Handle Overtime Carefully

A long time ago, say, 60 years or so, managers managed and the rank and file did the work. It was the way of the Industrial Age and the federal government came up with laws aimed at shielding employees from working long hours for inadequate pay. Thus, the Fair Labor Standards Act was born in 1938.

Fast forward to the beginning of the 21st century. We find ourselves in the Information Age, an era when labor laws lead to confusion and misinterpretation. This has increasingly drawn the battle lines between employers trying to cut costs and employees who say they’ve had enough. Don’t expect a replay of the Haymarket Massacre, but your company could face legal action and the settlements could cost a small fortune.

The flip side of the coin, of course, is employees who think overtime is an entitlement. They buy a new car and think they can just rack up the overtime to make the payments, sometimes at the expense of efficiency during standard working hours and certainly at a cost to your bottom line.

Generally, under federal law, the only people who are exempt from overtime pay are certain salaried employees who supervise two or more people, perform management functions, make strategic decisions, and possess hiring and firing authority or influence.

But in the Information Age, it’s not uncommon for executives to be hooked up to a computer, writing their own letters and e-mails, and answering their own voice mail messages. As more technology emerges to help manage the workday, the number of actual supervisors is dwindling. And with that comes confusion about who is a manager.

In a number of highly publicized class action suits in recent years, employees claimed they were classified as being exempt from receiving overtime pay when they were entitled to it. For instance, Rite Aid, Taco Bell and U-Haul all settled multi-million-dollar overtime lawsuits in 2001, although they admitted no wrongdoing.

To protect your company, it’s important to define the primary duty of an employee. If your employees are called general managers, for example, and required to work a 60-hour week without overtime, they’d better be spending the majority of their time managing. Otherwise, you could be legally vulnerable.

Classifying employees as managers can help keep down payroll costs, as long as the title is justified by the actual job. But keep in mind that some court judgments against companies with misclassified employees have ordered the payment of up to four years of back overtime, plus damages. If an employee files a complaint, your business could be subject to an investigation by the Department of Labor. Add litigation costs to the mix and it’ll quickly become clear that the strategy of saving overtime pay isn’t necessarily a money saver.

First, determine if federal overtime laws apply to you. Generally, if your annual sales total $500,000 or more, you must pay overtime. If your company is smaller, you still must pay the premium wage if your employees are involved in interstate commerce, including making phone calls to another state, handling merchandise that came from, or is being shipped to another state and sending mail out of state.

Next, review your management job descriptions to make sure they comply with federal (or local) requirements. If you’re paying management salaries for supervisory work, you’re likely in the clear. If not, consider reclassifying and paying overtime.

Here’s a brief rundown of the basic legal tests to determine exceptions to the overtime rule:

Professional employees:
Professional employees earn a minimum of $455 per week on a fee or salary basis (or $23,660 annually). These people are highly trained, usually have advanced degrees, and perform work requiring an advanced body of knowledge that is acquired through specialized instruction. Their work is often defined as “intellectual,” consistently requiring exercise of independent judgment. These employees make major decisions with little supervision. The class includes lawyers (but not paralegals), doctors, dentists (but not hygienists), registered nurses (but not practical nurses), accountants, architects, and teachers.

Administrative employees:
These employees also must earn at least $455 per week paid on a salary or fee basis (or $23,660 annually) and, with little supervision, perform duties that include the exercise of independent judgment and discretion in significant matters. The primary duties of an administrative employee must be performing office or non-manual tasks that are directly related to the management or operations of the employer’s business. An employee who doesn’t do all these things is probably not an administrator under the law.

Executive employees
Executives must meet all the following requirements: they make at least $455 a week, paid on  salary basis (or $23,660 annually), regularly supervise at least two full-time employees, and their main duties must include authority to hire or fire, or have significant input into the decisions to hire or fire other employees.

Outside salespersons:
The primary responsibilities of outside salespersons who qualify as exempt include making sales and securing contracts for their employers. The majority of their work must be performed away from the employer’s place of business. There is no salary requirement.

Other exempt employees:
This category includes, among other jobs, most truck drivers, most live-in domestic employees, and some agricultural employees, as well as independent contractors, and some computer specialists.

Compensatory Time

Many employers don’t know that it’s generally illegal to give employees time off for extra work, rather
than paying overtime. “Comp” time, in the eyes of the law, precludes employees from collecting pay they are entitled to.

However, there may be options if you want to adopt a comp time policy:

• Rearrange an employee’s schedule during a workweek. As long as an employee works no more than forty hours in a week, there is no overtime. (Check your state for any daily overtime limits.)
• Rearrange an employee’s schedule during a pay period. If someone works more than forty hours a week, you can give comp time if the time is taken within the same pay period as the overtime.