Many employers believe all salaried employees are exempt from overtime. This common wage and hour mistake costs employers dearly every year in judgments, fines and penalties. In fact, according to some estimates, as much as 70% of the workforce in America is eligible for overtime — including many salaried employees.
So, what do you need to know to better protect your business against hefty penalties?
The first and most important defense is to consult regularly with your employment law advisor, especially when you create a new position, combine existing positions or revise job descriptions. Your lawyer can help you avoid the most common employee classification mistakes. A few dollars spent on a wage and hour audit now can save you thousands — perhaps tens or even hundreds of thousands — later.
Another important defensive tactic is self-education. The more you know, the better. Here are some basic concepts to keep in mind:
Overtime for hourly employees: (almost) always
According to federal law, virtually all hourly employees are entitled to receive overtime at a rate of time-and-a-half for any work over 40 hours per week. It’s still important to check with your labor law advisor, though, because in some jurisdictions — such as in California — you have to pay overtime for any work over eight hours in a day, regardless of the number of hours worked that week.
There’s also a specific exception for some computer professionals. We’ll cover that (and more) in greater detail in next month’s newsletter article.
Overtime for salaried employees: sometimes
Generally speaking, salaried employees fall into two classifications:
- Salaried exempt: Salaried employees who meet one of the specific exemptions spelled out in the Fair Labor Standards Act (FLSA) and any subsequent modifications. While you are permitted to pay overtime to any employee regardless of exempt status, you are not required by federal law to pay overtime to exempt employees.
- Salaried non-exempt: Salaried employees who do NOT meet the exemption criteria in the FLSA. Even though these employees are paid on a salaried basis, you must track their time and pay them overtime at the equivalent of time-and-a-half for any work they perform over 40 hours per work week.
By now you’re probably wondering: just what are those exemption criteria? Here’s a quick overview:
- The employee must make at least $455 a week. It doesn’t matter if they’re full time or part time, if a salaried employee makes less than $455 a week, they are overtime-eligible.
- Their job duties must fall into certain specific categories. Remember, it doesn’t matter what the employee’s job title is, what matters is what their job duties are. For instance, just because someone’s job title contains the word “manager,” this doesn’t necessarily mean they are automatically exempt from overtime. What matters is how they actually spend their time at work.
Next month, we’ll take a closer look at the specific exemption criteria.
While your first line of defense should be a qualified professional employment law advisor, sometimes even professionals have trouble deciphering some of the more obscure “gray areas” of overtime exemption.
When you find yourself on the horns of a dilemma, did you know you can ask the Department of Labor directly for clarification? You can!
The DOL answers questions from employers through “Opinion Letters.” You can review an archive online at https://www.dol.gov/whd/opinion/opinion.htm. You may find your question has already been answered. If not, you can write the DOL and possibly receive an answer.
The bottom line
Overtime exemption is a complex subject, and mistakes can be costly. Even companies as large and sophisticated as IBM®, Starbucks® and FedEx® have been tripped up by employee classification issues.
It’s wise to educate yourself to better understand the issues. Beyond that, your best bet is to have a qualified employment law advisor review your employee classifications regularly, particularly any time you hire or fire employees, combine or split existing positions or make any changes to your job descriptions.
While you may not be able to avoid problems entirely, self-education and solid professional advice can help mitigate the risks. And if you have overtime-eligible employees, an Acroprint time and attendance system will easily track their time, automatically total up any overtime and export their hours to your payroll system, making payroll preparation simple, quick and accurate.
Stay tuned for next month’s article, when we’ll wrap up our look at employee overtime classification.