In July we warned you that the Labor Department is prosecuting Occupational Safety and Health Act (OSHA) violations with new fervor. It turns out that Secretary of Labor Robert Reich also takes the Fair Labor Standards Act (FLSA) more seriously than his predecessors did. "We've seen it already," says Richard Wessels, a founder of the St. Charles, Ill., law firm Wessels & Pautsch. If investigated, many small companies could owe thousands in unpaid overtime.

The FLSA mandates minimum wages and overtime pay for workers unless they can be classified as being exempt from its provisions. Salaried workers of certain classes -- executives, managers, administrators, and so on -- are exempt. Because exempt status is easier to administer, companies often apply it broadly and incorrectly.

A recently settled federal case involving the New York engineering firm Malcolm Pirnie focused attention on the simplest test of exempt status: salary basis of pay. It was company policy to deduct a pro rata amount from employees' salary if they missed part of a day's work. That's the way you treat an hourly employee, not a salaried employee, the court maintained, and it held Malcolm Pirnie liable for overtime.

Primer on FLSA & Other Wage and Hour Laws, by Joseph E. Kalet (Bureau of National Affairs, Washington, D.C., 1994, $45), explains salary basis of pay and other tests used to determine exempt status.

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