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2019-180 City Overtime Policy and FLSA RequirementsDate: October 18, 2019 Report No. 2019-180       INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Fair Labor Standards Act Requirements and the City’s Overtime Policy BACKGROUND: During the Police Overtime Audit, audit staff noticed that the City Policy on overtime is generous compared to the Fair Labor Standards Act (FLSA). The City is incurring higher overtime costs than required due to this policy. The purpose of this staff report is to inform the City Council of the facts and is for information only – audit staff is not making a recommendation. This information was presented to the Audit/Finance Committee on August 20. The Committee recommended no changes and requested that an ISR on the matter be sent to the Council with no further action DISCUSSION: Section 7(a) of the Fair Labor Standards Act (FLSA) prescribes a general overtime rate of pay not less than one and one-half times the employee’s regular rate. The employee must receive this overtime pay for all hours worked in any workweek more than the applicable maximum – typically 40 hours. During our audit of Police Overtime, we found that the City’s policy is more generous than what is require by federal law. Specifically, the FLSA considers “overtime” as actual time an employee works beyond a normal work period. Paid leave (e.g. vacation, sick, holiday, etc.) and non-restricted on call duty hours do not count as actual time worked under FLSA towards the overtime calculation (see Equitation 1). Equation 1: FLSA Required Overtime Calculation 𝑂𝑣𝑒𝑟𝑡𝑖𝑚𝑒 𝐻𝑜𝑢𝑟𝑠 ൌ ሺ𝐴𝑐𝑡𝑢𝑎𝑙𝑙𝑦 𝑊𝑜𝑟𝑘𝑒𝑑 𝐻𝑜𝑢𝑟𝑠 ൅ 𝑅𝑒𝑠𝑡𝑟𝑖𝑐𝑡𝑒𝑑 𝑂𝑛 𝐶𝑎𝑙𝑙 𝐻𝑜𝑢𝑟𝑠ሻെ40 Note: Restricted on-call hours represent the time for which the employee is not at liberty to move from a location On the other hand, the City of Denton’s overtime policy includes holiday and vacation leave (except for vacation in lieu of sick) and most scheduled on call hours as actual time worked when determining the overtime eligibility of an employee as shown in Equation 2. Equation 2: City of Denton Overtime Calculation 𝑂𝑣𝑒𝑟𝑡𝑖𝑚𝑒 𝐻𝑜𝑢𝑟𝑠 ൌ ሺ𝐴𝑐𝑡𝑢𝑎𝑙𝑙𝑦 𝑊𝑜𝑟𝑘𝑒𝑑 𝐻𝑜𝑢𝑟𝑠 ൅ 𝐻𝑜𝑙𝑖𝑑𝑎𝑦𝑠 ൅ 𝑉𝑎𝑐𝑎𝑡𝑖𝑜𝑛 ൅ 𝑂𝑛 𝐶𝑎𝑙𝑙 𝐻𝑜𝑢𝑟𝑠ሻെ40 Date: October 18, 2019 Report No. 2019-180       During the Police Overtime audit, we found that savings could be achieved annually citywide if the City’s overtime calculation was aligned with the FLSA.1 The City expended a total of about $5.6 million in overtime expenses during fiscal year 2018 on a citywide basis as shown in Figure 1. In summary, the City is incurring additional expenses due to the current overtime policy. These additional overtime costs are not required by FLSA and put an extra burden on the City’s finances from year to year. CONCLUSION: We have included two benchmarking surveys conducted by our Office and the Human Resources Department below in order to provide local context to this issue. Table 1 and 2 indicate that Denton has a more generous overtime policy than many other cities in Texas. It should be noted that at the City of Denton, including this time in the overtime calculation is considered part of the City’s compensation package. A change in this policy may or may not affect retention and recruitment efforts. Also, changing the policy may have an impact on employee morale. In addition, Human Resources has provided a memorandum in response to this information that is attached. Table 1: City Auditor’s Office Benchmarking Results (July 2019) City Vacation Holiday Sick On-Call Denton Yes Yes No Yes Arlington Yes Yes NoOnly restricted on call or worked hours Corpus Christi No Yes No No Frisco No No NoYes Plano No No No Only actual time worked San Antonio No No NoOnly actual time worked San Marcos Yes Yes No Only actual time worked                                                              1 Our Office may be able to estimate Police Department-only savings using data accumulated during the audit. Police 36% Fire 19% Electric 17% Solid  Waste 9% Water  Services 8% Other 11% Figure 1: FY18 Overtime by Department  Date: October 18, 2019 Report No. 2019-180       Tale 2: Human Resources Benchmarking Results (July 2018) City Holiday Vacation Sick Addison Yes Yes No Arlington Yes Yes No Bedford Yes No No Carrollton Yes Yes No Cedar Hill No No No Cleburne No No No Flower Mound Yes No No Fort Worth Yes No No Frisco Yes No No Grand Prairie Yes Yes No Irving Yes Yes No Lancaster No No No Lewisville Yes Yes No Plano No No No Richardson Yes Yes No Roanoke Yes No No Royse City Yes No No Trophy Club NoYesNo ATTACHMENTS: 1. HR Response 2. City Management Response STAFF CONTACT: Umesh Dalal, City Auditor City Auditor’s Office (940) 349-8158 Umesh.Dalal@cityofdenton.com REQUESTOR: Staff Initiated PARTICIPATING DEPARTMENTS: City Internal Auditor’s Office and Human Resources STAFF TIME TO COMPLETE REPORT: This information was gathered as part of the Police Overtime Audit. Human Resources 601 E. Hickory St., Suite A, Denton, TX 76205  (940) 349-8340 OUR CORE VALUES Integrity  Fiscal Responsibility  Transparency  Outstanding Customer Service MEMORANDUM DATE: August 14, 2019 TO: Todd Hileman, City Manager Mario Canizares, Deputy City Manager Sara Hensley, Assistant City Manager Tony Puente, Chief Financial Officer FROM: Carla Romine, Director of Human Resources SUBJECT: Response to City Auditor’s Memo on FLSA and the City’s Overtime Policy This memorandum is in response to the City Auditor’s memorandum, dated August 13, 2019, regarding the City’s overtime policy. It is correct that the City’s policy is more generous than what is required by the Fair Labor Standards Act (FLSA). The FLSA requires employers to pay covered employees all hours worked in a workweek. Per the Department of Labor guidelines, in general, “hours worked” includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work, from the beginning of the first principal activity of the workday to the end of the last principal work activity of the workday. Also included is any additional time the employee is required or allowed (i.e., “suffered or permitted”) to work. The FLSA does not require vacation, sick, or holiday pay. Overtime requirements apply to all employees, unless their position meets the criteria to be exempt from overtime under the FLSA, and is required if an employee works more than 40 hours in a workweek. Overtime is paid at 1.5 times an employee’s hourly rate. City Policy Section I. D. of the City’s Overtime policy (106.04), in part, states: Holidays, vacation leave (with the exception of vacation in lieu of sick), and scheduled “on-call” hours subject to provisions of Policy No. 106.06 are considered actual time worked for overtime eligibility. Except in the case of Fire Civil Service employees, all other leaves (i.e., sick leave, administrative leave, etc.) are not considered time worked and are not included in computing hours for overtime purposes. 2 of 4 It should be noted that, in August of 2018, the City began including military leave in the definition of “time worked” for overtime purposes. Meet and Confer Agreements The current Fire Meet and Confer agreement does not contain language regarding overtime and what is considered “time worked” for overtime purposes. Article 8 of the Police Meet and Confer agreement includes language about overtime as it relates to court time and call back, but there is no language addressing what is considered “time worked” for overtime purposes. Article 8: Court Time/Call Back states: Section 1. Officers while off duty who are called back to duty shall be paid a minimum of two (2) hours or actual time worked, whichever is greater. Section 2. Officers while off duty who are required to perform phone consultations with the District Attorney's Office shall be paid a minimum of one (1) hour or actual time worked, whichever is greater. Section 3. Officers while off duty who are required to give testimony in court about events arising out of their employment shall be paid a minimum of three (3) hours or actual time worked, whichever is greater. Section 4. Any hours meeting established criteria for overtime compensation will be paid at one and a half (1- 1/2 times) the Officer's regular rate of pay. Both of these agreements are set to expire on September 30, 2019, and thus, management is currently in the process of negotiating new agreements. If the City’s definition of “time worked” for overtime purposes is changed, I anticipate that this could become an item for discussion during future meet and confer negotiations. Survey In his memorandum, the City Auditor references a survey I conducted in July of 2018. To clarify, I conducted a survey, but it was not for the purposes of this audit. I conducted the survey as we were reviewing policies and considering potential recommended changes. The survey results show that 13 out of 18 cities (72.22%) who responded to my survey include holiday leave in their overtime calculation; eight of the 18 cities (44.44%) include vacation leave in their overtime calculation. A copy of the survey results is included on page 3. 3 of 4 Other than actual hours worked, is any other time included in your City’s overtime calculation? Conclusion Including vacation and holiday leave as “time worked” for overtime purposes is a long-standing policy of the City. A resolution dated March 18, 1986, included vacation and holiday leave as time worked. The specific language of the 1986 resolution stated: Sick leave is not considered actual time worked and is not included in computing hours for overtime purposes. Holidays and vacation leave are considered actual time worked for overtime eligibility. It is important to monitor overtime costs, and for managers to communicate to employees that overtime is not guaranteed. While removing holiday and vacation leave from the definition of “time worked” may save the City some money, it can also cost the City in negative ways including reduced morale, higher turnover, increased difficulty in recruiting, and increased workload for the Payroll staff. Other cities in the DFW metroplex already include all or a portion of the leaves in their overtime calculation. As such, those cities can be more attractive to current or prospective employees. The City is currently experiencing difficulty recruiting field services and technical employees, all of which are considered non-exempt (overtime eligible) positions. Additionally, while overtime is not guaranteed, because the City has a long-standing practice of including holiday and vacation leave in the overtime calculation, employees may see this as “something taken away from them.” As of August 13, 2019, the City has 1,093 non-exempt employees who are eligible to receive vacation and holiday leave, and therefore, could be affected by the recommended policy change. City/Town Holiday Vacation Sick Military Bereavement Jury Duty Addison Yes Yes No Yes Yes Yes Arlington Yes Yes No Yes Yes Yes Bedford Yes No No No No Yes Carrollton Yes Yes No Yes No No Cedar Hill No No No No No No Cleburn No No No No No No Flower Mound Yes No No Yes Yes Yes Fort Worth Yes No No No No No Frisco Yes No No No No No Grand Prairie Yes Yes No Yes Yes Yes Irving Yes Yes No Yes No Yes Lancaster No No No No No No Lewisville Yes Yes No No No No Plano No No No No No No Richardson Yes Yes No No Yes No Roanoke Yes No No No No No Royse City Yes No No No No No Trophy Club No Yes No No No No 4 of 4 Finally, to exclude vacation and holiday from overtime would require a manual process involving numerous staff members across the organization, including manual adjustments by Payroll staff. The Kronos timekeeping system, a functioning and automated system in which the City has invested thousands of dollars, would be inefficient and subject to errors. Additionally, those manual entries would distort vacation balances which simply increases future liabilities when employees depart the organization. All these considerations, along with the survey, are reasons the system is setup the way it is. Kronos, as well as JD Edwards, would require to be re-programmed which would cost the City additional money (amount to be determined). If you have any questions or need additional information, please let me know. Human Resources 601 E. Hickory St., Suite A, Denton, TX 76205  (940) 349-8340 OUR CORE VALUES Integrity  Fiscal Responsibility  Transparency  Outstanding Customer Service MEMORANDUM DATE: August 14, 2019 TO: Todd Hileman, City Manager Mario Canizares, Deputy City Manager Sara Hensley, Assistant City Manager Tony Puente, Chief Financial Officer FROM: Carla Romine, Director of Human Resources SUBJECT: Response to City Auditor’s Memo on FLSA and the City’s Overtime Policy This memorandum is in response to the City Auditor’s memorandum, dated August 13, 2019, regarding the City’s overtime policy. It is correct that the City’s policy is more generous than what is required by the Fair Labor Standards Act (FLSA). The FLSA requires employers to pay covered employees all hours worked in a workweek. Per the Department of Labor guidelines, in general, “hours worked” includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work, from the beginning of the first principal activity of the workday to the end of the last principal work activity of the workday. Also included is any additional time the employee is required or allowed (i.e., “suffered or permitted”) to work. The FLSA does not require vacation, sick, or holiday pay. Overtime requirements apply to all employees, unless their position meets the criteria to be exempt from overtime under the FLSA, and is required if an employee works more than 40 hours in a workweek. Overtime is paid at 1.5 times an employee’s hourly rate. City Policy Section I. D. of the City’s Overtime policy (106.04), in part, states: Holidays, vacation leave (with the exception of vacation in lieu of sick), and scheduled “on-call” hours subject to provisions of Policy No. 106.06 are considered actual time worked for overtime eligibility. Except in the case of Fire Civil Service employees, all other leaves (i.e., sick leave, administrative leave, etc.) are not considered time worked and are not included in computing hours for overtime purposes. 2 of 4 It should be noted that, in August of 2018, the City began including military leave in the definition of “time worked” for overtime purposes. Meet and Confer Agreements The current Fire Meet and Confer agreement does not contain language regarding overtime and what is considered “time worked” for overtime purposes. Article 8 of the Police Meet and Confer agreement includes language about overtime as it relates to court time and call back, but there is no language addressing what is considered “time worked” for overtime purposes. Article 8: Court Time/Call Back states: Section 1. Officers while off duty who are called back to duty shall be paid a minimum of two (2) hours or actual time worked, whichever is greater. Section 2. Officers while off duty who are required to perform phone consultations with the District Attorney's Office shall be paid a minimum of one (1) hour or actual time worked, whichever is greater. Section 3. Officers while off duty who are required to give testimony in court about events arising out of their employment shall be paid a minimum of three (3) hours or actual time worked, whichever is greater. Section 4. Any hours meeting established criteria for overtime compensation will be paid at one and a half (1- 1/2 times) the Officer's regular rate of pay. Both of these agreements are set to expire on September 30, 2019, and thus, management is currently in the process of negotiating new agreements. If the City’s definition of “time worked” for overtime purposes is changed, I anticipate that this could become an item for discussion during future meet and confer negotiations. Survey In his memorandum, the City Auditor references a survey I conducted in July of 2018. To clarify, I conducted a survey, but it was not for the purposes of this audit. I conducted the survey as we were reviewing policies and considering potential recommended changes. The survey results show that 13 out of 18 cities (72.22%) who responded to my survey include holiday leave in their overtime calculation; eight of the 18 cities (44.44%) include vacation leave in their overtime calculation. A copy of the survey results is included on page 3. 3 of 4 Other than actual hours worked, is any other time included in your City’s overtime calculation? Conclusion Including vacation and holiday leave as “time worked” for overtime purposes is a long-standing policy of the City. A resolution dated March 18, 1986, included vacation and holiday leave as time worked. The specific language of the 1986 resolution stated: Sick leave is not considered actual time worked and is not included in computing hours for overtime purposes. Holidays and vacation leave are considered actual time worked for overtime eligibility. It is important to monitor overtime costs, and for managers to communicate to employees that overtime is not guaranteed. While removing holiday and vacation leave from the definition of “time worked” may save the City some money, it can also cost the City in negative ways including reduced morale, higher turnover, increased difficulty in recruiting, and increased workload for the Payroll staff. Other cities in the DFW metroplex already include all or a portion of the leaves in their overtime calculation. As such, those cities can be more attractive to current or prospective employees. The City is currently experiencing difficulty recruiting field services and technical employees, all of which are considered non-exempt (overtime eligible) positions. Additionally, while overtime is not guaranteed, because the City has a long-standing practice of including holiday and vacation leave in the overtime calculation, employees may see this as “something taken away from them.” As of August 13, 2019, the City has 1,093 non-exempt employees who are eligible to receive vacation and holiday leave, and therefore, could be affected by the recommended policy change. City/Town Holiday Vacation Sick Military Bereavement Jury Duty Addison Yes Yes No Yes Yes Yes Arlington Yes Yes No Yes Yes Yes Bedford Yes No No No No Yes Carrollton Yes Yes No Yes No No Cedar Hill No No No No No No Cleburn No No No No No No Flower Mound Yes No No Yes Yes Yes Fort Worth Yes No No No No No Frisco Yes No No No No No Grand Prairie Yes Yes No Yes Yes Yes Irving Yes Yes No Yes No Yes Lancaster No No No No No No Lewisville Yes Yes No No No No Plano No No No No No No Richardson Yes Yes No No Yes No Roanoke Yes No No No No No Royse City Yes No No No No No Trophy Club No Yes No No No No 4 of 4 Finally, to exclude vacation and holiday from overtime would require a manual process involving numerous staff members across the organization, including manual adjustments by Payroll staff. The Kronos timekeeping system, a functioning and automated system in which the City has invested thousands of dollars, would be inefficient and subject to errors. Additionally, those manual entries would distort vacation balances which simply increases future liabilities when employees depart the organization. All these considerations, along with the survey, are reasons the system is setup the way it is. Kronos, as well as JD Edwards, would require to be re-programmed which would cost the City additional money (amount to be determined). If you have any questions or need additional information, please let me know.