Overtime: What should employers know?

The Fair Labor Standards Act (FLSA) is a federal law that requires employers to pay certain employees minimum wage and overtime for all hours worked in excess of 40 in a single workweek regardless of whether they are paid an hourly rate or on a salary basis.

However, certain employees are exempt from these requirements if they are employed as bona fide executive, administrative, or professional employees receiving no less than $455 per week, outside sales employees.

Executive Employee

The employee’s primary duty is managing the enterprise, or managing a customarily recognized department subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent and have the authority to hire or fire other employees, or effectively recommend such action.

Administrative Employee

The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Employee

A “learned” professional employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning and is customarily acquired by a prolonged course of specialized intellectual instruction. A “creative” professional employee’s primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Outside Sales Employees

The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. The employee must be customarily and regularly engaged away from the employer’s place of business.

If the job falls under any of the four categories described above, or qualifies as a highly compensated employee (earning over $100,000 annually), the employee is not covered by the Act

Currently, the white collar minimum wage requirement is $455 per week ($23,660 per year). If an employee’s salary does not meet this threshold, an employer is required to pay them overtime regardless of their job category. However, the U.S. Department of Labor (U.S. DOL) is in the process of amending FLSA to update the wage thresholds to take inflation into account since the last update in 2004. The U.S. DOL is proposing that the white collar minimum wage requirement be raised to $921.00 per week, or $47,892.00 annually and the highly compensated employee level be raised to $122,148.00 annually. The Final Rule announcements are expected in early 2016 and will apply to calendar tax year 2016 and beyond.

Employees filing an FLSA claim can seek unpaid overtime wages going as far back as three years. The FLSA allows employees to recover twice their actual damages as “liquidated damages.” Moreover, an employee’s overtime rate is calculated at 1.5 times the regular hourly rate. The FLSA also allows the employee to recover attorneys’ fees and costs, which can substantially exceed the amount of the employee’s total claim and allow similarly situated employees to opt into another employee’s FLSA claim and potentially multiply the employer’s liability. Because FLSA claims can subject employers to substantial liability, it is important to recognize potential pitfalls when making business decisions. Please contact MBM if you have any questions about overtime pay requirements and/or need further assistance with this matter.