Know the Law on Overtime Pay

Experts estimate that over 70% of businesses doing less than $200 million in sales in some way violate the Federal Wage and Hour Law. In my consulting practice, I am amazed at how frequently I find that clients are unknowingly setting themselves up for potential lawsuits.

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Liability for overtime that should have been paid, but wasn’t, can extend as far back as three years and can amount to big bucks if very many employees are involved. Typically, the issue of overtime arises when an employee is terminated and goes to a lawyer to determine the possibility of filing a wrongful dismissal lawsuit. If there are no grounds for such a lawsuit, an aggressive lawyer may decide to file for overtime violations if the attorney’s research determines that any were committed.

The law requires employers to pay non exempt workers overtime pay for all hours worked over 40 in any given week.. To be exempt as an executive or manager — that is, exempt from this law — an employee’s “primary duty” must be managing as opposed to doing manual, inside sales or other non executive tasks. This means that the person must spend more than 50% of his or her time on managerial duties. The person must also regularly direct the work of at least two other full-time employees or their equivalent.

In other words, the person could supervise four people working 20-hour weeks. He or she must also have the authority to hire or fire other employees and regularly exercise discretionary decision making.

In addition, the exempt employee must be paid a salary of no less than $___ per week. (Check with your labor lawyer to determine the exact amount in your state.)

The biggest problem occurs with supervisory workers whom employers consider to be exempt because they think that these employees are managers. But often their duties are split. One week, one of these workers may function as a manager. But the following week, the person might be performing a sales or routine office function.

Rule #1 – Be sure to have on file a job description for every exempt employee on your payroll. The job description should accurately describe the employee’s duties. This will provide some protection if the person later sues for overtime on the grounds that he or she was not an exempt managerial employee.

Rule #2 – All non exempt workers should sign a time sheet even if they are not allowed to work in excess of 40 hours a week. If employees are required to sign in and out every time they report for and leave work, it will help reduce the company’s liability in future overtime disputes. And of course, these signed time sheets should be kept on file in case you need access to them down the road.

If you question whether one or more of your employees qualify for exempt status, you may wish to contact a wage and hour consultant.