FIVE WIDESPREAD MYTHS ABOUT OVERTIME COMPENSATION UNDER THE FAIR LABOR STANDARDS ACT


myth-busted-stampFully understanding the overtime compensation provisions of the Fair Labor Standards Act (“FLSA”) is a tall order.  Several times a week, I have to correct a misconception concerning a wage and hour issue.  The fact is most employers continue to operate under false assumptions or misunderstandings about the Act’s requirements concerning overtime compensation.  Employers do so at their own potentially costly peril.

In recent years, investigations by the Department of Labor have dramatically increased.  In addition to the potential costs and exposure (not to mention administrative headaches) that may result from a DOL investigation, employers who do not comply with the Act face the possibility of class action lawsuits.  In addition to the company being forced to hire an attorney to defend such a lawsuit, among the damages available to a plaintiff in a FLSA lawsuit are backpay damages, liquidated damages of double backpay for willful violations, prejudgment interest.  Additionally, if the plaintiff prevails she can recover her reasonable attorneys’ fees incurred in prosecuting the suit.  So, if an employer loses at trial, in addition to paying its own attorneys tens of thousands of dollars and whatever damages are awarded, the employer will also be responsible for the attorneys fees of the party or parties who filed suit.

Fair Labor Standards Act class actions are now filed with more frequency than any other class action stemming from the workplace, including Title VII of the Civil Rights Act and the Age Discrimination in Employment Act.  The frightening thing about these lawsuits for companies and we who advise them is that violations are rarely the result of an intentional or willful decision of the employer to disregard its obligations under the law.  I would venture to say that more often than not, the employer was simply operating under a misunderstanding of the applicable legal requirements.

The most common violations under the Fair Labor Standards Act are overtime pay violations.  There are a number of common myths under which most employers operate.  I am writing to dispel those myths.

1.         “I don’t have to pay overtime to my salaried employees.”  This makes sense right?  I am not paying them by the hour, so the number of hours they work does not matter.  This is probably the most common misunderstanding of employers under the FLSA.  It’s untrue.  While there are a number of “exemptions” from the overtime requirement under the FLSA, there are a number of very specific requirements that must be met in order for an employee to meet one the of the exemptions.  Simply because an employee is “salaried” does not make the employee exempt from the FLSA’s overtime requirements.

2.         “If my employees work overtime, it is completely voluntary.  In fact, I discourage them from working overtime.  If they choose to do so, I do not have to pay overtime.”  While this may sound reasonable, it is false.  If the employee does not meet the very specific requirements under the FLSA to be exempt from the overtime requirements and she works overtime, she must be paid for the overtime.

3.         “We require our employees to get approval before working overtime, so if they fail to do that we do not have to pay them overtime.”  Wrong!  It is perfectly fine and even advisable to require employees to get approval before working overtime.  If you have such a policy and they fail to do so, you can even write the employee up or take other disciplinary action provided you treat all employees consistently in enforcing the policy.  However, if the employee works overtime and is non-exempt, she is entitled to overtime compensation whether or not she had approval.

4.         “My ‘managers’, ‘team leaders’ and ‘supervisors’ are not entitled to overtime.”  This is incorrect as well.  Again, there are very specific requirements in order to meet one of the numerous statutory exemptions and simply making somebody a “manager”, “team leader” or “supervisor” is insufficient to satisfy the requirements.  Job titles and job descriptions are insufficient to make an employee exempt.  If faced with a lawsuit or an audit by the Department of Labor, the inquiry will focus on the particular employee’s job duties and this inquiry is fact intensive and must be applied to each employee on a case-by-case basis.  Employers should contact counsel to take a look at each job and make a case-by-case determination as to whether that particular job meets the statutory definition of an exempt employee under the FLSA.

5.         “We pay our employees every two weeks, so we only have to pay overtime if the employee works more than 80 hours over a two-week period.”  This practice violates the FLSA, yet it is a surprisingly widespread belief among employers.  The standard is whether the non-exempt employee works more than 40 hours in a work week, regardless of how often she is paid.

If you have been operating under the assumption that any of these are true, take heart in the fact that you are not alone.  I would venture to say that more employers believe that the myths described above are accurate representations of the overtime requirements than do not.  The best advice is to get with counsel, take a day and go through your job classifications, classify them as exempt or non-exempt based on the specific job duties, and include the classification of exempt or non-exempt in a written job description.  This would require a very small time and financial commitment on your part and it could save you hundreds of thousands of dollars.  If you have gone through this process and the Department of Labor comes knocking on your door or you are faced with a lawsuit, you will rest much more comfortably at night.