All of our recent talk about alternative work schedules and handling PTO raised an issue for a reader who called me yesterday about a common issue that I frequently hear from in-house counsel, payroll administrators, and HR leaders. Many employers don’t want 40 hours to be the benchmark for “full time” or want to offer PTO or other benefits to certain categories of workers regardless of whether they work 40 hours in a week, but struggle with whether or how to do it.
The short answer to this issue is: you have more flexibility than you might think. Neither the FLSA nor its regulations (nor most state and local wage and hour laws) define what is considered “full time” employment. That means that employers are free to set their own guidelines for what constitutes full time employment. As long as you pay employees at least the minimum wage for all hours they work and (for non-exempt employees) the applicable overtime compensation for hours worked over 40, you can set other thresholds for other benefits or classifications.
The longer answer is more complicated, though, and this is where employers need to dig a little bit deeper. The reader’s question yesterday was specific to salaried employees, which is where employers can get tripped up by policies in handbooks or elsewhere that define full time for all purposes as something fewer than 40 hours. Why? Take the example of a non-exempt, salaried employee. You pay the employee a salary
However, things get trickier when a non-exempt employee is paid a salary. Suppose you pay me a salary of $1,000 per week to act as a team leader on your manufacturing floor (not in a supervisory role, so no exemptions apply). I work 50 hours in a certain week, which under the FLSA is 40 hours of straight time, and 10 hours of overtime. How much overtime pay should I receive? To answer, you need to know how many hours you intended my salary to cover.
Generally speaking, the answer to this question is a matter of the agreement between you, the employer, and me, your employee. If the only policy you have says that “full time” is 30 hours, then there is a clear argument that, based on the handbook, my base salary is intended to cover only 30 hours of straight-time work, meaning that my effective hourly rate is not $20/hour (salary covering 50 hours) or even $25/hour (40 hours), but $33/hour! That’s dramatically increases the overtime you would owe me:
Regular rate = $1000 / 30 hours = $33.33/hour
Total pay = Regular salary + 10 hours additional straight time + 10 hours at time and-a-half
Total pay = $1000 + (10 hours x $33.33/hour) + (10 hours x $33.33/hour x 1.5) = $1,833.28
Total pay = $1,833.28
That’s probably not what you intended when you set your “full time” threshold in your handbook. If this claim results in litigation, not only could you be on the hook for the additional pay but also liquidated damages and opposing counsel’s attorney’s fees. A simple policy change could avoid this substantial liability.
Upshot for Employers
If you want “full time” to mean something less than 40 hours per week at your organization, here are two approaches to consider:
- Eliminate “full time” designations in favor of specific benefits thresholds.
Remember that the FLSA does not require you to define what “full time” means. Consider simply specifying how employees qualify for certain benefits, whether that is based on hours worked, job classifications, seniority, or some combination.
- Use job descriptions and job offers to define “full time” and to set salary expectations.
To give yourself flexibility to customize your pay and benefit plans for each employee or group of employees, define full time in the applicable job descriptions, employment agreements, and/or job offer letters you give to employees. Particularly with salaried employees (and especially non-exempt ones), explain in writing how many hours you intend the employee’s salary to cover, whether that is 30, 35, 37.5, 40 or any other number of hours. You should also make clear that to the extent the hours requirement in that written understanding conflicts with any other policy, the written understanding prevails.
The key is to simplify policies while giving yourself the flexibility as an employer to adjust pay and benefits plans for individual employees or groups of employees. Following these steps above with guidance from counsel can help you avoid unnecessary liability.