October 2, 2018 FLSA Compliance Challenges for Manufacturers

From over-used white collar exemptions, to tricky regular rate calculations, to off-the-clock work, the manufacturing industry has it all.

September 27, 2018

By: Keith Kopplin and Bernard “Bud” Bobber

The federal Fair Labor Standards Act (FLSA) regulates employers engaged in interstate commerce. Chief among the rights provided by the FLSA is overtime pay for work time in excess of 40 hours in a week, which is payable at the rate of one and one-half times the employee’s regular rate. However, it is not always clear who is entitled to overtime, how it is calculated, and even what constitutes work time that must be counted towards the 40-hour trigger.

The FLSA presumes employees are entitled to overtime.

Unless the employer can establish that an exemption applies, the default rule is that employees are entitled to overtime for any hours they work in excess of 40 in a workweek. Most FLSA overtime exemptions include three components. First, the individual must be paid at least $455 per week. Second, the individual must be paid on a salary basis, which generally means they earn the same amount of salary each week they perform any work, without regard for the quantity or quality of the work they perform. Third, the individual has to be primarily engaged in exempt duties (as described in the FLSA regulations).

Manufacturing industry employers often have a number of positions that may be misclassified as exempt from overtime. Team leaders (f/k/a “foremen”), for example, should not be classified as exempt executives unless they have the authority to hire, fire, and discipline at least two or more full-time employees. Likewise, employees working in quality control should not all be classified as exempt learned professionals simply because the head of the QC department has an advanced degree. As a third example, inside sales employees should not be exempt from overtime, unless the manufacturing industry employer is a retail or service establishment.

The compensable workday is not always coextensive with the scheduled work shift.

Although employees are hired to perform specific duties during specific shifts, the fact remains that compensable work activities can and often do start before the beginning of the shift or continue after the end of the shift. If a manufacturing industry employee is required to complete pre- or post-shift paperwork or maintenance activities in order to perform their primary duties, those activities may be considered compensable under the FLSA. The same is true for pre- and post-shift clothes-changing activities, especially when required to occur on premises for safety or sanitary reasons that mainly benefit the employer’s business concerns.

Another common example in the manufacturing industry is the shift-handoff meeting, during which outgoing employees provide incoming employees with an information download about production, maintenance, safety, or other issues that arose during their shift. Such meetings, even if only for a few minutes, may be compensable for both sets of employees.

Manufacturers should be wary of employees who take it on themselves to perform some work duties either before they clock in to paid time, or after they clock out. Some factory workers like to get a head start on their work day and may complete a task or two before going on to paid time. The law requires employers to pay not only for work they require of employees, but also for work that they knowingly allow employees to perform even if done voluntarily by employees. It is good to have a written timekeeping policy that tells employees not to perform any work off the clock unless it is pre-approved by a supervisor and documented to the payroll professionals.

Overtime calculations must include all payments made to incentivize work.

When overtime is due under the FLSA, it is payable at the rate of one and one-half the employee’s regular rate. Although the regular rate is easy to identify when an employee is paid exclusively on an hourly basis, it can be more challenging when the employee is also paid bonuses, premiums, and other incentives for engaging in certain activities or accomplishing certain job goals. Such extra payments must generally be factored in when determining the employee’s regular rate for purposes of calculating overtime. Consider an employee making $14.00 per hour who works 45 hours in a workweek. That employee’s wages for that workweek, including overtime, would be $665.00 [($14/hour * 40 hours) + ($14/hour * 1.5 * 5)]. If that employee also received a $50 bonus for having perfect attendance that week, that payment increases the employee’s regular rate by $1.11 per hour ($50 / 45 hours). A similar calculation is required when employees receive commissions and production incentives.

When an employee works jobs at different rates, or perhaps receives a shift differential, in a workweek, any overtime earned should be calculated using a regular rate that is the weighted average of the work performed. In the alternative, a manufacturing industry employer can agree that overtime is payable at the rate associated with the job being performed during the overtime hours, but that agreement has to be reached in advance of the work being performed.

Key Wage and Hour Issues for Manufacturing Industry Employers – Part I

Keith Kopplin
keith.kopplin@ogletree.com
Keith Kopplin is a shareholder in the Milwaukee office of Ogletree Deakins and member of the firm’s Manufacturing Industry Group. He focuses his practice on representing employers in employment litigation and other employment law matters. Kopplin regularly assists employers in resolving wage and hour class and collective actions, defending employment discrimination claims, responding to government audits, and improving workplace policies and procedures. He also provides day-to-day counseling to employers regarding a wide range of human resource matters including discipline and discharge decisions, the Wisconsin and federal Family and Medical Leave Acts, wage and hour practices, and workplace accommodations.

Bernard J Bobber

Bernard J. (“Bud”) Bobber
bernard.bobber@ogletree.com
Bernard J. (“Bud”) Bobber is a shareholder in the Milwaukee office of Ogletree Deakins and co-chair of the firm’s national Manufacturing Industry Group. Bobber represents employers before federal and state courts and administrative agencies throughout the country in all areas of employment law, with particular focus on wage and hour, trade secrets/noncompete, employee benefits, and employment discrimination matters. He has extensive experience in the defense of class action cases and routinely represents clients in labor arbitrations and in unfair labor practice proceedings before the National Labor Relations Board. Bobber also counsels organized and union-free employers on employment and labor law issues and provides assistance with problem prevention.

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