Employers are implementing many cost reductions, the federal government has implemented the COBRA subsidy and is hinting possible major rule changes 

Arguably, we now live in the worst economy since the Great Depression. Employers are implementing many cost reductions, the federal government has implemented the COBRA subsidy and is hinting at possible major rule changes affecting employer-provided medical coverage, and many state and local governments are facing massive deficits.

Most employers are private-sector in nature, and it is likely that most readers of PPM work for private-sector employers. When payroll-related problems of public-sector employers reach the masses, there is often a perplexed response. For example, California requires all state employees to take three Fridays off each month without pay. Telling a nonexempt employee to do that generally is legal—absent contract language to the contrary. Private-sector types should be very familiar with the salaried basis rules (29 CFR 541.602) for exempt salaried employees, and there is nothing in those rules that support this action.Many of us assume that government employment is somewhere in a different universe where the laws of gravity, the Fair Labor Standards Act (FLSA), and other normal rules do not apply. But many private-sector employers assume that if California can do this, so can they. This is a dangerous assumption.

Perhaps it is time to take a journey through the looking glass at governmental employers.

The FLSA regulations are a good place to look when labor law does not seem to make sense. We just mentioned that the salaried basis regulation is 29 CFR 541.602. The "29" means that this is a FLSA law-related regulation. The "CFR" is the Code of Federal Regulations. The "541" is where it starts getting interesting. Collectively, the 541 group is the white-collar exempt employee group of regulations and a good place to look for answers to a question specific to exempt employees.

The following URL is where the related FLSA regulations can be found. This is a very useful site to bookmark: www.dol.gov/dol/allcfr/ESA/Title_29/Chapter_V.htm.

Assuming that you go to the site now, you will see a long list of groups of regulations. Some of these groups (called "parts" under federal Department of Labor jargon) are much more useful than others. Let’s open up part 541.

Most of this screen should be blindingly obvious. Subparts B through F are the rules for classifying the various types of white-collar employees. If you have a classification issue involving white-collar employees, you now have found where most answers live.

The very important 541.602 regulation can be found in subpart G, the salary requirements group. These regulations are well worth reading. We tend to focus on 541.602, but there are useful rules to be found throughout this subpart. However, we still cannot find the missing governmental rule (yet).

Since all else has failed, we will look at subpart H, "Definitions and Miscellaneous Provisions." Some of these rules are pretty arcane, but there are some important common rules tucked in here. If we look at the very last regulation, we find what we are looking for: Regulation 541.710, "Employees of Public Agencies." The government has chosen to place its exceptions to the 541.602 rules way over in a different regulation. This, unfortunately, is a fairly common practice. It means that exceptions are often filed some distance away from the base regulation.

Let’s take a look at Reg. 541.710:

"An employee of a public agency who otherwise meets the salary basis requirements of Sec. 541.602 shall not be disqualified from exemption under Sec. 541.100, 541.200, 541.300, or 541.400 on the basis that such employee is paid according to a pay system established by statute, ordinance or regulation, or by a policy or practice established pursuant to principles of public accountability, under which the employee accrues personal leave and sick leave and which requires the public agency employee’s pay to be reduced or such employee to be placed on leave without pay for absences for personal reasons or because of illness or injury of less than one workday when accrued leave is not used by an employee because: (1) Permission for its use has not been sought or has been sought and denied; (2) Accrued leave has been exhausted; or (3) The employee chooses to use leave without pay.

"Deductions from the pay of an employee of a public agency for absences due to a budget-required furlough shall not disqualify the employee from being paid on a salary basis except in the workweek in which the furlough occurs and for which the employee’s pay is accordingly reduced."

The first part of the regulation, the "(a)" grouping, is rather odd, something that happens a lot with federal regulations. To those of us familiar with the more common 541.602 regulation, it seems to be saying the same thing but with different language. Sort of an exception stating that there is no exception. If we read the regulation enough times, however, the key seems to be toward the end. It implies that public-sector employees, under certain circumstance, can be docked for partial days not worked. This also could have been written much clearer, another fairly common problem with federal regulations.

Fortunately, the second part of the regulation, the "(b)" group, not only makes sense by itself but also in the context of our California issue. It is clearly written for a government regulation, as well as the clear authority on why California (and other state and local governments) can have budget-required furloughs that do not risk the salary-basis requirement for exempt salaried employees.

We have achieved a victory of sorts. We have tracked down one difference (of many) between private-sector and public-sector employment. We can now support this difference, legally, if required. Better yet, we have learned where and how to look to resolve such issues.

Cynics (probably everyone who has been doing payroll for a while) probably noticed the "of many" note in the prior paragraph. This is not the only difference between private-sector and public-sector employment. It is not uncommon for the government to excuse itself from many of the rules it creates for the rest of us.

Most of the rest of the exceptions specific to governmental employers can be found in the 29 CFR 553.xxx series of regulations. The 553 series of regulations have the catchy title of "Application of the Fair Labor Standards Act to Employees of State and Local Governments." We will look at a few of the more important exceptions in this article. But first, a history lesson.

The FLSA used to not apply to governmental employees. In 1966, Congress amended the FLSA to cover governmental employees working for hospitals, nursing homes, mental institutions, schools, and mass transit. In 1972, coverage was extended to public preschools. Then in 1974, to most federal employees, plus nearly all remaining state and local employees.

In addition, there have been several major court cases regarding FLSA coverage of public-sector employees. National League of Cities v. Usery was a 1976 Supreme Court decision that overrode the 1974 law, saying that public employees were not eligible for minimum wage and overtime. However, in 1985, under Garcia v. San Antonio Metropolitan Transit Authority, the Supreme Court reversed its earlier decision, making states again subject to minimum wage and overtime under the FLSA.

The key here is not only that rules affecting governmental employers changed big time in the recent past but that government employees took a different path to get FLSA coverage. This path sometimes explains why the governmental rules are so different from the private-sector rules. The private sector was largely brought into FLSA in the late 1930s all at once. The governmental sector has been brought in piecemeal a lot more recently and much less completely.

Certain classes of individuals are excluded from FLSA coverage. This includes elected public officials and their immediate staffs, certain appointed positions, and employees of the government’s legislative branch. Employees subject to civil service rules are not excluded.

One big difference from the private sector is volunteers. Legally, there cannot be a volunteer in the private sector. There is a narrow exception for volunteers in the nonprofit sector but a huge exception for volunteers in the public sector. This was one of the major areas of concern when Congress began thinking about extending FLSA coverage to government employers. The rules for this are discussed in 553.101:

"An individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered, is considered to be a volunteer during such hours.

"Congress did not intend to discourage or impede volunteer activities undertaken for civic, charitable, or humanitarian purposes, but expressed its wish to prevent any manipulation or abuse of minimum wage or overtime requirements through coercion or undue pressure upon individuals to ‘volunteer‘ their services.

"Individuals shall be considered volunteers only where their services are offered freely and without pressure or coercion, direct or implied, from an employer.

"An individual shall not be considered a volunteer if the individual is otherwise employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer."

The obvious key here is that if the government can claim that the employee is legally a volunteer, then minimum wage and overtime laws do not apply. In fact, no pay is legally required. But what if we do pay these folks? That is addressed in 553.106.

To make a long story short: Expenses that follow the accountable-plan rules are fine, and so are training costs. Governmental employers even can provide volunteers with benefits such as medical coverage. However, if volunteers receive more than a nominal fee, they are no longer volunteers.

While there are many possible types of volunteers, firefighters tend to be the example used most when discussing governmental volunteers. These rules make sense in that context although they are not written to be specific to firefighters.

The next big exception is comp time. This is a phrase that gets thrown around a lot, but the only legally defined usage is for nonexempt governmental employees. This is a major exception to everything private-sector employers know about how overtime works.

Let’s say that Bob works 50 hours this workweek. If Bob is a private-sector employee (which includes nonprofits), Bob must receive at least a 50 percent premium against regular-rate-of-pay for 10 of those hours worked. If, however, Bob works in the public sector, there is a really good chance that his governmental employer legally can only pay him for 40 hours and give 15 hours (not just 10 hours) of comp time to take as paid time off later.

To no one’s surprise, there are rules associated with this, 29 CFR 553.32. However, the federal DOL has a fact sheet (Fact Sheet 7) for this particular rule that is easier to work with or, at least, a change of pace from reading regulations. We will include a pointer to the DOL general fact sheet page. This is another very good Web page to bookmark. From this page, search "Government" to find the correct fact sheet: www.dol.gov/esa/fact-sheets-index.htm.

Looking at the fact sheet, we find the following:
"Under certain prescribed conditions, employees of state or local government agencies may receive compensatory time off at a rate of not less than one and one-half hours for each overtime hour worked, instead of cash overtime pay. Police and firefighters, emergency response personnel, and employees engaged in seasonal activities may accrue up to 480 hours of comp time; all others, 240 hours.

"In locations with concurrent state wage laws, some states may not recognize or permit the application of some or all of the following exemptions. Since an employer must comply with the most stringent of the state or federal provisions, it is strongly recommended that the state laws be reviewed prior to applying any of the exclusions or exemptions discussed herein."