Q. Under the Fair Labor Standards Act (FLSA), do we have to define “full time” to mean 40 hours per week, or is that left to employers’ discretion? Can we maintain a 40-hour standard for wage and hour purposes, but have a lower threshold for certain benefits, like paid time off accrual or supplementary health care coverage?
A. Neither the FLSA nor its regulations define what is considered “full time” employment. Whether an employee is classified as full-time is left completely up to you, the employer. The FLSA’s only requirement is that non-exempt employees receive at least minimum wage for all hours worked, as well as overtime compensation for any hours worked in excess of 40 hours in a single workweek at a rate of at least one and one-half times their regular hourly rate of pay. Under the regulations, you certainly can permit employees to qualify as “full time” if they work fewer than 40 hours. Some employers may choose to set 30 hours per week as the threshold for “full time” because that is the definition used by the IRS’s Affordable Care Act regulations to determine full time status, and they are free to do so.
That said, defining “full time” status as working less than 40 hours for all employment-related purposes may cause potential wage and hour problems with salaried, non-exempt employees. Let me explain.
Generally speaking, calculating overtime is straight forward. To calculate overtime, an employee’s “regular rate” is calculated by dividing an employee’s total compensation for the week by the total number of hours worked. For employees who are paid an hourly rate only (i.e., no bonus, commission, etc.), this calculation is simple, as the regular rate is the employee’s normal hourly rate of pay.
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 write blog entries for your company’s new blog. I work 50 hours in a certain week: 40 hours of straight time, and 10 hours of overtime. To calculate my overtime pay, you need one more crucial piece of information: how many hours did we intend my $1,000 salary to cover?
Generally speaking, the answer to this question is a matter of the agreement between you, the employer, and me, your employee. Suppose your company writes in my offer letter that the $1,000 salary is intended to cover up to 50 hours of work per week. In that case, no additional straight-time pay would be due if I work 50 hours, regardless of how you define “full time” in your policies for other employment related purposes. In addition to the straight time, I would still be entitled to an overtime premium for the 10 hours of overtime worked, of course. However, because my salary already covers straight-time for those hours, the additional overtime premium due is only one half of the regular rate of pay, not the full one and one half:
Regular rate = $1000 / 50 hours = $20/hour
Total pay = Regular salary + 10 hours at 1/2 the regular rate
Total pay = $1000 + (10 hours x $20/hour / 2) = $1,100
Total pay = $1,100.00
Easy, right? Now, let’s go back to our original question: suppose your employee handbook says that the normal workweek for a full time employee consists of 30 hours, and that we have no other agreement about my salary, other than its amount. I could argue that, based on the handbook, there is a general understanding that my base salary is intended to cover only 30 hours of straight-time work, resulting in a different calculation of my overtime pay:
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
Yikes! A salaried, non-exempt employee (or, for that matter, a misclassified salaried, exempt employee) can make the claim that he or she is entitled to straight time for all hours over 30 up to 40, and then time and a half for all hours over 40, which may not be what you intended when you adjusted your handbook’s definition. 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 handbook policy change can add up to some substantial liability very quickly!
Okay, but I want “full time” to mean something different! How can I do it?
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” definitions from in your handbook entirely.
The FLSA does not require you to define full time, part time, temporary, or any other similar category, so why do it? These categories can be confusing for employees when presented generically in a handbook, and some categories (like “probationary employee” or “temporary employee”) can actually create liability for your organization in some situations. If your goal is to establish a threshold for benefits eligibility, then do that instead! Specify how employees can qualify for benefits based on the number of regularly scheduled hours in the appropriate section of your handbook: “To be eligible for XYZ benefit, you must be regularly scheduled to work at least ___ hours per week and have completed one year of service.”
Draft written understandings with your employees about their salaries.
Go ahead and define “full time” to mean 30, 35, 37.5, 40 or any other number of hours, but make sure that you have a written understanding with every salaried employee, particularly non-exempt ones, that clearly outlines what the employee’s salary is intended to cover—including the number of hours, if they are non-exempt. Depending on your needs, this document could be something formal, like an employment agreement, or something informal, like a job offer letter that the employee signs. You should also make clear that to the extent the hours requirement in that written understanding conflicts with anything in the handbook, the written understanding prevails.