Pay | 

Answers to Your Toughest Pay Questions (Part 1)

During our recent webcast, attendees asked about how to handle pay for breaks, travel, early punch-ins, after-hours work, and other pay-related situations. Here are the answers to some frequently asked questions:

Overtime:

Background: The Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees overtime pay (at 1.5 times their regular rate of pay) whenever they work more than 40 hours in a workweek. Note: Some states require overtime in additional circumstances.

Q: Hourly employees are working 52 hours a week, which creates significant overtime costs. Is there any way to bank their hours or not pay them 1.5 times their regular rate of pay, or do I have to cut their hours?

A: If non-exempt employees work more than 40 hours in a workweek, they must receive overtime pay. The only way to avoid overtime costs is to ensure non-exempt employees never work more than 40 hours in a workweek. This may require you to implement strict scheduling rules, hire part-time workers to handle the excess work, and/or plan work projects so that they can be completed in 40 or fewer hours each week.

Q: What is considered overtime—one minute, 15 minutes, or a half hour over 40 hours?

A: Overtime is due whenever the employee works more than 40 hours in a workweek. A non-exempt employee who works 40:01 hours in a workweek is entitled to one minute of overtime pay.

Q: Our payroll is every two weeks. Does this mean I don't have to pay overtime unless employees work more than 80 hours during the payroll period?

A: The determination of whether overtime is due is based on the workweek, not the payroll period. If an employee works more than 40 hours in any workweek, you must pay overtime. You cannot average two or more workweeks to determine whether overtime is due. A workweek is a fixed and regularly recurring period of 168 hours, or seven consecutive 24-hour periods. Note: You may not change the start of the workweek to avoid overtime obligations.

Q: If a non-exempt employee works overtime, can I give him paid time off instead of paying overtime?

A: This practice is commonly known as "comp time" and it is prohibited in the private sector. Non-exempt employees who work more than 40 hours in a workweek must receive overtime pay.

Q: What if a non-exempt employee specifically asks for "comp time" instead of overtime pay?

A: Employees cannot waive their right to overtime in the private sector. Even if the employee would prefer comp time instead of overtime, you must still pay overtime if they work more than 40 hours in a workweek.

Q: Can EXEMPT employees get "comp time" if they work more than 40 hours in the workweek?

A: Bona fide exempt employees aren't entitled to overtime. With few exceptions, they must receive their full salary each pay period regardless of the quantity or quality of their work. If exempt employees work more than their regular schedule in a given workweek, the employer may (but isn't required to) give the employee time off to make up for the excess hours, provided the employee still receives their full salary in the workweek in which they were given time off.

Q: Can an hourly employee (non-exempt) be given an option to have more pay per hour versus overtime pay?

A: No, employers must pay the overtime rate whenever non-exempt employees work more than 40 hours. Even if you paid the employee a much higher hourly wage for their regular work hours, the employee would still be entitled to 1.5 times their regular rate of pay for any work in excess of 40 hours in a workweek. Similarly, you may not pay non-exempt employees a flat fee (e.g. $200) for all overtime worked even if this occasionally works in the employee's favor.

Q: How can I prevent unauthorized overtime? How can a company discipline employees for breaking rules prohibiting unauthorized overtime?

A: An important first step is to draft a written policy that all overtime must be approved in advance and violations of the policy may result in discipline, up to and including termination. Next, communicate that policy to employees and obtain a written acknowledgment that they received and understand the policy. Once you have the policy in place, monitor employees' hours and enforce your policy consistently. For first-time violations, many employers will issue a verbal or written warning. All disciplinary actions should be documented and kept in the employee's personnel file. Remember, you must pay any overtime worked, even if it is unauthorized.

Salaried Non-Exempt Employees:

Q: Can a non-exempt employee be paid a salary? If yes, how do you handle absences for these workers?

A: Yes, a non-exempt employee may be paid a salary, provided they receive at least the minimum wage for each hour worked and overtime pay whenever they work more than 40 hours in a workweek. If a salaried non-exempt employee has an absence, you can make a pro rata reduction to his or salary for the missed time, provided the employee still receives at least the minimum wage for each hour of work and no reduction is made to any overtime due.

Q: If a non-exempt employee is paid a salary, how do you compute the regular rate of pay for overtime?

A: When a non-exempt employee is hired with the understanding that his or her salary will cover a fixed number of hours worked, the regular rate of pay is determined by dividing the employee's salary (and certain other forms of compensation, including productivity bonuses) by the number of hours it is intended to compensate (for example, a 40-hour workweek). Note: Your state law may have different rules.

Reclassification:

Q: If an exempt employee is reclassified, is the company responsible for any past overtime payment? Going forward, can the company reduce the employee's regular pay to adjust for the overtime pay she will earn?

A: Employers that misclassify employees as exempt may be required to pay back overtime, fines, and damages. To remedy a misclassification, some employers will determine the amount of overtime worked and then pay any back overtime due for a period of time. If an employee has been misclassified as exempt, the employer should consult legal counsel to discuss their options for how best to address the misclassification.

When reclassifying employees as non-exempt, you may choose any hourly wage as long as it meets federal, state, and local minimum wage requirements for every hour worked. Many employers try to handle reclassifications so that the employee's regular hourly wage plus overtime will be about the same as the employee's salary was prior to the change.

Conclusion:

Keep in mind that the answers above address federal law, but your state or local law may differ. Where federal, state, and local law conflict, the law more generous to the employee typically applies. See Answers to Your Toughest Questions (Part 2) for answers to your questions on meal and break periods, travel time, early punch-ins and after-hours work.

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