You’re a fair employer. You pay your employees their wages every pay day. You compensate all your employees who put in a bit of extra time on the job. You might do so by giving them time off the next week. In weeks an employee doesn’t quite work the 40 hours, maybe you average the last two weeks’ hours so they don’t lose out on pay. Maybe you give them a gift, or slip them a bit of extra cash in appreciation for their efforts. You do this both for salaried and hourly employees. What if one day you learned that one or more of those employees filed a complaint with the Department of Labor or sued you, claiming you owed them overtime? Does that sound ridiculous to you? Would it shock you if I told you that they may be right? OK, unclench your jaw, breathe, relax your shoulders and read on to learn how to avoid being “that” employer…
(image from rapzilla.com)
Wage and hour issues are very confusing and very contentious. Even employers with the best of intentions get ensnared from time to time. The DOL continues to crack down on these issues. In FY 2017 it collected over $270m in back wages. That said, why are these things wrong?
It all starts with the Fair Labor Standards Act (FLSA), which says that employers must pay all non-exempt employees for every hour worked. Per the FLSA when a non-exempt employee works more than 40 hours in any given week, s/he must receive 1.5 times his or her regular pay rate for every additional hour. For example, an employee who works 45 hours in a given week is entitled to 40 hours of pay at his or her regular rate, and 5 hours of overtime pay.
Now, let’s look again at some of the actions I mentioned above. Last week one of your employees worked 56 hours. The following week you let her take two days off. Guess what? If she is overtime eligible you still have to pay her 16 hours of overtime pay for the following week. It’s very nice of you to give her comp time the following week, but you still owe her the 16 hours of overtime pay for those extra hours she worked last week. Similarly, if your employee worked 60 hours last week, calls out this week for 2 days and comes in late the 3rd day, you cannot average her hours for those two weeks. You might think you’re being nice, because you want her to get paid for two full weeks, but that still violates the FLSA.
What if the employee is salaried? Isn’t she then overtime-exempt? How can you owe overtime to an exempt employee?” Just because you pay the employee a salary doesn’t automatically make him or her ineligible to receive overtime. Employees under the FLSA are presumed to be eligible for overtime. The salary test (at least $455 a week regardless of hours worked) is the first test. Next, the primary job functions that employee fulfills must fit within one or more exemption categories. (Click here, here, here , here and here for review). If you pay your employee a salary, but his or her primary job functions do not meet any of the exemption categories, guess what? Any week in which that employee works more than 40 hours will entitle him or her to receive overtime pay. Comp time won’t cut it.
Suppose you show your appreciation to your employee for all the extra work by adding an extra $100 to his or her paycheck? Unless that covers all the overtime pay, then, that doesn’t get you off the hook either.
If the DOL or a court says you owe overtime, you will have to pay the back wages, plus liquidated damages in the same amount (the back straight time and overtime times two) and the employee’s attorney fees. You see how the amount can be pretty steep?
Here’s the nutshell version. DON’T:
- delay paying overtime pay, and then “make it up” on the next check.
- pay $100 if you owe $400.
- average employee hours over a two-week pay period. You cannot consider a 50-hour week plus a 30-hour week as 80 hours of straight time. Under the FLSA, each week stands on its own.
- give “comp time” in lieu of paying overtime;
- assume that just because your employee gets a salary that s/he isn’t entitled to receive overtime pay.
- beat yourself up if you have made one or more of these mistakes in the past, rather work to correct them and not make them again.
Now, since I don’t want to end on a negative note, here some positive steps. DO:
- review all employee positions classified as overtime-exempt and make sure those classification are valid;
- pay all your employees for all hours worked and them overtime for all hours in excess of 40 in each week;
- re-classify any employees improperly classified as exempt;
- pay overtime if you owe it;
- if you do pay back wages (either straight or overtime pay) have the employee sign a written acknowledgement of receipt and that the amount fairly and accurately reflects wages owed for hours worked;
- try to get out more while the weather’s still warm.
That’s all for now. See you next week!
Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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