August 2026 Volume 8

OPERATIONS & MANAGEMENT

THE BASICS OF EMPLOYEE PAY By Johanna Fabrizio Parker

T he Fair Labor Standards Act (FLSA) became law in 1938. The FLSA generally governs pay issues, including who is eligible for (and/or entitled to) overtime and how that overtime needs to be calculated. You may wonder why I am choosing to focus on a long-standing law that has not had really significant amendments since the 2004 regulations governing white-collar overtime exemptions. It’s because I see cases filed nearly every day alleging some FLSA (and/or state wage and hour law) violation on behalf of a collective or class of employees. And while any individual amount of alleged unpaid wages may not be significant in itself, multiplying that by a group of employees plus potential liquidated damages plus attorney’s fees (yours and theirs) can add up quickly. Given the environment, I thought that a refresher on some FLSA basics could be helpful. Of course, this is meant to be educational (and hopefully helpful!), but it is not legal advice, nor does it consider your specific organization and/or jobs. First, how do you classify employees? And, really, what does this even mean? Every employee is presumed to be nonexempt under the FLSA unless the employer determines that the employee qualifies for a specific exemption. The basic exemptions are: (1) executive; (2) administrative; (3) professional; (4) outside sales; and (5) computer employee. For the first three (with a few specific exceptions), the employee must be paid a regular salary of at least $684/week regardless of the number of hours worked. (There is an allowance to use a nondiscretionary bonus for up to 10% of the standard annual salary level.) Then, the employee (regardless of exemption) also must meet the “duties test” for the particular exemption. For additional information as to each, please see: www.dol.gov/agencies/whd/fact-sheets/17a-overtime (last visited 7/17/26). Please also note that some states impose different (greater) requirements for an employee to be “exempt.” So, you need to look at those as well. You may meet all the federal requirements but not the state, potentially exposing you to wage claims under state law. So, what happens if you get it wrong? That’s where you may see a claim that an employee or group of employees was misclassified. Here, the challenge for most employers is that they don’t have to keep time records for exempt employees so that there is no official record of time worked. With that, a court can and often does give more deference to what the employee claims, e.g. I worked 50 hours every week and was not paid overtime. But let’s say you just have nonexempt employees. The first issue there is to make sure you are having them record all working time – and implicit in this endeavor is to make sure that you have determined what is and is not working time. Do they clock in when they get to work before doing anything? Are there some pre-shift activities that are not work for which they don’t have to clock in? Do they have remote access and check in after their regular hours? All of this can be working time, depending on what it is and how it relates to their particular jobs.

Related to this, how do you record time? Under the federal regulations, rounding is allowed provided that it effectively evens out over some undefined period of time. (Again, you should look at state law to confirm that rounding also is approved there.) Rounding means that, for some period of time (often 15 minutes), the employer rounds up or down. As an example, if my shift starts at 7 a.m. and I clock in at 6:55 a.m., my start time for pay purposes will be 7 a.m. But if I clock in at 6:50 a.m. for that shift, my start time for pay purposes will be 6:45 a.m.. The potential challenge with rounding is that most employers keep “to-the minute” time records, so that you need to audit them to make sure that the rounding is not just going one way. Another common issue is: how do you calculate overtime? Under federal law, overtime is calculated as 1.5 times the employee’s “regular rate.” So that seems easy, right? You take the hourly rate and multiply it by 1.5. But it’s not so straightforward. The “regular rate” is not necessarily equal to the hourly rate. It includes “all remuneration for employment paid to, or on behalf of, the employee . . .” unless the “remuneration” falls into a list of exemptions. For additional information here, please see: www.dol. gov/agencies/whd/fact-sheets/56a-regular-rate (last visited 7/17/26). A common litigation issue here involves bonuses. Discretionary bonuses are excluded from the regular rate. But saying you have discretion to pay a bonus (or not) does not end the analysis as to whether any particular bonus can be excluded. State laws can add in requirements for meal and other breaks, paid time off, when you have to pay, how you can pay, and what you need to include in wage statements – just to name a few related issues. And, of course, these can vary by state. At least in terms of the paid time off, these laws have expanded greatly in recent years -- almost half of states have some requirement here. As you (hopefully) can tell, the impact of the FLSA is very much alive today – and expanded by varying state laws. With that, these pay issues continue to present an important topic for compliance review. Johanna Fabrizio Parker Partner, Labor & Employment Benesch Friedlander Coplan & Aronoff LLP Email: JParker@beneschlaw.com Phone: 216-363-4585

40 FIA MAGAZINE | AUGUST 2026