HR Solutions

Hourly Pay for Exempts, Consumer Reports, W-4s

By Lisa Orndorff, Liz Petersen and Anne St. Martin Mar 1, 2006
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HR Magazine, March 2006 Q: If an employee qualifies as exempt under the Fair Labor Standards Act, may I pay the worker hourly? Or must I pay the person as exempt?

A: This question may come up in various situations, such as when a full-time exempt employee goes to part-time status but still meets the exempt requirements. Or when a new exempt employee begins work midway through the pay week. Or if the exempt employee was out part of a day for jury duty. In these situations, an employer may want to pay the worker on an hourly basis.

The Department of Labor outlines limited circumstances in which an employee who is exempt need not receive the guaranteed salary but still maintains exempt status. Those circumstances are:

  • For absences of a full day for personal reasons, other than sickness or disability.
  • For absences of a full day or more because of sickness or disability, if taken in accordance with a bona fide plan, policy or practice providing wage-replacement benefits.
  • For any hours not worked in the initial and final weeks of employment.
  • For hours taken as unpaid time off under the Family and Medical Leave Act.
  • For offsets of amounts received by an employee for jury or witness fees or military pay.
  • For penalties imposed in good faith for infractions of safety rules of major significance.
If a full-time exempt employee goes to part-time status, a question arises as to whether it is permissible to pay the employee on an hourly basis to compensate appropriately for part-time hours.

In such a situation, the salary can be adjusted proportionately for the part-time position.

Then, if the part-time salary does not meet the exempt requirement of $455 per week, the position would be considered nonexempt and the employee then could be paid on an hourly basis.

But if the adjusted salary still meets the exempt requirement ($455 per week), the employee may not be paid on an hourly basis without losing exempt status.

The part-time exempt employee must receive the same guaranteed salary each week without respect to the number of hours worked or the quantity of work. This rule applies to the part-time position as it would to a full-time position.

LO

Q: When do employers need to comply with the Fair Credit Reporting Act?

A: The Fair Credit Reporting Act (FCRA) governs how employers obtain and handle consumer reports, affecting employers that gather reports on their applicants and employees prior to making business decisions.

The FCRA requires employers to disclose that consumer reports may be used for employment decisions and to secure consent from employees or applicants to obtain such reports. If consumer reports provide information that results in an adverse employment action against an individual, the employer must provide the person with a copy of the report and their FCRA rights.

Many employers are uncertain which reports are covered by the law. According to the Federal Trade Commission (FTC), an FCRA consumer report is any written, oral or other communication of any information by a consumer reporting agency bearing on a consumers credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living. In the employment context, this definition may include, for example, credit reports, criminal history reports, driving records and other background check reports created by a third party.

The Society for Human Resource Management led the effort to amend the FCRA to exclude from the laws requirements employee investigations such as sexual harassment investigations conducted by third parties. The four-year effort resulted in the Fair and Accurate Credit Transactions (FACT) Act, which amended the FCRA effective Jan. 1, 2004. The FACT Act still requires employers to notify employees of investigations, but only after investigations have concluded.

The FTC then issued the FACT Act disposal rule, which took effect June 1, 2005, and details how employers should dispose of consumer reports to reduce the possibility of identity theft. In essence, the disposal rule says you should make sure to shred or burn your consumer reports; you cannot just throw them in the trash.

FCRA reports do not include pre-placement or fitness-for-duty physicals, drug tests or any reports generated internally, such as internal reference checking.

Because of the complexity of the FCRA, before you outsource any investigative check of applicants or employees, make sure such action would be in compliance with the law.

LP

Q: Are employers required to ask employees to complete a new W-4 each year?

A: Not necessarily. In most circumstances, a W-4 form remains in effect until the employee submits a new one. But there is an exception, as explained below, for employees who claim they are exempt from income tax withholding (not to be confused with the use of the word exempt under the Fair Labor Standards Act).

Employers should ensure that they have new W-4s for:

  • New employees. You should keep copies of the most current W-4s on hand. If the information the employee has submitted needs to be changed, however, the employee must submit a new W-4, according to the Internal Revenue Service (IRS).
  • Employees who have had a change in withholding events. During the year, there may have been changes in an employees marital status or the exemptions, adjustments, deductions or credits he or she can expect to claim on return. When this happens, the employee may need to give the employer a new W-4 to change withholding status or the number of allowances.
  • Employees claiming exemption from withholding. An employee who wants to continue to be exempt from withholding in a subsequent year must give his or her employer a new W-4 claiming exempt status by Feb. 15 of that year.
The IRS considers it an employers basic responsibility to remind employees before Dec. 1 each year to submit a new W-4 form if their withholding allowances have changed or will change for the next year. If an employee never gives the employer a valid W-4 as required, the employer should withhold tax as if the employee is single with no withholding allowances, the IRS states in its guidance on withholding.

Lisa Orndorff, PHR, and Liz Petersen, SPHR, are information specialists in the Society for Human Resource Managements Information Center. Anne St. Martin, SPHR, CEBS, is manager of express operations in the center.

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