Overtime and calculation of hours worked: The law
By Kirk Denton [November 21st, 2013]
Set forth below is general information about employees’ rights to overtime pay.
The Fair Labor Standards Act (FLSA) is a federal law that requires overtime pay to be paid to most employees at the rate of one and one-half times their regular rate of pay when employees work more than 40 hours in a week. (As explained below, the regular rate of pay is equal to an employee’s hourly rate of pay or higher). The majority of employees in the U.S. are covered by the FLSA. Unfortunately, employers violate the overtime pay laws in many different and sometimes creative ways. Some of the most common ways that employers violate the overtime laws are:
- Improper calculation of the rate at which overtime is paid.
- Failure to count work time in computing overtime pay such as working employees "off-the-clock" or failing to count pre-shift or post-shift activities as work time.
- Improperly failing to pay employees true time and one-half overtime pay by wrongly claiming that the employees are somehow exempt from the overtime laws.
- Perhaps the greatest misconception among employees is that their employer does not have to pay them overtime if they are paid on a salaried basis. THIS IS FALSE. Salaried employees are entitled to overtime pay as long as their job duties do not fit within one of the exemptions to the overtime pay laws.
Indeed, in overtime pay cases, courts presume that all employees are entitled to time and one-half overtime compensation. Only those employees who an employer can prove fit within one of the exemptions to the FLSA can lawfully be denied overtime pay.
State laws can provide benefits that are in addition to the benefits provided under the FLSA. For example, some states require employees who are not covered by the FLSA to be paid overtime compensation. In addition, some states require that overtime be calculated at higher rates than the FLSA.
Special rules apply to employees of federal, state and local governments in the areas of fire protection and law enforcement, volunteering and compensatory time. A limited partial overtime exemption applies to law enforcement and fire protection employees.
HOW IS OVERTIME REQUIRED TO BE CALCULATED AND WHEN MUST OVERTIME BE PAID? HOW TO COMPUTE THE REGULAR RATE OF PAY (i.e., THE OVERTIME RATE OF PAY)?
The regular rate of pay is the rate at which overtime compensation must be calculated. For each hour of overtime worked an employee must be paid one and one-half times the employee’s regular rate of pay. The regular rate of pay does not necessarily equal an employee’s hourly rate of pay. Included in the regular rate of pay are work-related payments that are not made for overtime work such as shift differentials, bonuses, longevity pay, educational incentive pay, etc. Thus, the regular rate always equals or exceeds an employee’s hourly rate of pay or, if the employee is salaried, the employee’s hourly equivalent.
PAYMENTS INCLUDED IN THE REGULAR RATE
Included in the regular rate of pay, regardless of whether or not an employee is salaried or hourly paid, are bonuses, shift differentials, educational incentive pay, longevity pay, and with the exception of the items listed below, any other non-discretionary type of payment. Gifts, discretionary bonuses, pension benefit plans, profit sharing and thrift saving plans may all be excluded from the calculation of the regular rate. In addition, if an employer pays an extra hourly premium that equals or exceeds the time and one-half rate for working on a particular holiday or day of the week, the employer may exclude that premium. Some examples of types of payments included in the regular rate are explained below:
- Shift Differentials: Some employers pay a shift differential if an employee works at night on Sundays or holidays. If the differential is less than 50% of the employee’s hourly rate of pay, it must be included in the calculation of the regular rate of pay used to compute the employee’s overtime rate.
- Bonuses: Some employers fail to adjust an employee’s rate of pay after the employer pays the employee a bonus. Non-discretionary bonuses (bonuses that are tied to working certain hours or achieving certain results) must be included in the overtime rate paid. Discretionary bonuses, which are in the nature of a gift, may be excluded. In determining the overtime rate, a non-discretionary bonus may be prorated back over the life of the time period for which it is being paid, within reason.
- Longevity pay: Some employees receive additional pay in recognition of how long they have been employed. These types of payments must be included in the regular rate of pay.
- Incentive pay: Some employers provide additional payments if an employee achieves something such as education or training. These payments must be included in the regular rate of pay.
HOW TO COMPUTE THE REGULAR RATE FOR SALARIED EMPLOYEES
As noted above, many salaried employees are entitled to receive time and one-half overtime compensation. Computation of the rate at which overtime must be paid for salaried employees is based on the number of hours for which the employee’s salary is intended to compensate him or her. As with hourly rate employees, included in the computation of the regular rate must be bonuses, shift differentials, educational incentive pay, longevity pay and the like.
Salary for Fixed Number of Hours.
Most salaries are intended to compensate an employee for his or her regularly scheduled hours during the workweek. To compute the regular rate of pay, the salary plus all other inclusions in the regular rate is divided by the number of hours that the salary is intended to compensate the employee. The employee is entitled to receive one and one-half times his or her regular rate of pay for each hour of overtime worked over 40 hours in a week.
For example, if an employee is paid $600 a week as salary and works a work schedule of 40 hours a week, the employee’s overtime rate of pay is computed by dividing $600 by 40. Thus, for each hour of overtime over 40 hours a week, the employee is entitled to receive 1.5 times $15.00, which equals $22.50 an hour.
Fixed Salary for Varying Number of Hours.
Some employers pay employees a fixed salary for whatever hours an employee is required to work in a workweek. This is permitted under the U.S. Department of Labor’s regulations only if the employee and employer have a clear mutual understanding that the salary is intended to compensate the employee for the straight time portion of his or her hours whatever the number of hours that the employee is required to work. If such an arrangement is properly established, according to the Department of Labor, an employer is obligated to pay only additional "half-time" pay for each hour in excess of 40 hours a week. Some courts and some state overtime laws, however, prohibit this type of calculation method and require that time and one-half overtime pay, rather than just "half-time" pay, be made in addition to employees’ salaries.
What are Some Commonly Used, But Prohibited, Payment Methods?
Fixed sum for varying amounts of overtime: Some employers pay a fixed sum that they attempt to use as overtime compensation. A lump sum payment for work performed during overtime hours without regard to the number of hours worked does not qualify as overtime compensation. This is true even if the lump sum exceeds the amount to which the employee would be paid on a per hour basis. To properly compute the employee’s overtime pay, the lump sum payment must be added to the employee’s other overtime compensation and then the employee’s regular rate of pay determined. The employee is entitled to overtime pay equal to 1.5 times this regular rate of pay.
Salary includes regularly scheduled overtime hours: Another similar method occurs where an employer asserts that a portion of an employee’s salary constitutes overtime pay. This is not allowed except under very specific circumstances called Belo contracts. Overtime pay must be in addition to and can not be a part of an employee’s salary.
Bonus as part of overtime pay: Some employers pay bonuses to employees and tell them that the bonus includes the employee’s overtime pay for working on a particular project or job. Unless the "bonus" is tied to each hour worked, it does not constitute overtime compensation.
OVERTIME MUST BE PAID IN CASH
With the exception of government employees, overtime compensation must be paid in cash. Compensatory time off is not permitted as payment for hours worked in excess of forty hours a week.
Government workers may be paid in compensatory time under certain circumstances that are described below. If you are interested in government employees’ overtime pay, click here.
Under certain limited circumstances, employers are permitted to meet their minimum wage obligations by including the reasonable value of meals and housing. If this is done, the value of meals and housing should increase the overtime rate.
WHEN MUST OVERTIME BE PAID?
Overtime compensation must be paid on the regular payday for the pay period covered and, with one exception, overtime compensation must be paid in cash. Compensatory time or payment of overtime with "chits" or "IOUs" is prohibited. The only exception to this rule is that employers may deduct the reasonable value of lodging or meals in certain circumstances.
Congress has enacted a special exception to the rules for computing the minimum wage for tipped employees. An employer is permitted to pay tipped employees a "cash wage" of only one-half the 1996 minimum wage ($4.25/hour). This means employers can pay tipped employees a cash wage of only $2.12 an hour, and it may credit tips to make up the rest of the minimum wage.
The tip credit the employer receives may not exceed the value of the tips the employee has actually received. If this amount fails to meet the minimum wage, the employer must make up the difference.
Employers may apply the tip credit only if —
- The employee is working in a job in which the employee customarily and regularly receives $30.00 a month in tips;
- The tipped employee has been informed by the employer about the tip credit law and that the employee must be allowed to retain all tips the employee receives, with the exception that tip pooling with other employees arrangements are allowed; and
- Employers cannot require employees to share tips with their employer.
If an employer violates any of these three elements, a tip credit is not allowed.
EXAMPLES OF EMPLOYER ABUSE OF THE TIP CREDIT
Examples of employer abuse concerning the tip credit are employers who compel employees to kickback tips or who do not provide employees with all the tips received. For examples, some restaurants mandate a 15% or higher tip charge on large parties at a restaurant. This is a tip that is the employees to keep if the employer is using the tip credit provisions of the Act. Another example is that some employers will work employees at two jobs — one is a job in which tips are received and one is not. For example, an employee who works part of his shift as a waiter and part as a host at a restaurant. The employer should not take the tip credit for the entire shift — but only for the time the employee works as a waiter.
EMPLOYMENT IN HOSPITAL OR ESTABLISHMENT IN CARE OF SICK, AGED OR MENTALLY ILL
There is a special partial overtime exemption for employees of hospitals and residential care facilities. If an employer has a prior agreement or understanding with these employees that overtime will be computed over 14 days instead of 7 days, it may do so and pay employees on the basis of 80 hours every two weeks rather than 40 hours a week. The agreement or understanding must be reached before the overtime is worked.
WHAT IS WORK TIME?
Suffered or Permitted Work
All work time must be counted in computing an employee’s overtime pay including work not requested but suffered or permitted by an employer.
1. Employer Abuse of "Suffer or Permitted" Rule
Two types of work primarily are involved when employers violate this rule: 1) Work that an employer orders to be done and then refuses to count as work time, such as many pre-shift and post-shift activities; and 2) Work that an employer knows is being done, or would know about if it made a reasonable inquiry, which the employer ignores.
Pre-Shift and Post-Shift Duties are activities that employees are required to perform before and after their scheduled shift. Any activity that benefits the employer is usually counted as work time. For example, getting a restaurant ready to open for business, meeting with wait staff about evening specials, donning protective gear and preparing equipment in a factory, or law enforcement employees checking in and out their guns are all considered to be work time even if these activities occur before the employer’s scheduled shift. Some employers will hold employees after their scheduled hours to wait for a co-worker or to perform clean-up activities. Time spent performing these activities is compensable work time.
Examples of pre-shift and post-shift duties that courts have found to be compensable under the FLSA include showering and cleaning up after work at a battery plant, changing into security guard uniforms, checking in and out firearms, conducting safety inspections and caring for police dogs while at home.
Suffered or Permitted Work is work that benefits the employer in some way, that the employer knows or should know the employee is performing, and which the employer has not taken reasonable steps to prevent from occurring. The typical type of work that falls within this category is where the employer allows the employee to work after hours outside the employer’s presence, such as work the employee takes home or an employee who closes up a shop. The FLSA does not permit the employer to accept the benefits of the employees’ work time without paying the employee for it.
In addition, employers can not escape the payment of overtime for compensable overtime hours worked by virtue of an announcement that no overtime is authorized without prior supervisory approval. If an employer has such a rule it can not accept the fruits of the employees’ labor without paying the employees.
Records of suffered or permitted work time are often incomplete or nonexistent. This does not prevent recovery of damages! Under the FLSA, employers bear the burden of keeping accurate employment records. If the employer fails to maintain records, the courts rely on employees’ reasonable estimates of their work time.
2. Employment Violations in the Restaurant, Grocery, and Food Preparation Industries
FLSA violations are rampant among restaurants, grocery, and other food preparation employers. Remember, no one can "volunteer" to work for free for their employer. Yet, employers try to either trick or to intimidate employees into doing so. Some recent cases illustrate this:
Chain restaurants have been sued in court for working employees "off-the-clock," failing to pay restaurant managers overtime compensation, and improperly taking a "tip credit" for time in which workers are not working in a job in which tips are paid. These cases have been settled for millions of dollars.
Restaurants have been sued for taking a percentage of the employees’ tips when the employer charges a fixed percentage of patrons’ meals as tips. The employer was successfully sued for fraud as well as wage violations.
Workers at meat packing facilities have sued to recover millions of dollars against facilities for unpaid time spent donning garments and preparing equipment before and after their shifts. Grocery works at a grocery chain have successfully sued to recover millions of dollars for off-the-clock work. The employees alleged they worked off-the-clock and their employer engaged in the following unlawful practices:
- Punishing employees who fail to perform assignments within unrealistic time periods thereby encouraging and rewarding employees who perform work "off-the-clock" without compensation.
- Instructing bookkeepers and others to record meal periods as non-worktime even where the employees worked through their meal periods.
- Reducing alleged salaried managers pay for disciplinary infractions for periods of less than a day. This can make the managers hourly workers eligible for FLSA overtime compensation.
- Rewarding employees who work off-the-clock by commenting favorably on their working off-the-clock, and encouraging them to do so by suggesting promotions and other benefits may be tied to working off-the-clock.
- Poultry workers are suing for overtime for time spent donning and taking off safety and sanitary gear before and after work hours, and for working them off the clock, and failing to pay for short breaks.
- Chicken catchers are suing for overtime that they were denied when their employer alleged the chicken catchers are "independent contractors."
3. When Does Travel Time Count as Overtime Work?
Generally, travel time conducted for work during work hours is compensable whereas ordinary home-to-work travel is not. Set forth below are some different travel circumstances:
- Working While Traveling: Time spent working while traveling is compensable. For example, in the federal government travel time while driving a government vehicle, at least outside of the employee’s regular commute, is considered compensable work time.
- Travel On Weekends: Travel on weekends is compensable even if no work is performed so long as the work hours cut across the administrative workday for the employee. For example, if the employee’s administrative workday is 7:00 a.m. to 5:00 p.m. and the employee travels on a weekend during those hours, the travel time is compensable.
- Emergency Travel from Home to Work: This time can be compensable depending on the circumstances. For example, if a worker is called in the middle of the night and ordered to return to work. Interestingly, the Department of Labor takes no position on the compensability of this time.
4. When Does Training Time Count as Overtime Work?
Attendance at training, meetings and lectures must be counted as work activities unless all four of the following criteria are met:
- Attendance is outside the employee’s regular work hours;
- Attendance is voluntary;
- The course is not directly related to the employee’s job; and
- The employee does not perform any productive work while attending the lecture.
Attendance is not voluntary if the employee is led to believe that his or her present employment would be adversely affected if he or she did not attend.
Certain DOL approved apprenticeship training programs are exempt from the FLSA.
5. When Does an Employer Have to Pay for On-Call Time, Waiting Time and Break Time?
Break Time is Compensable Unless the Breaks are Really Long
Although there is little case law on the issue of whether breaks are compensable, the U.S. Department of Labor’s rule is that if a break or rest period is twenty minutes or less, the break time is compensable. Longer breaks, including meal breaks, may be compensable, as well, depending on the circumstances.
Waiting Time is Often Compensable
Time spent waiting while on-duty is compensable, particularly if it is on the employer’s premises, is unpredictable and/or is of relatively short duration. For example, a restaurant worker who is required to report to work at a certain time, though he does not have to bus tables until a certain number of customers are present, is probably entitled to compensation for his waiting time.
In addition, in certain occupations employees are hired to be "engaged to wait" for something to occur. For example, fire fighters and emergency workers are hired, in part, to be available to respond immediately to emergencies. Some people are hired to be available to immediately repair expensive machinery. Some truck drivers are hired to wait until assignments come in so that they can leave immediately. All of these employees have been found to be "engaged to wait" and, therefore, their waiting time has been found to be compensable.
6. Must an Employer Pay Employees for On-Call Time?
Some employees are required to remain available at home or on the employer’s premises during meal periods to respond to calls in person, or through a telephone or pager. Clearly, the time spent responding to calls, including time spent at home on the telephone or computer responding to calls or email, is compensable. With regard to waiting time, however, there is no bright line rule as to whether or not on-call time is compensable or not.
In determining whether on-call time is compensable, the factors that courts have viewed include:
- the average number of calls the employee responds to during the on-call period;
- the required response time: in other words, the amount of time in which the employee has to be at the work site after being called in;
- whether an employee is subject to discipline for missing or being late to a call-back;
- the extent to which an employee is able to engage in other activities while on-call; and
- the nature of the employee’s occupation (in some jobs, it is the nature of the job to be paid to be available to respond immediately to a situation).
Based on these criteria, fire fighters and emergency medical personnel have been found to be entitled to overtime pay for the entire on-call period where the on-call period was spent at home.
6. ARE MEAL PERIODS AND/OR SLEEP TIME COUNTED AS OVERTIME HOURS?
Meal periods and sleep time spent on the employer’s premises are compensable under certain circumstances. Employers who require employees to remain on the employer’s premises and to respond to calls and interruptions during an employee’s meal periods and sleep time are required, in most circumstances, to pay the employees for their meal periods and sleep time.
On-Duty Meal Periods are Compensable
The Department of Labor’s regulations require that meal periods be counted as compensable work time unless the employee is "completely relieved from duty for the purposes of eating regular meals." Thus, employers who impose work-related restrictions on employees during their meal periods, such as answering phones or responding to work related requests should pay employees for their meal periods.
An example of how this test is applied is a case involving telephone line installation workers. Their employer required them to eat lunch at their worksite and to remain there throughout the meal period to ensure that the expensive equipment that they used was not stolen. The entire lunch period was found to be compensable work time.
Some courts apply a different test than the Department of Labor’s meal period test. These courts have applied what is called the predominant beneficiary test. Under the predominant beneficiary test, courts determine whether the employer or the employee is the predominant beneficiary of the meal period. Under this test, employees who are required to remain on the employer’s premises in a place which is not a dining room, or some other area which is not an eating facility, are usually found to be entitled to compensation for their meal periods. In these circumstances, the employer has been found to place substantial restrictions on the employee during the meal period for the employer’s benefit.
For example, in cases in which police officers and fire fighters have been required to monitor their radios and to remain on the employer’s premises during a meal period, the employer is usually considered to be the predominant beneficiary of the meal period and the employer must pay the employees for their meal periods. These cases are particularly strong if the police officers receive 1 or more calls on average during each meal period.
On-Duty Sleep Periods are Compensable Under Most Circumstances
As a general rule, employers must count on-duty sleep periods as compensable work time. On-duty sleep periods are occasions in which an employee is required to sleep on the employer’s premises and may have his or her sleep interrupted by some type of incident to which the employee must respond.
Employers can avoid paying for on-duty sleep periods only if the employer has an express or implied agreement to exclude such periods, the employer has furnished adequate sleeping facilities and the employee’s work day is 24 hours or longer. In addition, under no circumstances may an employer avoid paying for on-duty sleep time if the employee has not had the opportunity to receive 5 or more hours of sleep. Under no circumstances can an employer exclude more than 8 hours of on-duty sleep time per 24 hour shift when computing employees’ overtime pay.
CAN AN EMPLOYER AND EMPLOYEE AGREE TO WAIVE OVERTIME PAY?
No! Overtime pay may not be waived by agreement between the employer and employee. If the employer does not want employees to work overtime, it must establish and enforce workplace rules prohibiting overtime.
In addition, an employer who is caught violating the overtime laws will not avoid back payments by cutting a deal directly with employees. Courts have found that agreements that purport to waive back overtime pay claims are unenforceable unless the Department of Labor supervises them or the employee is represented by an attorney.
There is no such thing as "volunteers" who work for for-profit enterprises. For example, persons who "volunteer" to work for computer or internet companies in exchange for free internet service would be covered by the FLSA. They would be entitled to the minimum wage and overtime pay. Volunteering as part of an apprenticeship or a school internship is permitted provided certain criteria are met.
WHAT DAMAGES CAN EMPLOYEES RECOVER? OVERTIME PAY CASES
Under the FLSA, backpay damages equal the difference between what an employee would have been paid for overtime hours had the employer complied with the FLSA and the amount that the employee actually received as payment, if anything, for working overtime. In addition, liquidated damages equal to the amount of backpay are owed unless the employer is able to prove that it acted in good faith. In cases in which liquidated damages are not awarded, prejudgment interest is recovered in most cases. The recovery of attorneys’ fees and costs from the employer is mandatory under the FLSA.
Most state overtime laws prescribe similar or identical remedies.
In addition to the remedies that are available in an overtime case, in a retaliation case, injunctive relief and front pay are available. Injunctive relief is the court ordering an employer to refrain from certain conduct or ordering it to engage in certain conduct. Front pay is pay which is an estimate of how much in benefits and money an employee would have received in the future had he not been retaliated against.
HOW FAR BACK CAN DAMAGES BE OBTAINED?
There is a two year statute of limitations that applies to FLSA overtime claims which is extended to three years if it is proven that the employer "willfully" violated the law. This means that if you filed a case today, you would be able to recover back overtime pay going back two years and possibly three years from today.
Most state overtime laws follow the FLSA recovery period, though some are longer.
WARNING! Filing a wage and hour complaint with the U.S. Department of Labor (DOL) does not toll the statute of limitations! For example, if you file a complaint with DOL today and DOL takes a year to investigate your claim without taking any action, you have lost a year of backpay. If you then decide to pursue a case on your own or DOL takes your case to court, the statute of limitations will be determined by going back two years from the date your complaint is filed in court (three years for a willful violation).
HOW DO EMPLOYEES’ PROVE DAMAGES? DO THEY HAVE TO KEEP THEIR PAYROLL RECORDS?
The FLSA requires employers to keep accurate payroll records of employees’ work hours and the amounts paid to them. This is true even for employees who the employer thinks are excluded from the overtime laws. If an employer fails to maintain records, the courts rely on employees’ reasonable estimates of their work time that is provided through employee testimony or written documentation.
Obviously, if an employee has maintained his or her payroll records that is very helpful. However, if an employee does not have pay records, and the employer does not either, the courts will usually credit the employee’s recollection of work time.
ARE THE OVERTIME LAWS DIFFERENT FOR GOVERNMENT EMPLOYEES?
The application of the overtime laws to federal, state, and local government employees is, for the most part, the same as the application in the private sector. There are a few noteworthy differences, however.
Police and fire fighters are subject to a partial overtime exemption so that they are not entitled to FLSA overtime until after they have worked more hours than other employees.
The rules applicable to state and local government employees differ from those applicable to federal employees.
The main differences between the application of the FLSA overtime laws in the private sector and in the government are as follows:
The payment of compensatory time is permitted to government employees as long as there is an agreement before overtime work commences that compensatory time will be paid. The maximum amount of compensatory time that can be accrued is 240 hours for most government employees (480 hours for public safety workers). Employers can not compel employees to accept compensatory time as payment for overtime work;
Employees can volunteer to work for their governmental employer to perform work that is not of the same type that the employee normally performs. For example, a fire fighter can volunteer to be a counselor at a youth facility. Moreover, (s)he cannot act as a volunteer fire fighter for her employer. Private citizens can volunteer for public employers.
Governmental employees who are employed by the same public agency may, with their employer’s approval, trade work shifts without affecting their overtime compensation.
Training time that is required by a higher governmental authority — such as a state requiring a city to train its employees — does not have to count as work time.
WHO CAN LEGALLY BE DENIED FLSA OVERTIME PAY?
The FLSA has a number of categories of employees who are exempt from the overtime laws. In some cases, however, state laws cover the employees who are exempt from the FLSA. In addition, exemptions are applied on a workweek basis. Employees who perform non-exempt duties in a workweek typically are not exempt that week and are entitled to FLSA overtime compensation for overtime hours worked that week — regardless of their FLSA status the rest of the year.
There are a few well-established principles regarding exemptions to the Act.
- Employees are presumed to be entitled to overtime pay;
- The employer bears the burden of proving that an employee fits within a claimed exemption;
- Job duties, not job titles govern whether an exemption applies. Employers often give employees fancy administrative or professional sounding job titles for purposes of exempting them from overtime pay. Legally, this does not work. In determining whether or not an exemption to overtime pay applies, an employee’s actual job duties must be evaluated;
- Lastly, the exemptions to the overtime exemptions are narrowly construed against the employer and if there is a reasonable doubt as to whether an exemption applies, the employee is supposed to receive overtime compensation.
WHAT ARE THE SO-CALLED "WHITE COLLAR" EXEMPTIONS?
These are the administrative, professional and executive exemptions. They are misnamed the "white collar" exemptions because in today’s economy many office workers are covered by the overtime laws.
These are the most commonly misapplied exemptions. Many employers and employees mistakenly believe that if an employee is salaried, then regardless of what the employee does, he or she qualifies as an administrative or professional employee. This is wrong. To qualify as an administrative, executive or professional employee, an employer must prove both that an employee is paid on a salaried basis and that the employee performs the duties of the claimed exemption. This means that no workers paid on an hourly basis can be excluded from receiving overtime pay on the basis that they are an administrative, professional or executive employee. Many employees, however, who are paid on a salaried basis are entitled to overtime compensation because they do not perform the duties of an administrative, executive or professional employee.
HOW IS PAYMENT ON A SALARIED BASIS DEFINED?
The U.S. Department of Labor defines payment on a salaried basis as receipt of an employee’s full salary in any workweek in which the employee performs any work without regard to the number of hours or days worked. There are exceptions to this in that some courts have found the payment of straight time overtime pay to employees does not necessarily mean that they are paid on an hourly basis. Employees whose pay is docked because they do not work their full scheduled workday are considered to be hourly paid, and are not paid on a salaried basis.
IMPORTANT! the administrative, executive and professional exemptions do not apply to hourly paid employees. In other words, to apply these exemptions to an employee, an employer must prove that the employee is paid on a salaried basis, and that the employee’s job duties fit within the claimed exemption. Many salaried employees are entitled to overtime pay because their duties do not meet the test for the overtime exemption their employer is claiming.
WHAT ARE THE JOB DUTIES TESTS FOR THE ADMINISTRATIVE, EXECUTIVE AND PROFESSIONAL EXEMPTIONS?
The duty tests for each of these exemptions can be quite complicated. Each exemption sets forth a three-part test which is briefly outlined below. To qualify for the exemption, the employer must prove that the employee’s primary job duties meet all aspects of the duty test.
The term primary job duty generally means activities that encompass fifty percent (50%) or more of an employee’s work time. The primary job duty requirement means that an employer cannot deny an employee overtime pay on the basis of collateral assignments to the employee that may fit within one of the exemptions.
ADMINISTRATIVE DUTIES TEST
The administrative exemption is limited to employees who make decisions with regard to matters of significance concerning the internal operations of their employer. It is intended to apply to people in jobs such as personnel, labor relations, high level budget analysts, management analysts and other similar types of employees.
To be exempt from receiving overtime compensation as an administrative employee, an employee’s primary job duty must involve (1) office or nonmanual work, or staff work, which is directly related to management; (2) the exercise of independent judgment and discretion with regard to matters of significance on a customary and regular basis; and (3) work regularly assisting and directing an executive or owner, or work along specialized technical lines under only general supervision that requires specialized knowledge, training or experience.
Note that the test for the exemption is a three-part test and that all three parts must be established for the employer to exempt employees from receiving overtime pay. Thus, an employee who performs internal functions such as a management analyst may not qualify for the exemption if the employee does not customarily and regularly exercise independent judgment and discretion with regard to matters of significance. For example, someone who simply reviews and summarizes data would likely not be found to be an administrative employee and would be entitled to FLSA overtime compensation.
In addition, the Department of Labor and the courts have applied a production worker/administrative worker distinction in which the workers who perform the day-to-day work necessary for an employer to fulfill its mission can not qualify as administrative employees. Set forth below are some examples of workers who were found by the courts or the Department of Labor to be entitled to overtime pay:
- Escrow workers working for a title company
- Indoor wholesale salespeople working for an electrical supplier
- State police detectives
- Probation officers and district attorney investigators
- Convention planners employed by a tourist bureau
- Electronics technicians troubleshooting repair of satellite equipment
- Insurance claims investigators
- Senior border patrol agents
- Computer specialists performing simple programming
- Television news producers for a local television station
- INS anti-smuggling criminal investigators
WHERE TO GET MORE INFORMATION
There are a number of sources available that provide general information regarding overtime laws. For example, the U.S. Department of Labor’s homepage is helpful in providing general information and many states have a homepage if they have a department of labor.
Most cases, however, involve unique circumstances that warrant individual analysis and evaluation by attorneys who are experienced in pursuing overtime wage cases.