Articles

Top 5 Misunderstandings About the Right to Overtime Pay

Charles A. Horowitz
(email)
Mansfield, Tanick & Cohen, P.A.
1700 U. S. Bank Plaza South
Minneapolis, MN 55402
Tel: 800-401-6194
FAX: 612.339.3161

The statutory right of employees to overtime pay for hours worked in excess of forty per week received considerable attention throughout 2004. During that year, the Bush administration proposed a major overhaul of what it and some representatives of industry considered to be antiquated regulations that governed the federal Fair Labor Standards Act (FLSA). Amidst a storm of opposition, these revisions were scaled back, and ultimately approved by Congress. The resulting clarifications and changes significantly affect the right to overtime for certain employees. For example, under an expanded “executive exemption,” employers may classify as exempt (i.e., not entitled to overtime pay) certain store or restaurant managers who spend a majority of their work days doing the same or essentially same line duties as rank-and-file, non-exempt employees. Other changes were more subtle, or basically codified accepted court interpretations of the FLSA and its regulations. This article is not addressed to the changes. Instead, it is intended to correct some common misconceptions that still hover around the right to overtime pay.

1. Only Hourly Employees Are Entitled to Overtime.

WRONG. Overtime is not limited to the clock-punching, Fred Flintstones of the world. As a general rule, salaried as well as hourly employees are entitled to collect overtime pay after they have exceeded 40 hours of work in a week. (A week for this purpose may be any consecutive seven day period, as defined by the employer, and need not conform to the traditional Sunday to Saturday work week.) Although the method of pay cannot disqualify an employee from overtime, the failure by an employer to pay employees on a salaried basis may cause the employer to lose an otherwise valid exemption, requiring the employer to pay overtime to its salaried, white-collar employees. Under the “salary basis test,” an employer must pay its salaried employees a fixed amount per pay period, and may not make any deductions from pay based upon the quality or quantity of work performed. In short, even if you are paid a salary, you may still be entitled to overtime. On the other hand, if you are not paid a salary, and are not otherwise excluded (such as agricultural workers, fishermen, long-haul truck drivers, and employees in certain other industries), you are automatically entitled to overtime.

2. Overtime Pay is Regulated Exclusively By Federal Law.

YES AND NO. Many, although not all, states have enacted statutes parallel to the FLSA which require the payment of overtime under certain conditions. Often, these “mini-FLSA” laws are duplicative of rights under the federal statute and regulations. For instance, they often contain the same exemptions and criteria, or provide identical benefits. The overtime laws of some states, most notoriously (if you are an employer in that state) California, contain significant differences which make it far easier for certain employees to qualify for overtime pay. As another example, under Minnesota law, overtime starts to accrue only after 44, as opposed to 40, hours per week. In addition, not all employers are covered by the FLSA, only those that have an impact on interstate commerce, which under one of the tests means that the employer’s business has annual sales of $500,000 or greater. For purposes of determining one’s right to overtime pay, the more employee-friendly standard is always applied, be it state or federal. Whether you are an employer or employee – but especially if you are an employer – it is important to study the overtime requirements in the state(s) in which you operate, or to have an attorney experienced in this area undertake such an investigation.

3. White Collar Employees Are Not Entitled To Overtime.

WRONG. Employees who work in an office setting are often entitled to overtime, even if they are paid on a salaried and not hourly basis (as explained above). Over the past forty years, the United States economy has become increasingly service-based, with a parallel reduction in manufacturing jobs. Where a company’s “product” is a service, the employees responsible for creating the product are often (although not always) entitled to overtime pay under the FLSA. Under the FLSA, the presumption is that an employee is non-exempt (entitled to overtime), unless the employer can prove that the employee falls into one of the recognized exemptions. Three of these exemptions, referred to as the “white collar exemptions,” are the administrative exemption, the executive exemption and the professional exemption. Complicating the analysis, many white collar jobs contain numerous and diverse job duties, some having “production” aspects and others having “administrative” (back office) aspects. Courts have struggled in applying these concepts to, for example, insurance claims adjusters, reaching inconsistent conclusions based upon the same sets of facts. The executive exemption, as implied by the name, applies to persons who hold management positions, usually with the power to hire and fire workers. The professional exemption excludes from overtime pay employees that have a higher education, including doctors, registered nurses, accountants and lawyers. Under one of the more controversial new regulations, this concept has been expanded to include individuals with specialized, advanced knowledge acquired through on-the-job training.

4. All “Off the Clock” Time is Excluded from Overtime.

WRONG. In recent years, there has been substantial litigation concerning time spent by employees off the clock, while engaged in activities required by the employer but not performing actual work. For example, employees involved in the manufacture of computer chips or medical devices and slaughterhouse workers spend time donning and duffing specialized clothing or safety gear, required to protect them or to protect the products being manufactured. Generally, this is time for which the employee must be compensated.

5. Unless Overtime is Specifically Approved, It Does not Need to Be Paid.

WRONG. An employee who works beyond his or her designated shift is entitled to overtime pay, to the extent that doing so results in work in excess of forty hours per week. Period. No questions asked. The solution, if you are an employer, is to set in place a formal policy requiring advance approval for any overtime work, and then enforcing it with reasonable consistency. In order to be effective, this may require that employees be disciplined for violations, including written reprimands, suspensions or in the extreme case, termination.

Whether you are an employer with questions about how to comply with the law and adopt “best practices” to limit your risk of an expensive overtime suit, or you are an employer or employee who requires legal representation in a pending or actual overtime lawsuit, Mansfield Tanick & Cohen is available to assist you to navigate this complicated, mine-strewn field of the law.