Overtime Issues and Salaried Employees – Do You Have a Problem?

By Paul J. Franzetti

The number of overtime lawsuits has sharply increased in Texas in the last decade.  That employees are seeking greater compensation should come as no surprise, given the overall stagnation in take-home pay since the 1980s.  But why should you as an employer care?  After all, you are paying market rates for wages and you may believe that relations with your employees are so good that no one would think of suing.

Many employers may be taken off-guard regarding:

• The complexity of the Fair Labor Standards Act (FLSA) and regulations regarding overtime.
• The detail of recordkeeping required by the FLSA.
• How easy it is to violate the FLSA.
• The availability of collective actions for all affected employees.
• The recoverability of attorney’s fees by successful plaintiffs.

The severity is compounded by how quickly damages can multiply even for minor violations and all it takes is one disgruntled employee to start the ball rolling.  The basic rule under the FLSA, payment of 1½ times the normal hourly rate for all hours worked over 40 during a week, seems simple enough, but it isn’t.

Consider whether the overtime rule applies in the following situations:

1. An employee works more than 40 hours a week even though you have told them not to do so.
2. An employee answers phone calls or responds to email or other social media outside normal working hours.
3. An employee works 50 hours one week and you tell them to work 30 hours the following week.
4. An employee reports to a jobsite but is not paid for work until you give them a particular project to work on.

The illustrative answers by numbered line are:

1. Compensable.  You may be able to take disciplinary action but overtime is owed.
2. Most likely compensable.  The real issue is the system for tracking employee time in this regard.
3. The extra 10 hours in the 50-hour week is compensable overtime.  Comp time is legal in the public sector, not the private sector.
4. The wait time is possibly compensable if it and the time worked on the project are greater than 40 hours in a week.

These answers are not meant as legal advice but only as illustrations in an overview of complex issues and the reader should not rely on them in any way to make decisions about their situation.  Different circumstances pertaining to these and seemingly similar situations may result in different answers.

Many small businesses try to avoid overtime issues by paying all employees a salary with occasional bonuses paid for extra time on special projects.  The FLSA overtime requirements, however, have nothing to do with whether the employee is paid on a salaried or hourly basis.  Instead, the overtime provisions apply to ALL employees unless an exemption applies; thus the references to “exempt” and “non-exempt” employees.  The exemptions from the overtime requirements generally apply only to executive employees and managerial employees.  The burden of proving that an exemption applies, moreover, is on the employer.

If a non-exempt employee is paid a salary and works more than 40 hours in a week, the overtime rate is generally calculated by dividing the regular weekly salary by the hours normally worked per week (40 or fewer) and applying the 1½ times rate to the portion worked over 40 hours.  In addition, the “salary” rate could include bonuses paid for additional work that are not properly segregated for the overtime portion which could actually work against an employer who thinks he or she has already generously compensated for the overtime.

Focusing on how this article began, the sharp increase in overtime suits, keep in mind that the FLSA allows successful plaintiffs to recover attorneys’ fees which means that private attorneys have an incentive to bring these cases.  Plainly, the best way to navigate wage, hour, and employee classification issues as well as foster a good working relationship with your employees and minimize risk to the business is to consult an experienced professional.  ________________________________________________________________

Paul J. Franzetti is the Founder of Paul J. Franzetti, Attorney at Law.  He can be contacted by phone at 713-242-1265, by email at pfranzetti@trustedlawadvisor.com, or visit his website at www.TrustedLawAdvisor.com.