The Wage and Hour Division (Wage/Hour) of the U.S. Department of Labor (DOL), which administers and enforces the Fair Labor Standards Act (FLSA or the “Act”), hasn’t exactly waged war on the long-term care (LTC) industry, but it has come close. In the late 1990s and early 2000s, Wage/Hour singled out “nursing homes” and “group homes” for an unprecedented audit of compliance with the FLSA’s minimum wage, maximum hours (overtime), and child labor laws. Long-term care was targeted in large part because of the perceived presence of a large number of “low-wage workers” and a suspicion that substantial noncompliance with the Act may have existed. At first, DOL was focused on fact-finding and education. However, after finding an unacceptable level of violators in its first series of audits, DOL conducted a second round of investigations a few years later, only to find that matters had not improved and in some respects had gotten worse. At that point, Wage/Hour shifted its focus to enforcement and that’s where we sit today. DOL believes, with good cause after the findings in its investigatory audits, that the LTC industry harbors an unacceptable number of FLSA violators and, as a result, is to a certain extent out to get us. LTC employers are squarely in the crosshairs of Wage/Hour and would be wise to clean up their FLSA acts before DOL comes a-knocking on the doors of their facilities.

Generally speaking, these laws govern minimum wage, overtime pay, and child labor. As all should know, under the FLSA, with very few exceptions, each employee must be paid at a just-increased minimum wage of $5.85 per hour. The federal minimum rate will increase to $6.55 in 2008 and eventually be at $7.25 in 2009. Because Congress acted so slowly increasing the $5.15 rate that was established in 1997, many states have already established a higher rate applicable to employers within their boundaries. LTC employers must pay the higher of the two.

Overview

The FLSA maximum hours provisions require that “nonexempt” employees be paid at one and one-half times their regular hourly rate of pay for all hours worked in a workweek in excess of 40 hours. Except as follows, there is no general requirement under the FLSA that employees be paid overtime on a daily basis for work in excess of eight hours. Also, nonexempt employees may be paid on a salary basis, but the salary must be reduced to an hourly equivalent for purposes of calculating overtime obligations. A special provision applicable only to healthcare facilities for which most (if not all) LTC employers qualify, Section 7(j) of the FLSA allows employers to measure overtime pay entitlement over a 14-day period to accommodate the need for 24/7 scheduling. Employers availing themselves of the benefit of Section 7(j) must pay overtime to employees who work more than 80 hours in the 14-day period but, to take advantage of this provision, they must also pay employees daily overtime premiums for all hours worked in excess of eight in a workday. (I recommend that employers taking advantage of an “8 and 80” program limit it to full-time employees for reasons that are somewhat beyond the scope of this article.) By statute and regulation, certain classes of employees may be exempted from overtime pay regardless of the number of hours worked. Some classes of employees are exempt from both minimum wage and overtime pay and others are exempt only from the overtime pay provisions.

The child labor laws place restrictions on the hours and types of work that may be performed by employees under the age of 18. Youth workers, except for family members, must be at least 14 to work in your facility.

Finally, by way of background, the FLSA, and the regulations issued thereunder, imposes certain recordkeeping requirements on employers with regard to the hours worked, timekeeping, and pay of employees. Employers found guilty of FLSA violations are liable for two years of back wages—three years in the case of “willful” violation—and, potentially, for liquidated damages that effectively double the amount owed. Criminal penalties can be sought, but rarely are, in the case of serious violations, and repeat violators can be, and frequently are, assessed “Civil Money Penalties” of $1,100 for each such violation. Child labor law violations also carry “fines” that can be relatively severe.

For this article, however, I would like to focus on the provisions of the FLSA which, in my experience over the past 30 years, have been most misunderstood or misapplied by LTC employers—the minefields.

Overtime

The most frequently violated provision of the FLSA—also confirmed in the special DOL audits—is in the calculation of regular rate of pay for purposes of paying overtime when due. The rules and regulations are actually fairly simple and straightforward but, more often than not, they are not followed. In the 1997 audit, Wage/Hour found that 30% of the nursing homes investigated were miscalculating regular rate and not paying employees all of the overtime pay they were due. Overtime pay for hours worked in excess of 40 in a workweek (or 8 in a day and 80 in a two-week period if the employee is paid under Section 7[j]) must be calculated not necessarily at the employee’s established hourly rate of pay, but at the employee’s regular hourly rate for that particular workweek. In its simplest form, regular hourly rate is arrived at by dividing the employee’s total straight time compensation for that workweek (without regard to overtime premium pay) by the number of hours actually “worked” (not necessarily paid) in that workweek. When Section 7(j) is applicable to an employee, the calculation is based on the two-week pay period.

Regular rate differs from the employee’s set hourly rate in that the employer must include in total compensation for purposes of the calculation all differentials, all commissions, most bonuses, certain meal and lodging payments, and the value of certain employer-furnished facilities and incentive pay. In sum, virtually any payment the employee receives for “working” must be included. Payments that an employer does need to factor into the calculation of regular rate include paid leave, pay for unworked time (such as holidays, vacation, sick leave, paid time off), voluntary premium payments (e.g., time and one-half for work after eight hours or on a holiday), on-call pay, callback pay, reporting or show-up pay, idle time pay, awards, gifts, most discretionary bonuses, referral bonuses, benefit payments, and expense reimbursements. Although sometimes cumbersome depending on the level of sophistication of the employer’s payroll processing function, employers are cautioned to ensure that they understand the importance of properly and accurately calculating the regular hourly rate and paying employees for overtime work accordingly.

Frankly, however, this minefield itself is not fatal. Liability for miscalculations of the “regular rate” is usually not that great in terms of dollars (e.g., calculating the time and one-half at $10.00/hour rather than $10.50/hour), but the error becomes significant in that the employer is then tagged as an FLSA violator. As such, that employer becomes exposed to Civil Money Penalties under the FLSA in the event of any future FLSA violation—and they can be very significant. Civil Money Penalties, in the event of a subsequent violation, can be assessed at $1,100 per violation per workweek in which a violation occurs. Each employee so “violated” can give rise to a separate penalty.

Tracking Hours Worked

Another minefield, as simple as it may seem to navigate, is tracking and counting “hours worked” to determine if overtime pay is due. The key words are “compensable hours,” and hours can be considered compensable even if they are not scheduled or authorized beforehand or approved after the fact if they are indeed “worked” by the employee. The time is worked for purposes of the FLSA if the employer “suffers” or “permits” it to be worked. That is, if the employer, or one of its “agents” for this purpose (head nurse, unit coordinator, department head or, for that matter, any supervisor), knows or reasonably should know that the employee has performed work, it must be counted. Rank-and-file employees should be instructed that any time they are performing work, it is “on the clock.” Supervisors must be trained to, among many other things under the FLSA, recognize that any time an employee is performing job-related tasks, be it before or after the start or end of a shift, during lunch or other unpaid breaks, or even at home, he/she must ensure that the time is included in compensable hours for overtime calculation purposes. If the supervisor “suffers” or “permits” the employee to work, it is counted toward the overtime threshold. If you don’t want work to be performed, it is incumbent on you, the employer, to put a stop to it, even if it requires disciplinary measures.

Employers must also become familiar with what job-related activities are considered compensable activities and which are not. For example, requiring an employee to change into a uniform at the worksite is compensable, while worksite clothes-changing for employee convenience is not. Pre-shift distribution of work or assignments and, by all means, shift change meetings or “report” are compensable, as are simple things like having an employee pick up or drop off mail or packages on the way from/to home or during lunch. Performance of work during unpaid lunch periods is particularly troublesome—a huge minefield—for healthcare employers. Regulations require that the lunch break be “uninterrupted” and be at least 30 minutes for the employer to exclude it from time worked. It is not uncommon for LTC employees to eat at their workstations or with residents, and it is also not uncommon for caregivers to be called or be called back during lunch break to deal with resident issues. All of these are problematic. If the employee’s lunch break is interrupted—he/she performs any work—the entire break becomes compensable time in determining if overtime pay is due.

For the above reasons, among many others, LTC employers who haven’t already done so are well advised to invest in a time recording device—the more modern the better—and to have employees clock in and out at the beginning and end of their shifts, be specifically prohibited from performing work before or after they “clock in,” clock out and in for unpaid lunch breaks, and clock in and out if they return to work during any unpaid break. Employers using a “quill and parchment” time recording system are advised to make sure employees do the same and record the time to the minute. Handwritten time cards that simply track the total number of hours worked on any given day are an invitation for disaster—you may as well walk blindly into the minefield.

Employee Exemption Status

Perhaps the potentially most “explosive” area in the FLSA field of mines is in classification—or more appropriately misclassification—of employees as “exempt” for purposes of eligibility for overtime compensation. The liability can be severe and at times incalculable. Employees may be “exempted” from being paid overtime only if they fit squarely into one of the statutory or regulatory exemptions, and each exemption has fairly strict requirements. The opportunities for exemption most likely available to LTC employers to avoid overtime pay are the so-called “white-collar” exemptions for employees who qualify as “executive,” “administrative,” or “professional” employees and for in-home healthcare providers who provide “companionship services.” I would be remiss if I didn’t point out that LPNs do not qualify for the professional exemption, even though most RNs do. LPNs may, however, qualify as “executive” or “administrative” depending on their duties and responsibilities.

The danger and significant liability arise from the fact that employers don’t keep time records for employees they classify as exempt, nor should they have to. However, under the FLSA, employers are absolutely required to maintain and retain records of all hours worked by employees who are not exempt. Furthermore, if an employer has failed in its obligation to record the hours worked for nonexempt employees, it has not only committed a separate violation of the Act, but a presumption runs against the employer to the extent that the employee’s word as to the hours they worked is given greater credence because the employer has failed in its statutory obligation. If an employee classified as exempt is later found to have been misclassified, the employer can have a major problem. And at least in the case of the white-collar exemptions, the employer loses the exemption and is exposed to liability for back wages not only for that employee, but for every other employee in that job class at least in the same department and, potentially, company-wide. Thus, we are experiencing a proliferation of collective (aka “class”) action lawsuits against employers under the FLSA. The minefield for misclassification of employees as exempt is full of risk and potential liability.

We dealt in depth with the white-collar exemptions, and DOL’s new regulations governing those exemptions, in Nursing Homes/Long Term Care Management in August 2006 (see “Update on DOL’s Regulations for Employee Exemption,” p. 40), and I won’t repeat that dissertation again in this article. However, it is most important that employers recognize that three distinct tests must be satisfied to avoid paying overtime to an allegedly “white-collar” exempt employee. Despite a lingering misperception by many LTC employers, paying the employee a salary alone does not cut it—a salary of at least $455 per week diffuses only one of mines in the field of exemption. The employee must also meet the applicable duties test (unfortunately, determination is very fact-based and arrived at on a case-by-case, often employee-by-employee, position-by-position basis) and the salary basis test. In simplest terms, the latter means that the employee must be paid his/her full salary in any workweek in which any work is performed, as little as it might be. Some deductions from salary are permitted, but they are few and limited. This is where most employers step on the land mines and expose themselves to potentially considerable liability. I encourage you to revisit the August 2006 article for a more in-depth discussion of the issues regarding white-collar exemptions.

With regard to the “companionship” exemption, the U.S. Supreme Court very recently, in a June 11, 2007, decision in the case of Long Island Care at Home, Ltd. v. Coke, issued a ruling extremely favorable to LTC providers that have a home care component. The Supreme Court reversed a decision of the U.S. Court of Appeals for the Second Circuit (which has jurisdiction over New York, Connecticut, and Vermont) and held that the DOL regulation, which allowed “third-party employers”—in addition to individuals—who provide qualifying services to not be paid overtime. Had the Supreme Court sided with the Court of Appeals, virtually all such “employed” companions and the home care providers would have had to be paid overtime for hours worked in excess of 40 in a workweek. The FLSA exempts from its minimum wage and overtime coverage “Any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves….” The regulations issued by DOL define “domestic service employment” as “services of a household nature performed by an employee in or about a private home…of the person by whom he or she is employed…such as cooks, waiters, butlers, valets, maids, housekeepers, governesses, nurses [etc.]….” A further Wage/Hour regulation provides that “exempt companionship workers” include those “who are employed by an employer or agency other than the family or household using their services…[whether or not] such an employee [is assigned] to more than one household or family in the same workweek….”

Other Considerations

Another major, and frequently misunderstood, minefield under the FLSA is with regard to time spent in training, in-service, and continuing education. For time spent by an employee attending “training” to be excluded from compensable time (hours worked) for calculating overtime pay obligations, the following four—and all four—requirements must be met:

• The training must be outside of normal working hours;

• It must be voluntary;

• The training is not directly related to job assignment; and

• No work is performed during the training.

If all four criteria are not satisfied, the time spent in training must be counted for purposes of minimum wage and overtime calculations.

The final two minefields that some LTC employers at times encounter relate to “comp time,” or “banking,” and “volunteers.” Briefly, as to volunteers who are not subject to the minimum wage and overtime provisions of the FLSA, “Individuals may volunteer in the private sector without compensation for charitable, religious, and similar nonprofit organizations that have public service, charitable or humanitarian objectives.” Individuals volunteering service to for-profit entities engaged in commercial activities must be compensated for their work.

Lastly, for private-sector employers, the practice of banking time for employees who have worked in excess of the overtime standard by providing them with compensatory time off in a future pay period instead of paying them for that time is, pure and simple, prohibited under the FLSA. Private-sector employers must pay employees time and one-half when they work more than 40 hours in any given workweek. The FLSA is not satisfied by accounting for that extra worked time in a subsequent workweek. Don’t even set foot into that minefield.

Conclusion

While there are many other provisions of the FLSA with which LTC employers must be familiar and comply, the foregoing in my experience represent those which are most frequently misunderstood and misapplied. LTC employers will be well served by making sure that their compensation and timekeeping practices are in compliance with the FLSA and, more importantly, by providing training to their supervisors in the wage and hour laws and regulations. In most cases in which DOL finds a violation, a supervisor, knowingly or unknowingly, is to blame for “stepping on the mine.” Just as the military trains its soldiers in how to avoid and diffuse land mines they encounter, LTC employers take this precaution by using appropriate and experienced counsel and by providing education and training. Failure to take steps to avoid the FLSA minefields can be a costly mistake.