exerted is substantially equal. Occasional or sporadic performance of an activity that may require extra physical or mental exertion is not sufficient to justify a finding of unequal effort. Wage differences can be justified in jobs that require additional tasks that take extra effort, consume a significant amount of time, and are of an economic value commensurate with the additional pay. For example, a difference in salaries for hospital orderlies and aids was not justified by the fact that some orderlies performed the additional duties of removing casts, setting up traction, and carrying oxygen tanks from the basement. The additional duties were not performed by all orderlies, even though all received the higher pay, and the task consumed only a negligible portion of the work day for those orderlies who did perform them. Brennan v. Owensboro-Daviess County Hospital, CA6, 1975, 11 FEP Cases 600.

c. Responsibility.
The degree of accountability required in the performance of a job is the primary measure used in determining equality of responsibility. Such things as supervisory requirements may justify wage differentials based upon added responsibilities. Minor differences, such as turning out the lights at the end of the work day, are not sufficient to justify higher wages for one employee over another. As set forth in the previous example discussing effort, while the minor differences in duties in that case were insufficient to justify a pay differential, a heavier patient load and greater danger has been held to justify higher wages for male orderlies. Johnson v. Crossville Nursing Home, USDC NAla., 1978, 17 FEP Cases 567.

d. Working Conditions.
Whether the differences in conditions are the kind customarily taken into consideration in setting wage levels and whether the wage differences are based on bona fide job evaluation plans are two factors the EEOC and courts usually consider when evaluating working conditions. As part of that evaluation, the surroundings and hazards to which the employees are exposed are frequently considered. Shift differentials are not a justification for difference in wages based on working conditions.

3. Exceptions.

Once a case of pay differentials is established, the burden shifts to the employer to show that the disparity is justified by one of the four exceptions to the EPA.

a. Seniority Systems.
Salary differentials based on the length of time an employee has worked for the employer are permissible. Seniority is a legitimate basis for wage differentials even where there is no formal seniority system in effect.
b. Merit Incentive Systems.
Incentive payments and production bonuses are permissible when applied without regard to gender. Merit systems are also permissible if the system measures earnings based on some predetermined criteria such as quality or quantity of production. Employees must be aware of the merit system and it cannot be based upon gender. 29 C.F.R. §800.144.

c. Factor Other Than Sex.
This broad and general exception has been used to argue that a wide range of factors justify pay differentials. Basing wages on a gender-neutral, objective standard is permissible. Some examples of permissible pay differentials based on factors other than gender include starting salaries, the appropriate market rate, and employee's retention needs.

C. PORTAL TO PORTAL ACT

1. Introduction.
The Fair Labor Standards Act of 1938 ("FLSA") sets forth the minimum wage and overtime requirements employers must satisfy. In 1947, after finding that the FLSA had been interpreted judicially in disregard of long-established customs, practices, and contracts between employees and employers, creating wholly unexpected liabilities, Congress passed the Portal to Portal Act of 1947 (Portal Act) 29 U.S.C.A. §255. The Portal Act generally excludes compensable activities that are preliminary to, or postliminary to an employee's principal activity from compensable time, absent a contract, custom, or practice to the contrary. The Portal Act does not govern activities occurring during an employee's work day, which generally consists of the time between the points at which an employee begins and ends their principal activities. These activities are governed by the Fair Labor Standards Act, and include such activities as rest periods and lunch breaks since they are generally part of an employee's work day.

In addition to amending the FLSA, the Portal Act also amended the Walsh-Healey Act, and the Davis-Bacon Act. One of the judicial decisions that created concern over the breadth of the activities included under the FLSA is the 1946 U.S. Supreme Court decision, Anderson v. Mt. Clemens Pottery Company, 38 U.S. 680 (1946) which stated that time spent by employees must be counted as time worked under the FLSA whenever there is physical or mental exertion by the employee, controlled or required by the employer, and pursued necessarily and primarily for the benefit of the employer and its business.

The primary exclusions from the FLSA's minimum wage and overtime payment requirements included in the Portal Act are:

Time spent by an employee "walking, riding, or traveling to and from the actual place or performance of the principal activity or activities," unless such activities are compensable under the terms of a contract, custom, or practice.

Time spent on any activities that are "preliminary to" or "postliminary to" the worker's principal activities in a work day in the absence of a contract, custom, or practice to the contrary.

2. Walking, Riding or Traveling.

Walking, riding or traveling to work are specifically excluded from compensable time in the absence of a contrary contractual provision, custom, or practice. The types of walking, riding, and traveling generally excluded are those that occur in the course of an employee's ordinary daily trips between his home or lodging and the actual place where he does what he is employed to do. The exclusion for travel does not extend to travel engaged in during regular working hours as part of an employee's principal activities. For example, travel by service or repair workers from one assignment to another, must be included in the employee's hours worked.

3. Other Preliminary and Postliminary Activities.

Other activities that employees might engage in before or after the work day are also generally excluded from compensable time worked unless such activities are compensable under a contract, (usually a collective bargaining agreement), or an employer's custom or practice. Waiting to check in at the beginning of a work day or waiting for a paycheck at the end of a shift are noncompensable activities. Employees who wait for an assignment after reporting in at their scheduled time would be engaged in compensable "engaged to wait" status. 29 C.F.R. 790.7

4. Contract, Custom, or Practice.

The exclusions from compensable time do not apply to preliminary or postliminary activities that are treated as compensable time under a written or unwritten contract, or an employer's custom or practice. A contract provision eliminating the exclusion is usually contained in a collective bargaining agreement, but such contract provisions can also be included in an unwritten contract between an employer and an employee. In the case of an unwritten contract, the employee must establish that the parties intended to contract for the activity in question and that the parties intended that the employee be paid for engaging in the particular activity.

In the absence of a contractual provision, preliminary or postliminary activities can be made compensable by a custom or practice which generally applies to those situations where an employer, without being compelled to do so by an express provision of contract, has paid employees for certain activities performed. The custom or practice must be observed at the employer's particular place of business, must apply to the specific activity in question, must be in effect at the time the activity is performed, and the activity question must be engaged in during the particular time of day envisioned by the custom or practice.

If an employer pays employees for a preliminary or postliminary activity because of a contract, custom, or practice, those hours will count as hours worked under the FLSA, as long as the activities would have been considered time worked prior to enactment of the Portal Act. 29 C.F.R. §§790.10, 790.11. Even if an employer agrees to compensate workers for ordinary travel time between home and work, the travel time need not be counted as hours worked for FLSA minimum wage and overtime purposes. 29 C.F.R.§785.34.

D. STATE WAGE AND HOUR LAWS

Indiana laws pertaining to wage and hour issues are found primarily in Article 22-2 of the Indiana Code. Those statutes and brief summaries of them are as set forth below:

1. Minimum Wage.
Indiana's minimum wage law is found in Chapter 22-2-2. Generally, the Indiana minimum wage statute chapter applies to all employers with two or more employees, but it excludes employers who are subject to the minimum requirements of the federal Fair Labor Standards Act. In other words, if the federal Fair Labor Standards Act applies, the provisions of the Indiana minimum wage law do not. The definition of an employee under the Indiana minimum wage law contains several exclusions. Those exclusions are found under the definition of employee and in Section 22-2-2-3(a) through (p). They include: persons under 16 years of age; persons engaged in their own trade or business; persons employed on a commission basis; persons employed by a parent, spouse, or child; members of religious order performing certain services for that order; certain student nurses; certain medical students; interns or residents; students performing services for schools, colleges, or universities in which they are enrolled and attending classes on a regular basis; persons with physical or mental disabilities performing services for certain organizations designed to assist in therapy and rehabilitation; insurance agents and salesmen; certain camping or guidance counselors; various farm and agricultural employees; supervisors as defined under the Fair Labor Standards Act; employees not employed more than four weeks in any consecutive three-month period; and certain employees subject to regulation by the Interstate Commerce Commission or Federal Motor Carrier Act.

The Indiana minimum wage statute contains several requirements. The first set of requirements calls for payment of up to $2.00 per hour for employers employing more than four employees during the week. These requirements are found in Indiana Code §22-2-2-4(a). Subparagraph (b) of that section requires that, for work weeks beginning after July 1, 1990, any employer employing at least two employees during the work week must pay at least $3.35 per hour. Since this minimum wage amount is higher, and applies to employers with a lower number of employees, subparagraph (b) effectively supersedes subparagraph (a). Subparagraph (c) provides a "tip credit" of up to 40% of the minimum wage in certain situations. Subparagraphs (d) and (e) comprise what amounts to Indiana's Equal Pay Act. It requires that employers generally not discriminate in payments based upon gender. Discrepancies made pursuant to seniority systems, merit systems or systems that measure earnings by quantity or quality of production are permitted.

As is the case with the Fair Labor Standards Act, the Indiana labor laws require an employer to notify employees of their rights under the law. Indiana Code §22-2-2-8. This section also sets forth the record keeping requirements, which include the requirement that an employer keep records and furnish to employees upon request a statement of the hours worked by them and a list of deductions. These records must be open to inspection by the Commissioner of Labor at any time.

Failure to comply with the Indiana minimum wage requirements can result in civil liability to an employee for up to two times the amount of any unpaid minimum wages, plus attorneys' fees. A suit may be instituted in a Circuit or Superior Court in Indiana and a three-year statute of limitation applies.

Violations may also result in civil and criminal penalties. Retaliation against an employee for making a claim, failure to pay the minimum wage, or failure to keep required records each may constitute a Class C infraction, punishable by a civil penalty up to $500. Indiana Code §22-2-2-11(a). An employer who knowingly or intentionally fails to pay the required minimum wage under Indiana law or to keep records or make required postings commits a Class A infraction which is punishable by civil penalties up to $10,000. A subsequent violation after a prior unrelated judgment for the foregoing types of violations (failure to pay minimum wage, or keep proper records, or provide notices) may constitute a Class B misdemeanor, which is punishable by a fine of up to $1,000 and imprisonment for up to 180 days.

2. Frequency of Payment.

There are two chapters of the Indiana Code that pertain to the frequency of payment of wages or salaries. Chapter 22-2-4 generally requires payment at least as frequently as bi-weekly with respect to companies engaged in "mining coal, ore, or other mineral, quarrying stone, or manufacturing iron, steel, lumber, staves, heading barrels, brick, tile, machinery, agricultural or mechanical implements, or any article of merchandise". Indiana Code §22-2-4-1, Chapter 22-2-4 also contains provisions penalizing employers for payment in scrip or for selling to employees at discriminatory (higher) prices. Both are Class C infractions. Sections 2 and 3, Section 22-2-4-4 includes that, if an employer fails to pay wages for ten days after a demand for them is made as provided in the chapter, the employer shall be liable to the employee for an additional penalty of up to $1.00 for each day the amount is not paid, up to but not exceeding double the amount of the wages that are due. This section also provides for payment of attorneys' fees. Indiana Code §22-2-4-4.

Chapter 22-2-5 essentially covers Indiana employees not covered by Chapter 22-2-4, and it requires that payment be made at least as often as semi-monthly. Bi-weekly payment is also permitted. This chapter also provides that when payment is made, it must include for all services performed in the period ending not more than ten days prior to the date of payment. The statute also requires payment within ten days after an employee has left employment. Violations of this provision may result in a penalty of 10% per day up to double the amount of wages due in any court proceeding to recover unpaid wages. This chapter does not apply to salaried employees who are eligible for overtime compensation under the Fair Labor Standards Act. Ind. Code §22-2-5-1.1. Farmers and other persons engaged in agricultural or horticultural businesses are also exempted from the provisions of Chapter 22-2-5, Ind. Code §22-2-5-3.

3. Wage Deductions.

Chapter 22-2-6 of the Indiana Code governs when and under what circumstances certain deductions may be made from an employee's pay check. Generally, the statute requires that an assignment or reduction in wages may only be made when it is (a) in writing (b) signed by the employee, and (c) revocable at any time by the employee; it must also be agreed to by the employer. Ind. Code §22-2-6-2(a)(1). Generally, wage assignments under the statute may be made for only certain purposes and those purposes include the following: employee sponsored insurance premiums; charitable pledges or contributions; purchase of United States bonds or securities; certain purchases of employer's stock; union dues; merchandise purchases from an employer; repayment of employer loans; contributions to employer-sponsored health plan or pension plan; payments to credit unions, non-profit organizations, or employee associations; certain electronic transfer accounts; certain life insurance premiums; and for purchase of certain mutual funds or fractional shares therein. See. Indiana Code §22-2-6-2 for a complete list of the requirements for wage assignments.

Section 4 of Chapter 22-2-6 also permits deductions in certain circumstances for overpayments that are made to an employee by an employer. This is a relatively new provision, having been enacted in 1995. There are limits on the amount of the repayment: the law requires that an employee be given two weeks advance notice before a deduction is made, and the deductions must be limited to the lesser of 25% of the employee's disposable earnings or the amount by which the employee's disposable earnings exceed 30 x the federal minimum hourly wage.

4. Wage Brokers.

Chapter 22-2-7 of the Indiana Code defines "wage brokers" under Indiana law and restricts when payments to them can be made.

5. Fines Prohibited.

Under the terms of Chapter 22-2-8 of the Indiana Code, it is generally unlawful for an employer "to assess a fine on any pretext against an employee and retain the same or any part thereof from his wages." Ind. Code §22-2-8-1. Violation of this provision is a Class C infraction. The Commission of Labor is responsible for enforcement of this provision.

6. Wage Claims.

There are various provisions under Indiana law that concern claims for unpaid wages. For example, section 22-2-9 of the Indiana Code provides that payment of all amounts due an employee for wages must be paid to him on the regular pay day next following his discharge. This section must be read in conjunction with the payment requirements contained in other provisions of the law. In other words, an employer must attempt to view these restrictions and requirements as cumulative, and he shall endeavor to comply with all. When multiple deadlines seem to apply, the cautious employer should comply with the one or ones most favorable to the employee.

Chapter 22-2-9 also states what should be done in the case of a dispute over the amount of wages that are due to an employee. Section 22-2-9-3 requires that, in the case of such a dispute, the employer must pay to the employee the full amount that is undisputed; he cannot condition the payment of that amount or the acceptance of the employee of it upon any type of release or waiver of the balance due. In the event the parties are unable to agree or resolve the dispute, the Indiana Commissioner of Labor is authorized in certain cases to intervene and to take action to collect on any wages found to be unpaid.

7. Employees as Preferred Creditors.

Chapter 22-2-10 of the Indiana Code provides that employees are given what amounts to a super priority over and above even secured creditors for any amounts of unpaid wages up to $600. This applies in the event that the company goes out of business. It also applies in the event of a bankruptcy proceeding. This super priority is over and above the priority that is given to wage earners under the Bankruptcy Code. 11 U.S.C. §507(a). It is not clear whether any amount received by an employee pursuant to this $600 super priority provision is applied toward reducing the priority amount contained in the Bankruptcy Code.

There are other statutes that give employees liens that can either independently, or coupled with this chapter of the Indiana Code, work to give employees additional priority and security with respect to their claims for unpaid wages in the event an employer goes out of business or finds itself in dire financial straits. For example, Chapter 32-8-24 of the Indiana Code provides that employees of corporations are entitled to liens against corporate assets for unpaid wages. In Ameritrust National Bank v. Domore Corporation, 147 Bankr. 473 (Bankr. N.D. Ind. 1992), it was held that the corporate employee liens under this chapter were superior to a perfected bank security interest. This ruling prompted a 1993 amendment to the law. The law now provides that a corporate employee lien is subordinate to a security interest perfected 60 days or more prior to the filing of the corporate employee liens. Indiana Code §32-8-24-2(b). To create a corporate employee lien, an employee must assert a claim by filing a lien notice with the county recorder.

In certain circumstances, employees have attempted to assert mechanics' liens against an employer who has failed to pay wages due. Although the wording of the statute would seem to require that the work performed by such employees generally must pertain to the improvement of the real estate or machinery or other fixtures on the corporation's premises for the statute to apply, there has been no Indiana court decision specifically so limiting the interpretation of the mechanics' liens' statutes. There is dicta, however, suggesting that the mechanics' liens statutes are intended to apply only when the owner of the real estate enjoys the benefits of the labor and materials furnished by others to the property. See Premier Investments v. Suites of America, Inc., 1994 Ind. 664 N.E.2d, 124, 130.

There is also a provision under Indiana law designed to protect employees that applies specifically to employers who lease their facilities where manufacturing activity occurs. Section 22-2-11-1 requires that, in such cases, the lessee-employers must have assets worth at least twice the amount of their weekly payroll, or they are required to post a bond in that amount with the county clerk. Technically, failure to have such a bond on file is a Class C infraction and each day of noncompliance is a separate violation. Indiana Code §22-2-11-3. A person may file a lawsuit on the bond for any amount of unpaid wages in the name of the State of Indiana. He may also recover costs and attorneys' fees. Section 22-2-11-2.

8. Employee Benefit Plans.

Payments to, from, and on behalf of employee benefit plans and how they are handled in the event of a separation of employment are discussed in Chapter 22-2-12 of the Indiana Code. Section 1 of that chapter provides that an employer's payment from such a plan to an employee discharges the employer's obligation with respect to such payment as against any third party claimant unless the third party claimant made a written demand before the payment was made. This is generally intended to prevent a health care provider or other third party beneficiary of a plan from asserting a claim against an employer who has already made a good faith payment of benefits directly to an employee. Section 4 of the chapter refers to payments that an employer is contractually obligated to make to or on behalf of an employee benefit plan. It requires an employer who is contractually obligated to make a payment to a plan but fails to do so, to notify either the employee, an authorized representative of the employee, the union if in a collective bargaining setting, the authorized representative of the plan, or the trustee of an employee to which the payment should have been made. This notice must be made within seven days of when the payment was due and failure to give such notice can result in liability for double the amount of any damages, plus costs and attorneys' fees. It should be noted, with respect to this section dealing with employee benefit plans, that in many cases it may be deemed inapplicable or preempted by the provisions of the Employee Retirement Security Act of 1974 (ERISA).

E. RECENT DEVELOPMENTS

For a number of years, it has been established under Indiana law that amounts for unpaid wages include not only amounts for wages themselves, and benefits as provided under the law, but also includes amounts of earned but unpaid vacation pay and other similar benefits. Generally, if an employer's vacation plan does not specify otherwise in writing, an employee will be deemed to accrue partial years of vacation and other benefits that are computed on an annual basis and such partial benefits may become payable in the event that the employment is terminated before the year end or anniversary date, which ever applies. It is permissible, however, for an employer in such cases to prevent liability for partial years by specifically stating that there is no accrual for partial years of employment and that benefits such as paid vacation are not earned until the end of a certain period of time, such as an anniversary date or calendar year.

Although this has been the law for a number of years, many employers do not follow this recommendation or have policies that are vaguely worded or worded so poorly as to result in litigation as to whether or not there is a specific requirement that there is no accrual of partial years. Because these amounts are considered unpaid wages, a mistake by an employer can be very costly. As noted in the above-referenced cases, the usual remedy in claims for unpaid wages includes an amount of liquidated damages or penalty that results in double the amount of damages (in some cases three times) plus costs of recovery and attorneys' fees. There is, of course, no provision for the recovery of such costs and attorneys' fees in the event that an employer is successful in defending such claim. Under the circumstances, it is very important that an employer be very careful in making certain that all required wages are paid as and when due.

Another problem area for employers in recent years has been related to the administration of bonus and incentive plans. In order to motivate employees and increase productivity and profit, many employers have established flexible work schedules, bonus and incentive pay plans, piece rate pay, and other creative work and compensation arrangements. In doing so, however, the employer must remember the restrictions and requirements imposed by the wage and hour laws. As discussed in the main outline, employees paid pursuant to these alternative compensation plans are still subject to the overtime and minimum wage laws. It is extremely important that employers be aware of how these systems must be utilized in order to comply with overtime and minimum wage laws, and that they keep adequate records to prove their compliance with these laws.

There has been a movement in recent years to make some legislative changes in the wage and hour laws. In Congress, legislation has been proposed to allow employees to take off work as "comp time" in lieu of overtime. There has also been proposed legislation to permit employers to make deductions for partial days missed by exempt employees without adversely affecting their exempt status. Unfortunately, neither of these proposals seem to be headed toward a legislative resolution soon.

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