Flsa Traps

A surprising number of employers are startled to learn they do not comply with the Fair Labor Standards Act. As a result, the FLSA is at the heart of a growing body of employment litigation. Here are the 10 most common FLSA traps.

• Compensatory time is not freely available to private employers. The general rule is private employers may not replace overtime in one workweek with compensatory time in another week. There are exceptions. Compensatory time is allowed, at a straight time rate, when the time off is taken within the same workweek as the extra time was worked. A private employer may provide a compensatory time program in sequential workweeks, at time and one half off, provided it meets the following requirements:

o The employee must be employed by the hour, at fixed hourly rates of pay, or be paid a regular salary for a fixed number of hours per week;

o The pay period must be longer than a week (for example, biweekly, semimonthly, or monthly);

o Time off adjustments, in the ratio of the 1 1/2 hours for each overtime hour worked, must be made within the pay period; and

o Straight time and overtime compensation for the hours actually worked in each workweek of the pay period must be computed on the established hourly rates and paid currently at the end of each period, without regard to the hours worked or earnings in any other pay period.

• Employer provided stock option programs do not need to be included as part of the base rate used to calculate overtime pay for nonexempt employees. Nonexempt employees may have claims to overtime pay based on a base rate that includes stock option values they received after August 15, 2000:

o Stock option or stock appreciation right ("SAR") awards that are exercisable within six months of their grant date;

o Stock option, SAR, or employee stock purchase awards having an exercise price more than 15 per cent below market on the date of the grant; or

o Awards involving either mandatory participation or performance based determinations that are outside the scope of §207(e)(8)(D).

• The employer should establish written contracts with all persons (or their independent employers) that the company seeks to classify as independent contractors. A company should remove at will documents and/or language only in circumstances where it has a high degree of confidence that the worker is an independent contractor. If the company is confident that the worker falls into the independent contractor category, the following provisions may help to reinforce such status:

o Parties. Identify the party who is to perform the services as a "Contractor," or "Consultant," in the Independent Contractor Agreement.

o A business or trade name may be used, if the party has one.

o The party using the services should be designated by a term such as "Client" or "Customer."