Overtime regulations in the United States are primarily governed by the Fair Labor Standards Act (FLSA). This federal law sets standards for minimum wage, overtime pay, recordkeeping, and child labor. However, despite these clear guidelines, many employers, knowingly or unknowingly, fail to properly pay their employees. This post highlights common mistakes we constantly see. While I have addressed this before, it bears repeating: JUST BECAUSE YOU ARE SALARIED DOES NOT MEAN YOU ARE DISQUALIFIED FROM OVERTIME PAY. SALARY IS ONLY 50% OF THE ANALYSIS, THE OTHER 50% OF THE ANALYSIS EXAMINES YOUR JOB DUTIES. IF YOU DON’T MEET THE JOB DUTIES TEST, GENERALLY SPEAKING, YOU ARE ENTITLED TO OVERTIME PAY. IF YOU DON’T MEET THE SALARY TEST, YOU ARE GENERALLY SPEAKING ENTITLED TO OVERTIME PAY. IN OTHER WORDS, YOU MUST PASS BOTH THE SALARY TEST AND THE JOB DUTIES TEST BEFORE YOU ARE CONSIDERED TO BE EXEMPT.
1. Misclassifying Employees
One of the biggest issues we see is misclassifying employees as exempt from overtime. The FLSA outlines specific criteria for determining whether an employee is exempt or non-exempt. Mistakenly classifying a non-exempt employee as exempt can lead to unpaid overtime. The primary exemptions used by employers are the “white collar exemptions”, which are 1) the executive exemption, 2) the administrative exemption and 3) the professional exemption. In order to use any of these exemptions, the employee must first be paid a salary of at least $684.00 per week. If an employee’s salary changes based on quantity or quality of work, odds are they are not paid on a salary, and if they are not paid on a salary, then most exemptions DO NOT APPLY. In other words, you must be paid a salary to be seen as exempt. However, just because you are paid a salary DOES NOT MEAN you are exempt. You must still pass the duties test for whatever exemption your employer is trying to apply to you.
2. Not Recognizing What Constitutes “Work”
Employers often misunderstand what counts as compensable work time. Work does not only include the primary duties of an employee but also certain preparatory and concluding activities. For instance, time spent in mandatory meetings or training sessions should typically be considered work time.
3. Incorrect Calculation of Overtime Pay
Another common error is the incorrect calculation of overtime pay. Overtime is generally calculated as one and a half times an employee’s regular rate of pay for hours worked beyond 40 in a workweek. Errors can occur if an employer does not include bonuses, commission, or other incentives when calculating the regular rate of pay.
4. Failure to Keep Accurate Records
The FLSA requires employers to keep accurate records of hours worked and wages paid to employees. Neglecting proper record-keeping can lead to disputes and potential legal challenges. It’s essential for employers to maintain detailed and accurate time records.
5. Automatic Meal Deductions
Some employers automatically deduct meal periods from employees’ work hours. However, if an employee works through a meal period, this time must be compensated. Automatic deductions without confirming that the employee is completely relieved of duty can result in unpaid work time.
6. Ignoring State Laws
While the FLSA provides federal standards, many states have their own labor laws that may offer greater protections. Employers must comply with both federal and state laws, and in cases where they differ, the law most beneficial to the employee applies.
7. Improper Use of Comp Time
Compensatory time, or “comp time,” is time off given instead of overtime pay. While this practice is allowed for some public sector employees, it is generally not permissible in the private sector under the FLSA.
Overtime mistakes can be costly for employers, not only financially but also in terms of employee relations and reputation. Employers are advised to regularly review their policies and practices to ensure compliance with the FLSA and state laws. Employees should also be aware of their rights and seek clarification when in doubt. Staying informed and vigilant can help prevent costly legal disputes and foster a fair and productive work environment.