Why overtime pay isn’t so simple anymore

The laws providing for overtime pay and minimum wages have been around for more than 60 years. However, the rules on this subject are frequently misunderstood and overlooked.

The problems are because of a lack of publicity concerning the legal requirements as well as the fact that this is an anachronistic and inflexible area of the law.

Misconceptions abound regarding overtime and other pay practices.

Take the following, for instance: It is up to the employer to determine who receives overtime pay; comp. time (time off in another week to make for overtime work) is OK; all paid time must be counted toward overtime; all individuals on-call must be paid for their time; an employee is not entitled to overtime pay unless his or her extra hours were scheduled and approved in advance by the supervisor. Of course, all of these are inaccurate.

Increasing awareness by employees (particularly disgruntled ex-employees) and aggressive enforcement by the U.S. Department of Labor’s Wage and Hour Division have increased the number of claims. Whenever the Department of Labor receives a complaint or conducts a random investigation, it reviews an employer’s pay practices for all of its workers, not just those of the one complaining.

The penalties assessed by the Department of Labor or through an employee lawsuit can include: overtime and back pay for two or three years, which may be doubled; extra “civil money penalties” for being a repeat violator; and payment of the employee’s attorneys’ fees.

A key area in which claims often arise is whether particular employees can legally be excluded or exempted from overtime pay. The regulations describing the main exemption categories-executive, administrative, professional (with special rules for computer programmers) and outside salespeople-are often misunderstood and difficult to apply.

The executive exemption applies generally to people whose primary duty is management and who supervise at least two employees. The professional category covers people performing work truly of the nature of a well-recognized profession that requires specialized education, such as doctors, engineers, accountants, attorneys, registered nurses and others.

The administrative exemption is very complicated and poorly defined, covering employees doing nonmanual work directly related to key management policies and business operations in which the employee regularly uses independent judgment and discretion (a buyer, personnel or safety director, executive assistant, credit manager or other).

To treat an employee as exempt from overtime pay, not only must the employee’s duties fall into one of the exemption categories, but also the employee must be paid on a salary, not hourly, basis. With few exceptions, this means the employees are to be given their full salaries for any week in which they perform any work, regardless of whether they actually worked more or less than 40 hours.

Deductions for partial-day absences or partial-week disciplinary suspensions are prohibited for exempt employees, except suspensions for serious safety infractions. Employee handbooks should be revised to remove disciplinary rules that call for such unpaid suspensions for exempt employees (use a final-warning letter in lieu of a suspension).

Deductions for leave under the Family and Medical Leave Act, as well as full-day absences after exhaustion of bona fide vacation- or sick-leave benefits, may be permitted in compliance with the applicable regulations.

Most employees are entitled to overtime pay, but a number of other options often are overlooked-options that prove less expensive than the common time-and-a-half overtime rate. While most employers know to pay at least the current minimum wage, $5.15 an hour, many often seem confused over what time they must pay for and count toward overtime for their employees.

Generally, any time that an employer “suffers or permits” an employee to work is paid time that must be counted toward overtime. Even if the employer did not schedule an employee to work overtime but was aware that the employee came in early, worked late, worked through the given work breaks and even worked at home, then the employer will be liable for extra pay, likely at overtime rates, for this time.

Therefore, employers must police the work times of their hourly paid employees. Both rules in an employee handbook or other policy statement governing working extra hours and day-to-day oversight are needed. While many employees are unaware of their right to overtime pay for this time or would consider it unprofessional to make such a claim, it only takes one disgruntled employee or former employee to start a Department of Labor investigation of all of your employees. Unfortunately, the ranks of disgruntled former employees are growing.

Indeed, issues concerning pay are a central concern to every employee, so questions and challenges from employees may arise. Employers, therefore, should review their practices and get advice on preventing problems. The penalties built into the law, such as attorneys’ fees to the winning employee (but not to the winning employer) exact a greater toll on employers who wait. SBN

Craig M. Brooks is a shareholder practicing employment law with Houston Harbaugh, PC, in Pittsburgh. Questions about this and other wage and hour topics can be directed to Houston Harbaugh at (412) 281-5060.