ver since the Fair Labor Standards Act’s revised regulations became effective
August 23, 2004, overtime has become a hot-button topic for employers and employees
alike. Worse, it has also become a prime target area for plaintiffs’ attorneys,
because even with the revisions the FLSA is an extraordinarily difficult statute
to comprehend and comply with.
Fortunately, some of the most common mistakes made by employers are easily identified
and remedied. Whether you have five or five thousand employees, here are five mistakes
you should try to avoid:
1. Believing salaried employees are automatically exempt from overtime
Just because you are paying an employee a salary, no matter how large, does not
mean that he or she is exempt from overtime. Each individual employee must qualify
for one of the specific exemptions provided by the statute. Other less common exemptions
include the executive exemption, administrative exemption, professional exemption,
computer-employee exemption and outside sales exemption.
Each exemption has specific tests, and each employee to whom you pay a salary
must be evaluated to see whether the exemption applies. Don’t forget that job titles
and job descriptions aren’t the determining factor any more than paying a salary
is—just because you call someone a manager or an assistant manager and pay them
a salary does not mean they qualify for the exemption. The courts and Department
of Labor construe all of the exemptions narrowly, and the burden of proof always
remains with the employer.
2. Misclassifying assistant managers
Many businesses pay a salary to their assistant-manager-level employees without
paying them overtime and without considering whether they truly qualify for the
executive exemption. In order to qualify for the executive exemption, an assistant
manager must be paid on a salary basis at a rate of at least $455 per week. In addition,
the employee must meet each of the following three tests: 1) primary duty is management
of the enterprise or of a customarily recognized department or subdivision; 2) customarily
and regularly direct the work of two or more other full-time employees or the equivalent;
and 3) have the authority to hire or fire, or make suggestions and recommendations
as to hiring, firing, advancing, promotions or other status changes that are given
particular weight.
For example, if you have a store that regularly has a manager, assistant manager
and a few hourly employees on duty, it is unlikely that both the manager and assistant
manager will qualify for the exemption. With respect to hiring and firing decisions
or recommendations, if assistant managers have that authority it should be included
in their job descriptions in an effort to prevent later disputes over the exemption.
Although many assistant managers will qualify for the exemption, many others will
not, and each employee must be reviewed on an individual basis.
3. Automatic deductions for meal breaks
Many employers automatically dock their hourly employees for a 30- or 60-minute
meal break each day. Although this is not illegal, it is a frequent subject of litigation
and liability. If you are sued by an employee or audited by the Department of Labor,
it is your burden to prove the hours actually worked by your hourly employees. If
employees later claim that they worked through lunch most days, it will be extremely
difficult for you to prove that each of your employees actually took a full lunch
break each and every day for which an automatic meal break deduction is made. These
automatic deduction cases usually become collective actions and can become very
expensive for employers who have such a policy.
Fortunately, there is an easy solution: require your hourly employees to clock
out and in for their meal breaks. It is imperative that during this meal break the
employee is completely relieved from duty and is not performing any work whatsoever,
but it is not necessary that employees be allowed to leave the company premises
during the meal break. In order to discourage workers from working through this
meal break in order to get extra pay each day, make it mandatory that the meal breaks
are taken each day, and discipline employees who refuse to take the meal break.
Additionally, if for some reason an employee works through a meal break one day,
that employee can be sent home early on another day in the same pay week so that
overtime does not kick in for that week.
4. Not paying for overtime that has not been approved in advance
Many companies have a policy requiring employees to seek approval in advance
before working overtime. The problem arises when an employer refuses to pay an employee
for non-approved overtime. The FLSA, unfortunately, does not distinguish between
approved and non-approved overtime—if the employee works the overtime, you are required
to pay time and one-half the regular rate for that overtime. But the company is
not without recourse: An employee who violates a company policy by working non-approved
overtime can be disciplined or terminated for that violation of policy.
5. Allowing employees to "waive" their right to overtime
Another common mistake, particularly among small businesses, is believing that
an employee can waive his or her right to time and one-half pay for all overtime
hours. What frequently happens is that an employee requests extra hours and agrees
that he needs only to receive his regular pay for those hours. Sometimes this request
is made out of a belief that other employees might be hired and everyone’s hours
will be cut, or sometimes out of an employee’s particular need for some extra money.
Despite your good intentions, any type of deal with an employee that results
in the nonpayment of overtime is void and will not be a defense if the employee
later files suit. A related problem sometimes arises when employees are paid out
of two different locations or two companies owned by the same person. By way of
example, an employer might own two ice cream stores, each of which is separately
incorporated. If an employee works at both stores during a workweek for a combined
total of more than 40 hours, that employee must be paid time and one-half for all
hours beyond 40.
The individual owner of stores cannot circumvent the overtime requirement (whether
intentionally or otherwise) by paying an employee out of different stores or corporations.
Not only will the courts or the Department of Labor likely find the companies liable
under a joint or single employer theory, but the individual will also be liable
as well.
The bottom line
Compliance with the FLSA is a task you must take seriously. The number of lawsuits
involving these claims is growing at an alarming rate, and the effects can be devastating
for businesses of all sizes. Because the FLSA has a penalty provision that allows
plaintiffs in some circumstances to recover twice their actual back wages, and because
it automatically entitles prevailing plaintiffs to their attorneys’ fees, even a
minor violation can wind up being very expensive. And many of these cases become
collective actions, where the plaintiff invites all other similarly situated employees
to join the litigation.
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