How to Pay Overtime the Right Way

03/05/07

The question of whether salaried workers are eligible for overtime pay is a challenging one. While many CEOs and other high-level executives do not garner overtime compensation for putting in extra hours, some salaried employees may be entitled to the same overtime pay that hourly wage employees receive for working beyond their regular schedule.

Overtime exemptions aren’t always clear-cut
You may know that you don’t need to pay overtime to workers who are classified as "exempt" under state labor laws or the federal Fair Labor Standards Act (FLSA), but do you really know who is exempt? There are guidelines, but some of them are vague and leave room for dispute.

For example, consider the FLSA's "short test" for qualifying an administrative employee as exempt:

The employee receives a salary of at least $250 per week.

The employee's primary duty consists of office or non-manual work directly related to management policies or the general business operations of the employer or the employer's customers.

The employee exercises discretion and independent judgment in performing the primary duty.

An employer could easily view an employee's job description as fitting the criteria for exemption. Yet, the employee may disagree, and even sue the employer for unpaid overtime. What's more, state laws pertaining to overtime vary. And when federal and state laws conflict, the rules that are more favorable to the employee prevail.

Employers: Proceed with caution
Whereas it is up to the employer to prove that an employee is exempt, if there is any doubt as to how to classify a job, the prudent course of action would be to designate it as non-exempt. Before classifying a job position as exempt, you should carefully evaluate its eligibility. Do not base your decision solely on the job title. And do not presume that a person working in a high-level position is automatically exempt. Education, acquired skills or position within the company do not necessarily indicate exemption status.

Instead, examine what the individual does each day on the job, and match those activities against the standards set by the FLSA (and the state, as applicable) for the exemption in question. Make sure the job description accurately describes the duties involved.

You may want to consider a team approach for the evaluation process. Involve people from human resources as well as legal counsel to help ensure that employees are properly classified as exempt or non-exempt. If you determine that a position is exempt, maintain documentation that supports your decision.

An ongoing process
As your company evolves, new jobs may develop, or the responsibilities for existing positions may change. Continued compliance with the FLSA is vital. Therefore, you should review your firm's job positions at least annually to ensure that FLSA regulations (and state overtime regulations, where applicable) are satisfied.

Fortunately, you can get all the compliance answers you need by reading G.Neil’s exclusive guide, Wage & Hour Law Understood, as well as our article “How to pay overtime the right way” online at www.gneil.com today.

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