Why Overtime Pay Rules Matter Right Now

It is impossible for employers of any size, and particularly true of small business, to keep up with all of the proposals for workplace regulation and legislation. The most practical approach is usually to get all the details and take action when a final version is enacted. President Obama’s mid-March announcement of a request he was making to the Secretary of Labor to review exemptions from the Fair Labor Standards Act (FLSA) overtime requirement presents an exception to this wait and see attitude. Employers should be worried now about employee classifications and overtime pay.

How Confusing Can Overtime Regulations Be?

Very confusing. The basic premise is simple; the FLSA requires employers to pay 1.5 times the hourly rate when an employee works more than 40 hours in a work week. When the FLSA was enacted in 1938 it exempted managers from this overtime requirement and it was probably pretty easy to identify managers and hourly workers. The managers wore white shirts and ties and the workers were clad in uniforms. Our workplaces have evolved to be much more fluid. Some of these changes were addressed in updated regulations enacted in 2004. The list of categories that qualify for an exemption from the overtime requirement was lengthened. The categories are defined as Executive, Administrative, Professional, Computer-Related Occupations, and Outside Sales.  Each exemption has specific requirements that have to be met for the category.

All of the categories require that the employee is paid a salary of at least $455 per week, even if they work less than 40 hours. Each exemption also specifics that can include details about decision making, specialized academic training, direct relationships to business operations or clients, computer professionals (not help desk) and artistic or creative fields. The best advice I ever heard about identifying overtime eligibility is to assume the employee is eligible first and then look for reasons that would qualify them for an exemption from the regulation.

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No Problem; I’ll Just Give Them the Manager Title

“Congratulations, you are now the Assistant Manager. Your job is not much different but you do have a key to the storeroom. Here’s a raise and you will work a lot of hours but since you are a manager, no more overtime pay.” Here’s where the problems start; employees are not exempt just because you give them the title. And this type of action breeds frustration and wage and hour claims. The employee is promoted and soon realizes that if they calculate their new hourly rate, even with the raise, based on all the hours they are working, they make less than the people reporting to them.

Wage and hour claims have grown steadily and can be initiated by current, and former employees at state or federal departments of labor. Claims about improper classification are common affecting all kinds of businesses even Major League Baseball; the San Fransisco Giants paid more than $500k in back wages and damages last year for FLSA violations that included improper classification of a number of employees as exempt from overtime pay, including clubhouse managers at the major and minor league levels.

Time for a Reality Check

It’s a good time to look at those Assistant Managers, Supervisors, and even Managers who are not currently deemed to be overtime eligible to make sure they really do qualify for the exemption. Are they working lots of hours to cover shifts for employees? Are they rolling up their sleeves most of the day and “pitching in?” Do they really have the authority to make significant decisions?  This is an opportunity to not only make sure you are in compliance but also to look at the roles and structure at the work site. It’s can be a tedious task that is more than just reading job descriptions. They have to reflect reality and the requirements of the individual exemptions. You will want to enlist an HR pro or legal counsel for this one.

A culture of working overtime hours for face time and “because that’s what it takes” that does not focus on specific business reasons can run afoul of the law, increase turnover, and make people just plain unhappy. Not the face you want your customers or clients to see.

Rebecca Mazin creates usable solutions for employers to meet increasingly complicated human resources challenges. Her Recruit Right consulting, training, and writing produces consistently measurable results in organizations from small start-ups to industry giants. Rebecca is the author of The Employee Benefits Answer Book: An Indispensable Guide for Managers and Business Owners and co-authored The HR Answer Book: An Indispensable Guide for Managers and Human Resources Professionals. Follow Rebecca on Twitter@thehranswer.