Overtime Sounds Like It Is So Simple – Until You Get Sued

Here’s a stumper for you: What do Arsenio Hall, Lady Gaga, Britney Spears, and Lars Ulrich all have in common? If you don’t know Lars Ulrich, he is the drummer for the band, Metallica. Now, go ahead, what’s your guess about them all? Give up? The answer is that they have all been sued for violations of the Fair Labor Standards Act (FLSA), primarily for failing to pay appropriate, or accurate, overtime wages. What does that mean for you?

No one is exempt – celebrities, large or small businesses, everyone must comply

Any person, business, or organization that pays employees must comply with the Fair Labor Standards Act. That is the piece of legislation that regulates and guides many of the interactions in the workplace and between employee and employer.

The costs to litigate along with penalties and fines can be stiff for anyone on the defending end of a lawsuit. This is one of the reasons why so many of The Payroll Department clients rely on us to process their payroll. We make sure that the wages are paid in accordance with the time reported as worked. It’s that simple.

Some states also have additional rules and we keep on top of the requirements in each state where we have clients. You might not think it would be so tough to “do it right” when it comes to paying employees. And, in theory, you are correct. But then when you identify all the little variations and special cases, it muddies the water – and the pay!

Let’s take a look:

How do you determine what is overtime?

The first step to ensure your business is in compliance is to be sure employees are properly classified as exempt or non-exempt.

Exempt Employees –A general rule of thumb is that wages are paid on a salary basis and the employee must perform executive, administrative, or professional duties. Exempt employees do not qualify for overtime compensation.

Non-exempt Employees –Wages are generally paid on an hourly basis. Non-exempt employees are entitled to overtime pay at a rate of 1.5 times the regular rate of pay for that employee for time worked over 40 hours in a given pay week.

Next, overtime is based on actual time WORKED. This means it does not include:

• Holiday
• Vacation
• PTO
• Gifts
• Discretionary bonuses
• Benefit plan contributions
• Certain premium payments
• Stock-related income
• Work expense reimbursements

However, it does include:

• Regular wages
• Compensable time or hours worked
• Commissions
• Non-discretionary bonuses,
• Shift differentials
• Some on-call payments

One of the most common errors in calculating overtime has to do with bonuses and determining how to actually define a discretionary or non-discretionary bonus. That’s a complex issue that even the Department of Labor (DOL) gives examples to explain.

Another problem area is defining the workday. Sounds simple, but it’s not all that black and white. East Coast Risk Management says, “The FLSA has a continuous workday principle where all hours between the beginning and the end of the workday must be paid. This includes, donning and doffing (the putting on and taking off protective gear, clothing, uniforms), preliminary and postliminary activities, travel time, waiting or on-call time, training, and testing.”

Whew. Oh yes, all non-exempt employees must clock in and clock out, too, every shift, every day worked and sign these time records.

The workweek is defined by “a fixed, regularly occurring, 7-day period (or 168 hours). That means there is no “averaging” over a two-week pay period allowed.

Now, if every employee is paid only a set rate for a set number of hours, it would be simple. But then you add in all the differences in the kinds of rates – shift differentials, commissions, bonuses, expense reimbursements, etc. and it gets all kinds of complicated. And you are required to know it all and calculate it all accurately. If you don’t, you are liable …

What’s an employer to do?

Well, when you hear that the DOL was allocated additional funds to crackdown on wage and hour violations, the first thought should be “outsource to the experts.” Or at least, that’s what many smart business owners are doing. Things likepayrolland bookkeeping are often things that business owners know the least about, and like doing the least. When that is the case, they don’t put the necessary effort into learning everything they need to know to keep themselves and their businesses safe and protected.

If you are a business owner who worries that you don’t have the information, expertise, or energy to take care of your payroll, payroll taxes, bookkeeping, and records, stop. Just stop and call Teresa Ray at The Payroll Department. She’s the owner here at The Payroll Departmentand she makes sure that we stay on top of all those things so you don’t have to! One call to 317-852-2568 and you will sleep easier – and have more energy to devote to those parts of your business that you love.

-Elaine of The Payroll Department Blog Team