The Fair Labor Standards Act (FLSA) sets strict rules for how you pay employees, including who can earn overtime pay and how much it must be. Fail to follow them and you could wind up on the losing end of a lawsuit, potentially liable for millions of dollars.
You must pay hourly (nonexempt) workers overtime—1.5 times the regular hourly rate for any time worked in excess of 40 hours per week. You don't have to pay salaried (exempt) employees anything extra for a longer workweek. That's because salaried workers—generally white-collar office workers—work as long as they need to get their jobs done.
On the other hand, employers can't dock exempt employees for partial day absences, whereas hourly employees are paid for only the time they actually work.
Little mistakes add up
Lawyers who want to make a quick buck are capitalizing on recent overtime class actions that have netted millions in unpaid overtime and penalties. In fact, overtime and other unpaid-time lawsuits have become a cottage industry in recent years.
The overtime legal sweepstakes began in earnest in 2009, when Walmart agreed to pay $640 million to settle 63 lawsuits the retailer's employees had filed. When people learned that Walmart employees who had worked through their lunch breaks wound up winning multimillion-dollar settlements, lines started forming outside attorneys' front doors.
Class-action overtime lawsuits are an attorney's sweetest dream—and an employer's worst nightmare. If your overtime pay practices wind up short-changing one employee for just a few weeks, your liability is relatively small. But a few hours multiplied over two or three years (that's how long the courts can go back—two years for innocent violations, three years for willful ones) and hundreds of employees can add up quickly.
Don't forget the double payments the FLSA says underpaid employees also can win.
Get all the guidance you need in this concise, easy-to-follow guide — FLSA Compliance Guide: A Practical Reference Tool on Wage-and-Hour Law
Prevention better than cure
Make sure your organization establishes practices and procedures that prevent overtime mistakes. Here are four important tips:
1. Use time clocks. It's more important than ever to keep accurate records of time that hourly employees work. Your best bet is to use a time clock. Then, don't allow managers to override or adjust the recorded time without a good reason and HR approval.
Plus, it doesn't hurt to track time for exempt employees, too. The reason? If you misclassified hourly employees as exempt and they sue (a popular collective action today), you'll have to show exactly how many hours they worked. Note: Don't use those time records to deduct pay for missed time. That could destroy an employee's exempt status.
2. Don't allow lunch at the desk. Employees working through their unpaid lunch breaks trigger many lawsuits. Either require employees to clock out for lunch breaks or find another way to ensure they aren't working.
3. Don't base management bonuses on keeping overtime down. It's just those sorts of incentives that landed Walmart in trouble. Tying bonuses to low overtime costs, some supervisors may be tempted to make employees work off the clock.
4. Use the U.S. Department of Labor's overtime calculator. The online tool helps establish exempt status and the correct overtime pay for various positions.
The FLSA Compliance Guide has saved many confused and frustrated employers from expensive, unnecessary lawsuits. It can do the same for you. What you don't know about FLSA regulations could land you in the middle of a costly, time-consuming lawsuit or audit. The Guide can help you stay on top of those regulations and protect your business.
You'll better understand:
Get your copy of the FLSA Compliance Guide: A Practical Reference Tool on Wage-and-Hour Law today!
- Who is and isn't eligible for overtime pay
- When pay can be docked
- How to compensate employees who work from home
- The difference between minimum wage and "living wage”
- When a break does or doesn't have to be compensated
- How to compensate vacation days and sick leave
- Your requirements and rights with regard to overtime
- How an incorrectly completed timesheet can cause you harm, even if you didn't know about it