The general rule under federal law is that employers must pay overtime to employees who actually work over forty hours a week at a rate of one and one half times the employee’s regular rate of pay. The FLSA expressly exempts three major categories of employee from overtime requirements: executive employees, administrative employees and professional employees. Whether an employee is exempt depends on: 1) his duties and responsibilities; and, 2) payment of a statutorily prescribed salary, which is now $455 per week under the FLSA.

Employees must be paid for all hours of work, which includes all times they are on duty. Under the FLSA, for a meal or break period not to be counted as on duty time, the meal period must be at least thirty (30) minutes, the employee must be completely relieved of all duties. Some states, such as New Jersey, add the further requirement that employees must have the ability to leave the premises, as well as being relieved of all duties.

Under both federal and state law, employers are required to maintain, among other things, records of hours worked by non-exempt employees, on a daily and weekly basis. The precise manner in which such records must be collected is not specified. Thus, the employer is free to utilize a time clock, sign-in sheet, or any system which will ensure that accurate records are maintained. In this regard, the records should also indicate the time taken for lunch. For example, an employee punching a time clock should punch in at the beginning of his shift, punch out for lunch, punch back in when he returns from lunch and then punch out at the end of his shift. In this manner, controversies concerning the length of the shift or “actual” working time will be eliminated. The employer must also maintain a record of the rate that the employee is being paid and that rate, as well as hours worked each day and week and any overtime hours, must be reflected on the pay stub given to the employee on each pay day, as well as in the employer’s records.

Most importantly, employees may not be directed to, for example, punch out, as if they were finished for the day, but nevertheless continue working, for labor “budget” or “cost” reasons. Neither should any manager direct an employee not to report legitimate overtime hours that have been worked either at the direction of a supervisor or with his permission, explicit or implicit. Note that the FLSA specifically provides that hours of work which are “suffered” or “permitted” are to be counted as compensable working time. It is certainly allowable, however, to mandate that no employees work overtime (or through lunch) without receiving supervisory approval, but once that approval is given, the hours must be properly and accurately recorded and paid at the overtime rate. Failure to do this will most likely result in findings of “willfulness” by an agency or a court, with a dramatic escalation of fines/penalties and wage assessments. Further, employees cannot legally waive their right to overtime or “agree” not to be paid overtime at the proper rate. In short, if the hours have been worked, the employee(s) must be properly paid.

Under the FLSA, the federal Department of Labor may conduct inspections or audits of employer payroll practices and may sue employers to recover back wages, including overtime, liquidated damages in an amount equal to the back wages and attorneys’ fees, as well as seeking injunctive relief If the Department of Labor uncovers even a single violation, it will likely conduct an audit as to all employees in a particular classification or even of the entire company. The limitations period runs two years prior to the date the DOL conducts its inspection or when a complaint is filed (counting backwards), except in the case of a willful violation when it is extended to three years. Thus, if a violation is uncovered in an initial governmental investigation and an employer goes into immediate compliance prior to the filing of a complaint by the Solicitor General, time will run to the employer’s benefit up to the date of complaint, i.e., damages will be computed only for the prior two years, less the time period in which the employer was in compliance.

The above highlights the basic principles that every employer must implement in order to be in compliance with wage-hour laws and, more to the point, avoid unjust or exaggerated employee claims. Doing these things is for the employer’s protection, regardless of how tedious or time-consuming the actual steps are.  Remember, a group of employees can easily lodge a claim or class action, alleging that they all worked through lunch for two years and are entitled to compensation for that time.  If the time cards do not show that the employees punch out for lunch and then punch back in, the employer’s ability to defend will be greatly hampered. 

The lesson—proactive measures are the best ones to take!