HR Solutions

Holiday Pay, New Hires, U.S. Laws Abroad

By Margaret Fiester, Anglea Stone and Shari Lau Feb 1, 2008
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HR Magazine, February 2008Q: All employees at my company must complete 90 days of employment to be eligible for a paid holiday. May I make deductions from a newly hired exempt employee's pay for a holiday that occurs before he or she becomes eligible for paid holidays?

A: Probably not. While there is no requirement that you provide paid holidays to employees, you must be sure that when you make deductions from an exempt employee's salary, you are not violating the Fair Labor Standards Act's (FLSA) salary basis test. If you are violating the test, it could cause your employee as well as other similarly situated employees to lose exempt status.

To qualify as exempt from the FLSA's overtime requirements, employees must have certain job duties and must be paid on a salary basis. Salary basis is defined as the payment on a weekly or less frequent basis of a predetermined amount that constitutes all or part of compensation, without reductions for variations in the quality or quantity of the work performed.

Only limited salary deductions are permitted for time missed without jeopardizing employees' exempt status. According to Section 541.118 of the FLSA regulations, "An employee will not be considered to be 'on a salary basis' if deductions from his predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. Because the company holiday is an "absence occasioned by the employer," reducing the employee's pay for the holiday could violate the salary-basis test.Remember, the FLSA permits employers to reduce a salaried, exempt employee's pay for a workweek only in the following situations:

  • The employee missed one or more full days for personal reasons other than illness or accident.
  • The employee was absent for one or more full days because of illness or accident, and you reduce the salary according to a bona fide sickness or accident plan, policy, or practice.
  • The employee received compensation for serving in the military or on jury duty, and you reduce the employee's regular salary by that amount.
  • The employee broke a major safety rule and you reduced the employee's salary as a good-faith enalty.
  • The employee received an unpaid disciplinary suspension of one or more full days imposed in good faith for infractions of workplace conduct rules.
  • The employee was absent for an entire workweek.
  • The employee did not work some days during the first or last week of employment.
  • The employee took intermittent leave under the Family and Medical Leave Act.

--MF

Q: Do we have to pay workers for time spent in new-hire orientation? If an individual never returns after newhire orientation, can we just not enter him or her into the system at all, and as a result, not pay the individual?

A: The courts have ruled that you must pay individuals for time spent in new-hire orientation. The FLSA requires employers to pay workers for hours they are "suffered" or "permitted to work." To determine whether an employer has suffered or permitted an employee to work, employers may review the Department of Labor (DOL) Fact Sheet on Hours Worked.

According to the DOL, attendance at lectures, meetings, training programs and similar activities need not be counted as working time only if four criteria are met:

  • Attendance is outside normal hours.
  • It is voluntary.
  • It is not job-related.
  • No other work is concurrently performed.

As new-hire orientation is generally held during normal hours, is mandatory, is related to an individual's employment and some work may be performed (such as completion of new-hire paperwork, benefit elections and so forth), you will need to pay the individual for time spent in an orientation meeting or training session.

If an employee does not return to work after new-hire orientation, you may also wonder whether the individual needs to be entered into the payroll system and paid for the time spent in training. Again, following the reasoning above, the individual would need to be paid for this time as hours worked. You will generally want to enter the individual in the payroll system with information provided either in the individual's new-hire paperwork or employment application.

--AS

Q: We're a multinational corporation with U.S. citizens working in several other countries. Do laws like the Fair Labor Standards Act and the Family and Medical Leave Act apply to them?

A: No, those two laws would not apply to those employees, but there are a few other U.S. employment laws that would. Just as individual state employment laws apply only to those employees who work in that state, federal U.S. employment laws generally apply only to those employees who work in the United States or its territories.

There are a few exceptions though, as the following four major U.S. employment laws have some application abroad:

  • Title VII of the Civil Rights Act.
  • The Age Discrimination in Employment Act (ADEA).
  • The Americans with Disabilities Act (ADA).
  • The Uniformed Services Employment and Reemployment Rights Act (USERRA).

USERRA's extraterritoriality applies only to veterans and reservists working overseas for the federal government or a firm under U.S. control. Title VII, the ADEA and ADA are more far reaching, covering all U.S. citizens who are either:

  • Employed outside the United States by a U.S. firm.
  • Employed outside the United States by a company under the control of a U.S. firm.

Non-U.S. citizens working outside the United States are not covered by these laws, even if they work for a U.S. firm; however, non-U.S. citizens are generally covered by U.S. employment laws when they work within the United States and its territories. Each of the four laws contains an exemption if compliance with the U.S. law would cause a company to violate a law of the country in which it is located.

In determining whether a non-U.S. firm is under U.S. control, the Equal Employment Opportunity Commission will review:

  • The degree of interrelated operations.
  • The extent of common management.
  • The degree of centralized control of labor relations, common ownership and financial control.
  • The place of incorporation.

Margaret Fiester, SPHR, and Angela Stone, SPHR, are HR knowledge advisors in SHRM's HR Knowledge Center. Shari Lau, SPHR, GPHR, is manager of the center.

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