The answer may surprise you.
From: Inc. Magazine, January 2007 | By: Dee Gill
She's well compensated. He's a manager.
They're all on salary. These are some of the common reasons employers give to
explain why they do not pay their employees overtime. But in many cases these
reasons are not legally valid.
That's something business owners have been
learning the hard way. Indeed, the number of overtime lawsuits has exploded
over the past couple of years. In 2005, class-action suits involving wages
surpassed discrimination cases as the most widespread work force class action,
according to a recent study by
The litigation has been fueled, in large
part, by changes to the Fair Labor Standards Act in 2004. The Department of
Labor updated the antiquated act, which first came into effect in 1938, in
order to eliminate references to outdated jobs (think straw bosses and keypunch
operators) and establish guidelines for contemporary workers. Among other
changes, the agency determined that employees must make at least $455 a week to
be ineligible for overtime pay, a sharp increase over the previous benchmark of
$250 a week. As a result, 1.3 million workers suddenly qualified for extra pay,
according to the DOL.
But the effects of those changes are really
being felt now. Not only are more workers aware of the changes, but employment
lawyers are increasingly on the lookout for potential overtime suits.
"What we're seeing now are claims that are driven by an increase in
awareness," says Paul DeCamp, administrator of
the Wage and Hour Division at the Department of Labor. "All of a sudden,
people are realizing that they have rights to overtime that they didn't know
about." Paul Lukas, partner at
Employers have been caught off guard by the
rise in overtime disputes. "Employers frequently don't appreciate the
value of spending time on these issues until it's too late," DeCamp says. Case in point: Eloy
Torrez, president of SEI Group, an engineering firm in
Torrez figured the system was great because
it eliminated temporary layoffs and gaps in health coverage. But unbeknownst to
him, it was also illegal. Because SEI's professional
staffers were not receiving consistent salaries, they qualified for overtime
pay--at least one and a half times their regular hourly wages--for every week
they worked more than 40 hours. Last October, after an audit that lasted
months, the Department of Labor ordered SEI to pay two years of back overtime
wages totaling $464,342 to 103 of its 126 employees. "That's about half of
this year's earnings," Torrez says. "This has been a huge burden for
us."
Like many business owners, Torrez assumed
that his staffers were ineligible for time and a half because they received
salaries. But the updated overtime rules make it clear that salaried workers
such as computer programmers and account executives may be eligible for
overtime if their jobs meet certain exemption criteria. Those criteria are
numerous and detailed, but the philosophy behind them is simple: Workers who do
not spend most of their days performing tasks that require them to exercise
"discretion and independent judgment" probably qualify for overtime pay.
That could include anyone from a secretary who answers phones all day to a loan
officer who relies on computer algorithms to determine an applicant's
eligibility. Even managers and job site foremen who do not have strong input
into hiring and firing decisions may be eligible to collect overtime.
Many employers realize they're in violation
of the revised overtime laws only after they've been contacted by the
Department of Labor. Most audits are the result of a complaint from a single
worker that blows up into a companywide investigation. "If the DOL visits
you, it will rarely be to look at the one employee complaint," says Steve
Trent, chairman of the labor and employment practice at Baker, Donelson, Bearman, Caldwell & Berkowitz in
To stay out of trouble, consider paying a
labor attorney a few thousand dollars to vet your pay policies. And take a hard
look at what your employees do all day, regardless of their job descriptions.
If they don't make many independent decisions, there's a good chance they
qualify for overtime pay. Also, think twice about offering flextime to hourly
workers. If an employee with a flexible schedule works more than 40 hours in a
given week, regardless of how much he or she worked the previous or following
weeks, that person may qualify for overtime.
Of course, you might not like what you
discover. And correcting overtime mistakes isn't easy. Workers will probably
ask about back wages when they find out they are eligible for overtime. To
avoid a pricey lawsuit and bad press, some companies bite the bullet and hand
over two years of back wages and pay overtime going forward.
Torrez, for his part, isn't sure how the
Department of Labor found out about SEI's pay system.
He recently switched his work force to guaranteed salaries with no overtime
pay. When business slows down, Torrez says, he'll be forced to lay off workers.
He's gotten plenty of complaints from staffers about the new system. "No
one is happy about it," he says.
To learn more about the
rules governing overtime pay, visit the website of the Department of Labor's
Wage and Hour Division (wagehour.dol.gov)
or call the DOL hotline (1-866-4-USWAGE).