When it comes to employment law, what you don’t know can hurt you. Is your company guilty of believing any of these common wage and hour myths?
Myth: Because we pay employees a salary, we don’t have to pay them overtime.
Fact: Just because someone is paid a salary, this fact alone doesn’t make them exempt from overtime. The Fair Labor Standards Act (FLSA) outlines very specific criteria that must be met in order for an employee to be considered exempt.
For instance, their salary must be at least $455 a week, and you cannot dock their pay depending on the number of hours they work. If they work at all during a day, even for just a few minutes, they must be paid the full amount for that day.
In addition, their primary job duties must fall into one of the FLSA’s specific exemption categories. Note that it doesn’t matter what their job title is, what matters are their job duties. You can call them the “Grand High Facilities Sanitation Pooh-Bah,” but if their actual job is sweeping the floors, they’re not exempt.
For more information on the criteria for exemption and other overtime issues, the Department of Labor (DOL) offers a compilation of overtime information and resources at https://www.dol.gov/whd/overtime_pay.htm.
This has become a real “hot button” issue with both the DOL and the IRS in recent years. If you have questions about the classification of any of your employees, you should consult with your employment law attorney to ensure they’re properly classified.
Myth: To save money, we can give employees “comp time” in lieu of overtime pay. As long as the employees agree ahead of time in writing, it’s OK.
Fact: Private employers cannot offer “comp time” in lieu of overtime pay to overtime-eligible employees. They must be paid at the rate of one and a half times their “regular rate of pay” for any time worked over 40 hours in a single workweek. At present, only government agencies can offer comp time as an option.
It doesn’t matter if the employees agree to a comp time arrangement, or even if they request the option of comp time. The law does not allow employees to bargain away any of their rights, including overtime pay.
If an employee is exempt from overtime, of course, you can offer him comp time as a reward for working overtime. Since you aren’t obligated to pay him anything for overtime, you are free to offer whatever incentive or reward you want. The restrictions on offering comp time apply only to overtime-eligible employees (whether hourly or salaried-nonexempt).
For years, some members of Congress have been trying to pass a bill that would amend the FLSA to allow comp time for non-exempt employees, to be awarded at the rate of one-and-a-half hours of comp time for every hour of overtime worked. However, opponents have expressed some genuine concerns, the bill has not yet passed, and most analysts say it seems unlikely to become law any time soon. In the meantime, overtime pay (as in: actual dollars and cents) remains the law of the land.
Myth: As long as we have workers sign an agreement that they are “independent contractors” or use a staffing company, we can avoid any wage and hour liability.
Fact: Just because you call someone a “contractor,” even if they sign an agreement to that effect, that doesn’t necessarily make them a contractor. Just as with overtime exemptions, it’s not about what you call them, but the actual conditions of work.
As with the overtime exemption, there are specific criteria that must be met in order for a worker to be considered an independent contractor. If you treat your “independent contractors” the same as you do your employees, it’s likely the DOL would reclassify them as employees in the event of an investigation.
The problem, of course, is that it’s usually cheaper for a company to hire an independent contractor, because it lets them off the hook for the employer’s portion of FICA and things like unemployment insurance. As a result, there’s a lot of incentive to classify workers as independent, even when they’re not. To combat this, the DOL, the IRS and various state labor boards have signed letters of agreement to cooperate and share information when investigating misclassification. To learn more about this Misclassification Initiative, visit the DOL website at https://www.dol.gov/whd/workers/misclassification.
Staffing with temps through an agency might seem like a perfect solution, but that also may backfire. Courts have found staffing agencies and their clients to be “joint employers,” with both being partially liable for wage and hour issues. In other cases, when companies hired “temps” who stayed for years, the DOL has decided the workers were de facto “employees” even though their paychecks continued to come from the staffing agency.
When in doubt, consult your employment law attorney to make sure your independent contractors are truly “independent.”
Myth: If an employee works extra one day, we can reduce her hours another day by the same amount. As long as both days are on the same paycheck, we won’t have to pay overtime.
Fact: Actually, you might be able to do this, as long as you meet both these criteria:
- All the hours have to be within the same workweek. They can’t just be within the same pay period; they must be within the same workweek. So if you have an employee who works 10 hours one day, you could have him work six hours the next day (assuming the next day is still within the same workweek), so his total for the week doesn’t exceed 40 hours.
What you can’t do is average their hours worked across two or more weeks in order to avoid paying overtime. So, for instance, if an employee works 45 hours one week and 35 hours the next, you still have to pay her for the five hours of overtime she worked in the first week.
- You cannot be located in a state (such as California) or other locality that mandates paying overtime on a daily basis. In California, for example, employees must be paid overtime if they work over eight hours in a single day, regardless of how many hours they work in the week. The only way to avoid paying overtime in California is to have everyone work eight or fewer hours every day (as well as fewer than 40 hours for the week as a whole).
If you don’t meet these criteria, you must pay the overtime.
Myth: We have no hourly employees, so we don’t need to keep any time records.
Fact: Oh, this is so very, very wrong (and I’m not just saying that because I work for a company in the time and attendance industry).
First, if any of your salaried employees don’t meet the criteria for overtime exemption (see Myth #1, above), you have to pay them overtime. In order to do that, you have to keep time records — otherwise, how would you know how much overtime they’ve worked?
Second, even if it turns out all your employees are accurately classified as salaried exempt, it can still be a good idea to track their time. For instance, if you’re a service company, you need to track time for customer billing purposes. Beyond that, I’ve written before about the many reasons why tracking time for all your employees is such a good idea. In a nutshell:
- Better workforce utilization and management.
- Reduction of “time theft.”
- Limitation of liability in the event anyone is found to have been misclassified.
Fortunately, with today’s modern time tracking systems, clocking in and out needn’t be a hassle. We’ve got a number of solutions that are perfectly at home in even the most professional environments. With our timeQplus FaceVerify system, for instance, it can be as quick and easy as simply looking at a terminal, or a quick wave of a badge using timeQplus Proximity.
Sadly, every year thousands of companies find themselves paying back wages, fines and penalties because they were tripped up by these or other employment law myths. Now that you know the facts, you should be better equipped to protect yourself and your company.