Employers often think payroll is as simple as paying office staff a weekly salary and paying field personnel by the hour plus overtime after 40 hours. However, salary does not necessarily excuse employers from paying overtime.
Though a year has passed since the U.S. Department of Labor (DOL) clarified the Fair Labor Standards Act’s wage and hour regulations, thousands of dollars in back pay are still being assessed against employers who don’t comply.
The law starts from the premise that each employee is entitled to overtime pay for hours in excess of 40 a week, unless that person meets a specific exemption.
Overtime rules
You don’t have to pay salaried employees overtime when they meet a recognized exemption. To do so, the regulations require both a weekly salary of at least $455 and meeting certain duties tests. The most widely recognized exemptions are for:
- Executives who manage an enterprise or division, regularly direct the work of two or more employees, and can make or substantially influence personnel decisions
- Administrative personnel who do primarily nonmanual work that includes exercising discretion and independent judgment on matters of significance
- Professionals (CPAs, doctors, etc.)
- Those in certain computer-related occupations, such as analysts
- Outside salespersons
- Certain highly compensated workers who meet the salary threshold, do primarily nonmanual work that satisfies an exemption and earn more than $100,000 a year
Calculating overtime
Overtime is one and one-half times the regular rate of pay. The way to calculate this may vary slightly, depending on the method of compensation. Employers may be assessed back pay if they:
- Treat all salaried employees as exempt, without attention to job duties
- Ask employees to fill in eight hours each workday on a time card, without regard to actual time worked
Mistakes happen
The DOL created a safe harbor for companies that inadvertently make improper deductions in paying exempt employees. To take advantage of the safe harbor, the employer must:
- Have a clearly communicated policy for correcting errors (for example, stated in the employee handbook)
- Demonstrate that the mistake was promptly corrected when the employer was notified of the error
- Show that there is no pattern of abuse or mistakes
Audits happen
Defend a DOL audit successfully by being prepared.
- Know who is properly exempt and who is entitled to overtime. The best way to do this is to prepare thorough job descriptions
- Have clear and consistently enforced policies on overtime and timekeeping procedures
- Maintain necessary time records for three years
What are the penalties?
Investigations mean a review of the last two years of payroll. If the DOL believes an employer has knowingly disregarded the law, it may go back three years. If the overtime requirements have not been met, the employer will be required to pay overtime retroactively for the audited time frame.
Knowing when a salaried employee is entitled to overtime pay will help avoid a disgruntled work force, government audits and the needless headache and expense of defending against them.
It is best to seek advice from your business attorney or a qualified human resource specialist as to which positions in your organization are exempt.
Marie-Jolle C. Khouzam is a partner at Carlile Patchen & Murphy LLP, advising and defending management on labor and employment law issues. Carlile Patchen & Murphy LLP is a Columbus law firm focused on representing closely held businesses and their owners, with practice areas including business, litigation, employment/labor, real estate, construction, intellectual property, estate and tax planning. For more information, contact (614) 228-6135 or visit www.cpmlaw.com.
