It seems only fair that if you work long and hard, your paycheck should reflect it. However, more and more employers are paying their employees a salary, which is the same whether the employee works 40 or 45 hours. Is paying an employee a salary the trick to avoiding overtime? Not quite.
The Fair Labor Standards Act (FLSA) is the federal law which requires that an employer pay certain employees an overtime premium (time and a-half) for all hours worked in excess of 40 hours. Some employees are eligible for overtime under the law and are classified as “non-exempt.” However, the law creates certain exceptions to the overtime requirements, and these employees are classified as “exempt.” Exempt employees are not entitled to overtime no matter how many hours they work.
However, the law’s focus is not on how an employee is paid (salary or by the hour), although that is part of the equation The primary focus is on the duties performed by the employee. Non-exempt employees perform non-exempt duties and are generally compensated hourly. However, if a non-exempt employee is paid a salary, but this does not change the fact that the employee still must be paid overtime for hours worked in excess of 40 hours.
To be exempt from the overtime requirement, an employee must meet certain criteria. First, an employee must be paid a salary to be exempt. However, the employee also has to perform duties which meet the criteria for an exemption. There are four major exemptions (although there are more) and here are the top four’s basic criteria:
Executive Exemption: To qualify for this exemption, the employee must (1) regularly supervise two or more other employees; (2) have management as the primary duty of the position; and (3) have some genuine input into the job status of other employees (such as hiring, firing, promotions, and/or assignments.
Administrative Exemption: To qualify for this exemption, the employee must perform office or non-manual work, which is (1) directly related to management or general business operations of the employer or the employer’s customers; (2) a primary component of which involves the exercise of independent judgment and discretion about (3) matters of significance.
Professional Exemption: The professional exemption applies to those whose work is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school, and usually beyond college. Examples of such jobs are lawyers, doctors, accountants, architects, teachers and clergy.
Outside Sales Exemption: This exemption applies to commissioned sales persons who make sales or take orders and who work outside the employer’s workplace.
So, if an employee is paid a salary which is not dependent on the number of hours worked and primarily performs exempt job duties, then the employee is not entitled to overtime pay under the FLSA. If a salary employee is not exempt, then figure up the average hourly wage (generally salary divided by normal hours worked) to determine hourly rate. The non-exempt salary employee would be entitled to 1.5 times this rate for time worked in excess of 40 hours. Misclassifying a non-exempt employee is a way to shift the the cost of long hours from the employer to the employee.
Employers cheat their employees out of unknown millions of dollars every year. The law provides a remedy: An employee can bring an action against their employer/former employer to collect unpaid overtime for 2 to 3 years. And, the employee can collect 2 times that amount if she wins. Add to this a right to recover attorney fees.
And it is not always the misclassification trick that screws employees out of overtime pay. Sometime, it is simply requiring employees to do work off the clock. However, whether it is working of the clock or being misclassified, employers break the law when they do not pay non-exempt employees overtime. The catch is employers can get away with it only if their employees let them.