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Five Common Overtime Mistakes Employers Need to AvoidPDF
By Michael Mahon
Employers of all sizes must remain cognizant of the wage requirements of the Fair Labor Standards Act (“FLSA”). Even small missteps can wreak havoc on a business, and because wage violations are often not insurable,there is no safety net once these missteps turn into lawsuits.
Some of the most common missteps occur in the realm of overtime. Most employers are generally aware that hourly employees who work more than 40 hours a week are entitled to pay of time and a half. However, there is more to complying with FLSA’s overtime laws than meets the eye. Below are five common overtime mistakes businesses should avoid.
1. Misclassifying Workers as Contractors
Unlike employees, independent contractors are not entitled to overtime pay of time and a half. However, one of the most common overtime mistake employers make, particularly in more blue-collar industries, is classifying workers as independent contractors rather than employees. Employers are often under the mistaken belief that a worker who receives a 1099, or makes a voluntary election to become a contractor, is in fact a contractor under the FLSA. This is simply not the case. The law pays little attention to how a worker is characterized. Instead, courts look to a series of factors such as the degree of control over the worker, the worker’s investment in equipment, whether special skills are required, the permanency of the relationship, whether there is an opportunity for profit or loss, and whether the services performed are an integral part of the employer’s business. Put simply, if the worker is treated like an employee, then more likely than not, he or she is an employee, regardless of any label or tax treatment.
2. Not Keeping Wage and Hour Records
Sloppy recordkeeping can be devastating to an employer who needs to defend itself against an overtime wage claim. Pursuant to the FLSA, an employer must maintain certain records for at least three years. This requirement includes (1) the hours worked each day, (2) total hours worked each workweek, (3) the rate of pay, (4) that basis of pay (i.e., per hour, per week), (5) total daily or weekly straight-time earnings, (6) total overtime per workweek, (7) all additions to or deductions from the employee’s wages, (8) total wages paid per pay period, and (9) date of payment and pay period covered by the payment.
3. Misclassifying Workers as Exempt
Another common mistake employers make is assuming that all salaried workers are exempt from overtime pay. This is not the case. First, if a salary employee makes less than $455 per week, he or she is entitled to overtime. Second, a salary employee who does not qualify for one of the specific exemptions set forth in the FLSA is also entitled to overtime. These exemptions include the “executive” exemption, “administrative” exemption, and “professional” exemption. In short, salary or hourly, the true test for overtime under the FLSA is the type of work an employee performs. Because this is one of the most confusing and expensive FLSA mistakes to make, it is important to contact legal counsel if you believe that you may be misclassifying workers as exempt from overtime pay.
4. Off-the-Clock Work
The advent of smartphones alone has made working “off-the-clock” more commonplace than ever. No longer is the nine-to-five workday the norm, as more and more employees use technology to take the workplace out of the office and into outside world. Answering emails while in line at the grocery or taking a phone call while at a friend’s birthday party are just a couple examples of situations in which an employee may be performing off-the-clock work. Because employees often fail to record this type of unscheduled work, employers risk violating the FLSA when this work is not taken into account. Therefore, employers must implement strict policies against employees working off-the-clock, whether it be virtual or in the office. It is recommended to contact legal counsel who can assist in developing a proactive approach in dealing with employees who utilize remote access.
5. Not Accounting for All Compensable Time
While employers usually account for time spent on principal work duties, a variety of other supplementary activities must also be accounted for when calculating how many hours an employee must be compensated for in a given week. These activities include:
- Waiting Time – Whether waiting time, or on-call time, is compensable often depends on where the employee is while he or she is waiting. For example, an employee on call but at home is likely not entitled to compensation, but being on call while at the office is likely compensable.
- Seminars/Training – Generally, time spent attending training or seminars are compensable if the employer requires attendance.
- Travel Time – Traveling during the normal “shift” is generally compensable, while traveling “off shift” is generally not.
- Attendance at Receptions – If the gathering is mandatory, it is generally compensable.
There are some insurance carriers that do offer coverage for wage and hour claims. If you have any questions about your coverage options, please contact one of the members of our Labor and Employment Group.