Employee Compensation
Wages, Salaries, and Bonuses
The Fair Labor Standards Act (FSLA) regulates minimum wage, overtime, and child labor. The FLSA, however, does not cover such aspect of employment as vacation and holiday time-off pay, severance or sick pay, or fringe benefits. Similarly, the FLSA does not obligate employers to provide meal or rest periods, or to offer premium pay for weekend or holiday work or for hours worked in excess of 8 in one day, or to limit the number of hours employees (over age 16) may work in a day or during a week. The FLSA does not mandate pay raises.
Who Enforces?
The FLSA is administered and enforced by the Wage and Hour Division of the United States Department of Labor, which has offices in Pittsburgh, Harrisburg, and Philadelphia, Pennsylvania.
Two of the Wage and Hour Division’s most important tasks are investigating employee complaints alleging violations of the FLSA and conducting periodic, routine audits to check on compliance with the FLSA. An employer may be fined for each repeated or willful violation of the minimum wage or overtime requirements of the FLSA.
An employer is prohibited from discharging or otherwise discriminating against an employee for filing a complaint or participating in a legal proceeding or investigation under the FLSA.
Minimum Wage
Since 2009, the federal minimum wage has been $7.25 per hour. It changes periodically based upon Congressional action.
An employee must receive the minimum wage (as well as any required overtime compensation) for all “hours worked.” Under the FLSA, “hours worked,” as a general rule, are all the time an employee is actually working or required to be on duty and cannot use the time for his or her own personal purposes. Put another way, an activity is “work,” and therefore compensable under the FLSA, if it is controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his or her business.
Commuting from or to the employer’s place of business is not “hours worked.” However, when travelling away from home on the employer’s behalf, the travel time may qualify as “hours worked.” Other common situations involve coffee or snack breaks (compensable if less than 20 minutes); staff training meetings (compensable if attendance is required); meal periods (non-compensable if 30 minutes or more and the employee is not required or permitted to work while eating); washing up or changing clothes when work activities are complete (non-compensable).
Exemptions
Numerous statutory exemptions exist under the FLSA. Some employees are exempt from both minimum wage and overtime requirements, while others are exempt only from the overtime compensation provisions. The FLSA exemptions are narrowly construed by the courts and the DOL’s Wage and Hour Division. It is imperative that the exact terms and conditions of each exemption be reviewed to be sure it applies. The local office of the Wage and Hour Division can be consulted and can provide detailed written information on various exemptions.
The most important exemptions are known as the “White-Collar Exemptions,” which applies to bona fide executive, administrative and professional employees, as well as outside salespersons. The “White-Collar Exemptions” are exemptions from both the minimum wage and overtime pay. To qualify, these employees must be salaried (and receive certain minimum salary amounts per week), and satisfy a variety of other strictly defined criteria relating to such matters as educational background, job duties and managerial/supervisory responsibilities. A common misconception exists that simply by being “salaried,” an employee is exempt from the FLSA. Regulations for the FLSA created an exemption for “computer-related occupations” within the overall framework of the professional employee classification. In the typical dental practice, the office manager may qualify as an “exempt” executive or administrative employee. A dental assistant, with an appropriate educational background and who works closely with a dentist in performing patient procedures, may also qualify as an “exempt” professional employee. Before claiming any “White-Collar Exemption” however, counsel should be consulted.
The Federal Equal Pay Act
The Equal Pay Act, 29 U.S.C. § 206(d), is a federal law passed by Congress in 1963 as an amendment to the FLSA. The Equal Pay Act requires that employers pay equal “wages” to women and men for jobs in the same “establishment” which involve substantially “equal skill, effort and responsibility,” and which are performed under “similar working conditions.”
A private employer which is covered by the FLSA is also covered by the Equal Pay Act. Generally, the Equal Pay Act applies to all employees of a covered employer, including executive, administrative or professional employees. There are no exemptions from coverage as there are in the FLSA.
An employer can justify wage differences for the same jobs if the differences are based upon a seniority system, merit system, a system which measures earnings on the quantity or quality of production, or any factor other than sex.
The Equal Pay Act is enforced by the United States Equal Employment Opportunity Commission (“EEOC”). The EEOC can conduct investigations of alleged violations of the law and bring civil actions on behalf of aggrieved employees. A private right of action also exists for an aggrieved employee.
Overtime Compensation
The FLSA requires that an employer compensate an employee at one and one-half (1 ½) times his or her “regular rate” for all hours worked in excess of 40 in a workweek. The workweek for purposes of minimum wage and overtime calculations is defined as seven consecutive 24-hour periods (168 consecutive hours). The FLSA does not require that overtime compensation be paid for hours worked in excess of 8 on any one day, or for work on a Saturday, Sunday, or holidays.
The “regular rate” for purposes of overtime compensation is the hourly rate paid to the employee for the normal, non-overtime workweek. If an employee is paid by salary, the salary must be converted to an hourly rate for overtime compensation. This may be accomplished by dividing the salary by the number of hours for which the salary is intended to compensate. If the salary covers a period longer than a workweek, it must first be reduced to its workweek basis. For a monthly salary, the employer should multiply the monthly salary by 12 and then divide by 52. For a semi-monthly salary, the employer should multiply the semi-monthly salary amount by 24 and then divide by 52.
There are certain statutory exclusions from the “regular rate.” Payments made to an employee which may qualify as gifts, Christmas or special occasion bonuses, discretionary bonuses, expense reimbursements, bona fide profit sharing and savings plan contributions, bona fide welfare plan contributions and certain kinds of premium pay are not added to the total compensation received by the employee before the “regular rate” is computed. If a payment to an employee does not qualify as an exclusion, it must be considered when calculating the employees “regular rate.”
Generally, the FLSA does not permit the employer to grant an employee compensatory time-off in lieu of overtime pay. An exception exists, under strictly defined circumstances, for “time-off plans.” These “time-off plans” for private employers do not permit employees to accumulate “comp time” beyond the pay period in which it is earned. At most, where the employee is paid biweekly, semi-monthly, or monthly, time-off at a rate of one and one-half times the number of overtime hours worked may be permitted, but it must be taken during the same workweek. Before considering any arrangement of this sort, counsel should be consulted.
Payroll, Paychecks, and Pay Days
The FLSA requires employers to maintain accurate records of employee hours and pay. Both state and federal law require employers to provide employees with a detailed record of their overall pay and deductions made.
Employees must keep records of an employee’s regular rate of pay, workweek by start and end times, number of hours worked daily and weekly, total wages due, total premium compensation for overtime, total additions and deductions from wages for each pay period, total payment for each pay period, and the payment date and period covered by each payment.
Under the Pennsylvania Wage Payment and Protection Law (PWPCL), employers must pay their employees all wages due on regular paydays that are designated in advance. Any overtime pay must be paid in the next pay period. Neither federal nor Pennsylvania law specify how often employees must be paid. However, employers are required to notify employees of established paydays in advance.
Form of Payment
There are no specific statutes or regulations that govern payment via direct deposit. The Pennsylvania Department of Labor has permitted voluntary use of direct deposit with advance written consent from the employee. Employers are also allowed to pay wages via payroll debit cards, but the use of payroll debit cards must be optional for employees. Payroll debit cards must allow one free withdrawal of wages in each pay period and one in-network ATM withdrawal at least weekly.
Payment following Termination
Whenever an employee leaves employment (either voluntarily or involuntarily), compensation is due by the next regular payday. Any deductions from a final paycheck must be as permitted by law, or authorized by the employee in writing in advance.
Health and Welfare Benefits
Group Health Plans
Affordable Care Act
The 2010 Patient Protection and Affordable Care Act (ACA) requires employers with 50 or more full-time employees to choose between providing health care insurance that meets government-mandated essential health care benefits standards to 95 percent of their employees, or paying a fee annually for each full-time employee working 30 or more hours per week. Many dental practices will not meet the 50 full-time employee threshold.
COBRA Continuation Coverage and Qualified Medical Child Support Orders
“COBRA” (which stands for the Consolidated Omnibus Budget Reconciliation Act of 1985) is commonly used to refer to the health care continuation coverage requirements codified in the Internal Revenue Code and ERISA. Employers with 20 or more employees are subject to COBRA requirements.
Basic Cobra Rules
There are “qualifying events” for which COBRA rights must be given to “qualified beneficiaries” if such event results in loss of coverage under the Plan. The qualifying events include an employee’s death, termination of employment (other than for gross misconduct), reduction in hours, divorce or legal separation, or entitlement to Medicare. Qualified beneficiaries include the employee and the employee’s spouse and dependent children, provided they are covered under the plan on the day before the qualifying event. .
In general, COBRA requires that a qualified beneficiary have the right to receive the coverage he or she had immediately before the qualifying event.
COBRA coverage generally must be provided for either 18 months (for qualifying events constituting termination of employment or reduction in hours) or 36 months for other qualifying events. The 18-month period is extended up to an additional 11 months (total of 29 months) in cases of social security disability.
Coverage may be terminated earlier in certain circumstances. For example, coverage can be terminated if the qualified beneficiary fails to pay the required premiums (discussed below), or if the employer ceases to provide the group health coverage to all its employees, or if the person becomes entitled to coverage under another health plan which has no exclusions or limitations on pre-existing conditions.
The Plan Administrator is required to notify the qualified beneficiary in writing of his or her COBRA rights when a qualifying event occurs. Each qualified beneficiary has a right to elect COBRA continuation coverage within 60 days after the later of the date notice is given or the date coverage under the plan terminates. COBRA premiums can be paid monthly; however, the initial premium must be paid by the 45th day after the COBRA coverage is selected. A 30-day grace period for premium payments must be provided.
Liability/Penalties for failure to comply with COBRA
There are two potential penalties for failure to comply with COBRA. First, an excise tax of $100 per day (or if 2 or more qualified beneficiaries are involved with respect to the same event, $200 per day) for noncompliance.
The failure to comply with COBRA can also be grounds for the participant or beneficiary to bring a lawsuit under ERISA. The plan (and the Plan Administrator to the extent there is a breach of fiduciary duty) could be held liable for any losses suffered by a qualified beneficiary due to COBRA noncompliance. In addition, the employer itself may be liable for such losses. As a result, it is essential that employers and those involved in plan administration develop a system for providing the required notices on a timely basis and complying with COBRA’s other requirements.
Employee Wage Garnishment
Garnishment is the legal process which results in a court or similar order directing the employer to withhold a specified amount from an employee’s paycheck and usually to remit that amount to a designated agency.
Strict limitations exist at both the state and federal levels regarding the garnishment or attachment of employee wages. Employers should carefully review their obligations under state and federal law before executing any request to garnish any amounts from an employee’s paycheck.
Pennsylvania Law Limitations on Wage Garnishes
Pennsylvania law permits the recovery of only four types of debt by attaching or garnishing an employee’s wages, salary or commissions: (i) unpaid support; (ii) unpaid state or federal taxes; (iii) amounts due and owing under the Pennsylvania Higher Education Assistance Act; or (iv) unpaid board of four weeks or less.
An employer is expressly barred from discharging or otherwise disciplining an employee because of an attachment order for support. Criminal and civil penalties exist for violating this prohibition. The employer, however, may deduct from the employees’ wages an additional 2 percent of the total amount paid under a support attachment order as reimbursement for administrative expenses.
Federal Consumer Credit Protection Act
At the federal level, the Consumer Credit Protection Act (“CCPA”), 15 U.S.C. § 1672-1674 imposes additional limitations on any wage garnishment or attachment. The CCPA sets the maximum amounts, which can be withheld pursuant to any garnishment or attachment order and protects an employee from discharge because of a wage attachment resulting from a single indebtedness.
The Employment Law Desktop Reference is for general information only. It is not legal advice for specific situations or for decisions, plans, or management by any employer in any circumstances. The law firm of Eckert Seamans Cherin & Mellott, LLC is available for specific advice for PDA members at discounted hourly rates and with an initial one-hour consultation at no charge to the PDA member. Please contact Bridget E. Montgomery, Esquire by email at bmontgomery@eckertseamans.com or by telephone at 717-237-6054 to schedule an initial consultation.