Allevity Blog

LinkedIn Settles for $6 Million in Overtime Lawsuit: How You Can Avoid the Same Fate

Nov 24, 2014

Even big companies make mistakes, a truth that has been proven once again in a recent LinkedIn lawsuit where the company was forced to pay nearly $6 million in a settlement to 359 current and previous employees who weren’t paid correctly in the first place.

The mistake LinkedIn made was by classifying inside salespeople as exempt – a designation that they don’t automatically qualify for under the Fair Labor Standards Act (FLSA). As a result, these employees should have been entitled to overtime pay that they were never given, and LinkedIn is now having to dig deep into their pockets to cover the back pay damages. According to them, the mistake “was a function of not having the right tools in place for some employees and their managers to track hours properly.”

These mistakes happen all the time, at companies both big and small, often the result of ever-changing rules that most businesses don’t have the manpower to stay on top of. It is in these situations when hiring a PEO or HRO can come in handy, helping you to navigate the administrative side of running a business so that you can focus on your company’s core objectives.

But for those invested in continuing to manage these issues in-house, there are a few important rules to keep in mind when it comes to understanding and calculating overtime pay:

  1. The FLSA allows for a few exemptions to overtime pay, but applying those exemptions to employees cannot be done haphazardly. While every company would love to qualify all of their employees as exempt, doing so is only asking for trouble and fines down the line. Instead, companies should complete an analysis of each and every job description, utilizing the guidelines put out by the FLSA, in order to determine whether or not the duties involved qualify for exemption. If you denote a position to be exempt, you need to be able to show the Department of Labor exactly why that position qualifies for an exemption, should they come knocking.
  2. Overtime pay is calculated based on the number of hours worked in a day (anything over 8 hours), in a week (anything over 40) or on the 7th consecutive day in the workweek.
  3. How you pay an employee, whether hourly, salary or by commission, is not a determining factor in whether or not they qualify for overtime. Even in positions that are 100% commission based, companies may be required to pay overtime based on the commissions made during any given week. That amount is divided by the total number of hours worked that week which gives you the employee’s regular rate of pay.  That amount should then be multiplied by 1.5 to get the overtime rate to be used for any overtime hours worked.

In general, overtime pay should be calculated at the rate of 1.5 multiplied by the standard hourly rate for any hours worked over 8 in a day, 40 in a week or on the 7th consecutive day in the workweek. However, there are different rules and exemptions depending upon the type of position being worked. Understanding these rules, or contracting with a PEO or HRO who can help you to navigate them, is the only way to avoid falling victim to the same fate of LinkedIn.

It is always best to pay employees correctly the first time around than to face fines and back pay suits years down the line. 

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