No one appreciates the power of compound interest more than a company who sees how quickly $2,000 in unpaid back wages can grow into a $20,000 or even $200,000 payout after a prolonged court case over unpaid wages.
Being aware of the most popular myths, and the facts, about exactly what you owe your workers in terms of overtime and compensation can help you prevent such cases.
Myth: If an employer pays an employee on a salaried basis, the employee is automatically exempt from overtime.
Fact: This is only true at the North Pole in Santa’s workshop where elves are paid in peppermint candy canes and Netflix subscriptions. It’s not true or legal here in the 50 states where Federal law reigns.
There is often confusion about the differences between a salaried and an exempt employee, primarily because the terms are sometimes used interchangeably. Just because an employee is paid on a salaried basis does not mean the employee is exempt from overtime. A salaried employee must meet very specific criteria in order to be considered an exempt employee. These exemptions are very narrowly defined and are based on an established set of salary and duties criteria, none of which include making toys for the big guy in red.
Myth: "Unauthorized" overtime need not be paid.
Fact: We hear you protesting, “Lots of companies operate this way.” That doesn’t mean it’s legal. If those companies jumped off a bridge would you jump off too? This is where it’s important that your supervisors understand that “hear no evil, see no evil and don’t authorize overtime” is not an excuse to withhold employee pay.
If an employee has worked overtime, he or she must be paid overtime, regardless of whether the overtime was authorized. Even if you have a policy that “no overtime work is permitted unless authorized in advance”, it doesn't relieve you of the requirement to pay for the overtime.
It’s kind of like when the police pull you over for speeding and you protest, “But I didn’t see the speed limit sign.” It doesn’t matter. You’re getting a ticket because the law is in place whether you’re aware of it, following it, or even care about it or not.
You may subject the employee to disciplinary measures for working unauthorized overtime but in no case may you withhold overtime pay.
Myth: Employees may waive their right to overtime as long as it is in writing.
Fact: There truly are people out there who love their job, we mean REALLY love their job and would work for free if they had to (Top Gun fighter pilots for instance). Other employees are so anxious to get caught up, impress the boss, or just not have to go home, that they are willing to waive their overtime pay.
They may also be willing to waive overtime for personal, financial, or altruistic reasons, or because they don’t know any better — bless their little golden hearts… But regardless of the circumstances, overtime pay may not be waived. Even if they offer or sign a written agreement with you, they may not legally waive or decline their overtime pay.
Myth: An employer may offer employees "comp time" in lieu of overtime pay.
Fact: Compensatory time off ("comp time" as its known in the employment trenches) is paid time off that is offered instead of cash payment for working overtime hours. However, private sector employers cannot meet the overtime requirement of the Fair Labor Standards Act through the use of compensatory time off. No matter how golden the heart or noble the intention, you can’t trade cash for comp time.
Myth: When calculating overtime, an employee's regular rate of pay includes only his or her hourly wage.
Fact: The devil is always in the details. Determining an employee's regular rate of pay for purposes of determining overtime really is a numbers game. By law, overtime is due at a rate of 1.5 times an employee's “regular rate of pay”. That means more than just the employee’s hourly rate. It means if the employee has multiple rates of pay (i.e. shift differentials), commissions, piecework, etc. those all need to be considered as well.
Now, wasn’t that easy?