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Five Common Overtime Mistakes

January 29th, 2017 by Susan Reagan, HR Consultant – GA

Since 1938, the Fair Labor Standards Act (FLSA) has governed most aspects of employee compensation at the federal level.  But despite its longevity, employers continue to misinterpret or neglect the guidelines pertaining to overtime pay.

There are many individual state and local laws that, when more generous for the employee, will govern, but for now, let’s take a look at the top five federal misconceptions:

  1. Assuming workers who are paid on a salaried basis are not owed overtime. This can be a very expensive, inaccurate, assumption.  The FLSA provides guidelines on who is exempt from overtime *(EXEMPT status) and who must be paid overtime (NON-EXEMPT status) based on job duties and minimum compensation thresholds.  Paying hourly or salaried is just the method by which you achieve that compensation, not part of the definition.  Employees can be classified as “Salaried, Non-Exempt”.  This simply means that you are paying a set salary weekly, but hours above 40 in that week are still subject to overtime pay.  This requires that you still have a time tracking method of some type for accounting and auditing accuracy.

*If you are still not clear on exempt versus non click here.*

  1. Assuming a “signed agreement” can waive overtime requirements. You can’t contract around the FLSA. If an employee agrees in writing, believes the deal is fair, and fully understands what they are doing, the agreement is still useless. An employer can’t obtain a release from the FLSA rules from an employee unless it has administrative agency involvement or court approval, even if the release is part of a severance package paid to a departing employee. The rationale? If employers were able to make such agreements, it would result in the neutralization of the FLSA in the free market as competitive employers would gravitate toward them as a condition of employment.
  1. Calculating overtime over a two-week pay-period. Keep in mind that the FLSA states that overtime must be paid after 40 hours in each work week. If you are paying in two week increments, employees who work 30 hours one week and 50 hours the next week are owed 80 hours of straight time and 10 hours of overtime.  You don’t get to average the two weeks together to net zero overtime. Reminder: Many states have daily overtime rules as well, and you have to use the most generous calculation
  1. Automatically deducting unpaid meal periods. If you have a payroll or time tracking system that automatically assumes and deducts time for an unpaid meal period, you may run into wage claims and fines if the employee at a later time contests your pay tracking method and states that they worked during those meal periods.  If those automatic deductions were keeping an employee at or below the 40 hour a week threshold, you can expect to pay time and a half for the time they state were overtime hours. How to avoid this? Have a time clock or time sheet method that requires the employee record their actual meal periods with management review.  If your employees aren’t following your expectations for taking unpaid meal periods, it’s an issue you can address with corrective action, but you still have to pay for time worked.
  1. Not using the average wage when shift or pay differentials are involved. When employees work in two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. (The earnings from all rates are added together and then divided by the total number of hours worked at all jobs).  In very special conditions, section 7(g)(2) of the FLSA allows the calculation of overtime pay to be based on one and one-half times the hourly rate in effect when the overtime work is performed, but this requires attention to detail and careful compliance.

The good news is that the DOL provides several resources to help employers better understand their obligations.  For more information, visit the DOL Overtime Fact Sheet.

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