Overtime Roulette:
Seven Mistakes that Could Cost You
By: Kraig J.
Marton, Esq. and Jerrie
Martinez-Palombo, M.Ed., SPHR
The Wage and Hour Division of the Department of Labor, DOL,
primarily ensures that employers are in compliance with the Fair
Labor Standards Act, FLSA. In short, the FLSA requires that
non-exempt employees be paid at least the minimum wage for all
hours worked and overtime pay at 1 ½ times their regular rate of
pay for all hours worked in excess of 40 hours in a workweek. The
FLSA also has child labor provisions which include some
restrictions on hours worked for employees under 16 years of age,
as well as prohibits youths from working in hazardous
occupations.
In 2010, The Department of Labor, DOL, launched a "We can help"
http://www.dol.gov/wecanhelp/
campaign encouraging employees to contact DOL if they believe they
are being paid incorrectly. DOL hired celebrities such as
actor, Jimmy Smits to help convey its message and commercials are
appearing on local television as well as in movie theaters. They
also hired more investigators to enforce FLSA requirements and
based on our experience it appears that wage and hour audits are on
the rise.
Wage and hour auditors normally inspect employer payroll records
for the past two years reviewing both current and former
employees. However, if it is believed that an employer has
willfully violated FLSA provisions, investigators can review
payroll records for three years.
In addition, if it is believed that
the employer willfully violated the FLSA, the Secretary of Labor
may file suit for back wages and an equal amount as liquidated
damages. In simplistic terms, if an employer willfully violated the
FLSA, the back wages owed can be doubled! The DOL can also
enforce civil money penalties of up to $1,000 for willful and
repeated violations.
http://www.dol.gov/whd/regs/compliance/hrg.htm
Seven Common Mistakes
Employers Make
Employers often find it easy to comply
with the FLSA's child labor provisions as well as minimum wage
requirements, which in Arizona is $7.35 per hour. However,
the typical FLSA violations employers make are much more complex
and often involve overtime, misclassification of employees and not
paying for off the clock work.
1. Not paying
overtime
Non-exempt employees are entitled to 1
½ times their hourly rate for all hours worked in excess of 40
hours per week. Employers often think that if the employee
agrees to be paid straight time for hours worked in excess of 40
hours per week, that there isn't a problem. However, even if
an employee agrees to be paid straight time for hours worked in
excess of 40 hours per week, paying a non-exempt employee anything
other than overtime is a violation of FLSA.
2. Not paying overtime for
piece rate or piecework - very common in the construction
industry
Employers must also pay overtime for
piecework if an employee works more than 40 hours within a work
week. The employee is entitled to one-half of the regular rate for
each hour worked above 40 per workweek, in addition to their
regular piece rate compensation. The overtime pay due must be
computed on the basis of the average hourly rate and is calculated
by dividing the total pay for employment in any workweek by the
total number of hours worked.
For example, if John Doe is paid on a
piecework basis and works 50 hours in a week and earns $450 in that
work week, the employee's regular rate for that workweek would be
$9 per hour. The employee should then also receive an additional
$4.50 for each hour worked over 40 hours - an additional $45 for
the 10 overtime hours worked for a total of $495.00 for that
week.
3. Misclassification of
employees - (Non-Exempt from overtime earnings vs. Exempt
from overtime earnings)
Classifying employees as non-exempt or
exempt is a challenging process, which is often difficult for small
businesses, especially if they do not have a human resource
professional to assist them. The FLSA requires that jobs meet both
a salary test and duties test before being classified as exempt
from overtime.
The salary tests looks at both the
salary basis and the salary level. When an employer decides to pay
an employee a salary the employer is required to pay the salary
regardless of the amount or quality of work performed and even if
no work is performed. Additionally, the employee's base pay cannot
be reduced for partial day absences[1].
For example, if an office closes early as there are few customers
and an employee is paid on a salary basis, the employer must still
pay the employee's full salary.
The salary level portion of the salary
test requires that employees be paid at least $455 per week or more
to be considered exempt from overtime regulations. If a position
meets the salary tests then the duties of the position need to be
considered to determine if the position is truly exempt.
Common exemptions from FLSA provisions
are positions where the job duties are classified as Executive,
Administrative and Professional. Outside sales positions and
Computer Professionals that make $27.63 or more per hour are often
exempt from FLSA as well. There are also many other exempt
positions and often it seems as if there is not a rhyme or reason
to the exemption. For example, teachers are considered exempt, but
police officers are classified as non-exempt.
Further, just because a position is
considered to have some functions in a certain classification does
not mean the that position is exempt. The FLSA requires that the
employee must perform duties within the exemptions and "meet all
prongs of the applicable exemption test." For example, a
Payroll Coordinator, may serve some administrative functions, but
if the position is not directly related to the management or
general business operations or the position does not require the
use of independent judgment, the position would be considered
non-exempt.
http://www.iu.edu/~uhrs/flsa/FLSA_PP_Summary.ppt#288,10,Duties
Test
Classifying a position as exempt or
non-exempt can be complex and challenging. It needs to be
based on actual job duties. If there is any question as to
the classification of a position it is best to confer with legal
counsel.
4. Not paying salaried
non-exempt employees for hours worked in excess of 40 hours per
week.
Employers have a misconception that an
employee that receives a salary is exempt from overtime. However,
as illustrated above that is not necessarily the case.
The FLSA does not require that
non-exempt employees be paid hourly; you can pay a non-exempt
employee a salary. However, salaried non-exempt employees are still
entitled to overtime pay for any hours worked in excess of 40 hours
in a workweek. For example a secretary could be paid a salary, as
long as that employee is still paid overtime for any hours worked
in excess of 40 hours per work week.
5. Allowing employees to
work off the clock
Employers are responsible for
compensating employees for all time worked. Even if the employer
does not request that an employee do the work, but allows it or
benefits from it, the employer is responsible for compensating the
employee.
For example if a factory worker turns
on equipment or gathers tools before clocking in and the employer
is aware of it, the employer is responsible for compensating the
individual. Another example, which seems to be common in our
technical age is non-exempt employees checking and responding to
their work related emails while at home, often via their smart
phone. This too is considered hours worked and must be compensated.
[2]
6. Unpaid breaks and Waiting
Time
Neither federal nor Arizona law
require employers to give employees meal or rest periods. However,
FLSA requires that any break under 20 minutes to be paid. If
an employee takes a break of less than 20 minutes it is to be paid.
Lunch breaks of 30 minutes or longer can be unpaid as long as the
employee is allowed to use his or her time for their own
purposes.
Employers often have non-exempt
employees clock out for breaks when the employer is not busy.
This is fine as long as the breaks are at least 30 minutes in
length and the employee is allowed to use the time for his or her
own purposes.
However, if the employer requires that
the employee wait, then the employee must be paid for his or her
time. The FLSA requires that non-exempt employees must be
paid for all the time controlled or required by the employer and
pursued necessarily and primarily for the benefit of the
employer.
For example, while waiting for
customers to arrive, a retail cashier sits in a corner of the store
and texts her boyfriend. The employer does not allow the cashier to
leave the store. Her time is being controlled by her employer and
must be compensated.
7. Not keeping accurate
time sheets
Employers typically have payroll
records and basic contact information for employees, but many
employers do not keep employee time sheets. The DOL does not
require a certain form for timesheets, but it does state that time
sheets for non-exempt employees should show the hours worked each
day and the total hours worked each week. To reduce employees
from disputing the number of hours worked, it is recommended that
employers have employees sign their weekly timesheets. Time
cards can also be signed electronically.
Another common mistake is that
employers do not keep their timesheets after processing their
payroll. The FLSA requires "Records on which wage
computations are based should be retained for two years." This
includes time cards, piece work tickets, wage rate tables, and work
and time schedules, and records of additions to or deductions from
wages." "For DOL purposes payroll registers should be kept for a
minimum of three years".
If you find that your business is the
subject of a DOL audit it is recommended that you seek legal
counsel immediately. An experienced employment attorney can
guide you through the audit process as well as help you to reduce
your risk of double fines.
More information can be found at:
http://www.dol.gov/whd/regs/compliance/hrg.htm
http://www.dol.gov/whd/regs/compliance/whdfs23.pdf
http://www.dol.gov/elaws/esa/flsa/screen75.asp
http://www.dol.gov/compliance/guide/minwage.htm
http://www.iu.edu/~uhrs/flsa/FLSA_PP_Summary.ppt
The US Department of Labor's Fair Labor Standards Act (FLSA)
[1] Salaried employees can also have
their salaries partially reduced, when the employee is on Family
Medical Leave and taking time off in accordance with FMLA. http://www.dol.gov/elaws/esa/flsa/overtime/cr3.htm
[2] Keeping track of non-exempt
employees' time spent checking work emails after hours is difficult
if not impossible. It is suggested that employers have a written
policy that allows only exempt managerial and professional
employees access to company computer networks and work e-mails
outside of work hours.
About the authors: Kraig J. Marton is an employment
attorney that heads the employment
law department at the Phoenix law firm of Jaburg Wilk. He assists
employers in compliance with Arizona labor laws.
Kraig can be reached at kjm@jaburgwilk.com or
602.248.1017. Jerrie Martinez-Palombo, M.Ed, SPHR is
the Human Resources Director at Jaburg
Wilk and has over 13 years of HR experience.
This article is not intended to provide legal advice and
only relates to Arizona law. It does not consider the scope of laws
in states other than Arizona. Always consult an attorney for
legal advice for your particular situation. This
policy is written based on Arizona law for Arizona
employers.
3200 North Central Avenue
. Phoenix . Arizona