Clear Up Overtime Confusion

This month I want to speak about overtime. It is one of the most confusing laws in the land and the employer is responsible to understand and practice the law correctly, or face stiff fines and penalties.

This article will not be all inclusive, but will deal with an important part of the law. In clearing up overtime confusion, your first question will have to do with whether employees are classified exempt or nonexempt. These terms confuse many managers, but a peek into the history that created these terminologies will help you understand.

A Brief History

In 1938, Congress passed the Fair Labor Standards Act (FLSA) to protect workers. It set overtime pay requirements and instituted child-labor protection laws. At the time, the country was pulling out of the Great Depression, and this major New Deal legislation attempted to get America working again by fairly controversial means. Hmmm, sounds similar to today.

In essence, if employers wouldn’t hire more people voluntarily and preferred instead to stretch out their existing employees by forcing them to work longer hours, then the government would step in and penalize those companies by applying a 150 percent premium on employees’ wages for what the government deemed to be excessive hours.

Specifically, if an ordinary employee was forced to work more than 40 hours in a week, then the company would have to pay an overtime premium of one-and one-half times the individual’s normal rate of pay for hours worked in excess of 40.

Company owners railed against the government for punishing them for simply “trying to stay in business,” but the government relentlessly implemented the controversial legislation nevertheless.

If you were the owner or a senior manager of a company, you would be exempt from the protections of the new law—which is where the term “exempt” comes from. However, if you were an ordinary worker, you would be covered or protected by the act, or nonexempt.

Classification: Your Call

Bearing in mind that it’s your company’s responsibility to pay overtime to nonexempt workers for hours worked in excess of 40 in a week—or in some states, such as California, in excess of eight in a day—it’s up to you to classify employees properly.

Most companies don’t have problems identifying their chief executive officer and vice presidents as exempt from the protections of the FLSA. After all, these people profit directly from financial success of the company. That’s why they’re paid for their overall performance on the job and not technically for their time.

Employers also pretty much understand that clerks, receptionists and laborers are indeed nonexempt. They’re paid for their time, protected by the FLSA and docked when they come in late but paid overtime for hours worked in excess of 40 in a week.

The situation gets fuzzy with “wobbler” job categories such as coordinators, analysts and administrators. Some classify these paraprofessional and junior manager positions as exempt, while others place them in the nonexempt, overtime-eligible category.

The decision is up to you and your company, but just understand, that if you’re ever audited, the government will expect you to pay overtime whenever there is any doubt as to an employee’s classification.

If you choose not to pay overtime and classify these wobblers ‘upward’ into the exempt category, then the burden will be on you and your company to prove or otherwise demonstrate that they’re indeed exempt from overtime pay.

This is just one small part of the law that employers must understand and apply correctly.

If you have any more questions about overtime or any other Human Resource policies, don’t hesitate to contact me.

Bruce Tyler