Overtime

Tests for Overtime

By James B. Sherman, Esq.

Many employers either pay, or risk, more than necessary where overtime is concerned. In view of the intricacies of the overtime law, this is not surprising.

The Federal Fair Labor Standards Act (the FLSA) requires that most employees receive overtime. Generally, this means they must be compensated at "one and one-half times the regular rate" at which they are employed for hours worked in excess of 40 hours in a work week.

However, certain classifications of employees are exempt from receiving overtime under the FLSA. These exemptions are based on an employee’s particular responsibilities.

Enforcement of the FLSA is the responsibility of the Department of Labor (the "DOL"). The DOL uses a complicated set of standards, or "tests," in evaluating whether employees are exempt from overtime.

When the DOL questions whether a particular employee is entitled to overtime, the employer must be able to prove the employee is exempt from receiving overtime. In doubtful situations, the DOL will resolve the issue in favor of the employee receiving overtime pay.

The FLSA contains several specific exemptions regarding payment of overtime. Because the "white collar" exemptions are the most frequently encountered, we will concentrate on the tests for these exemptions.

White collar exemptions apply to "executive," "administrative" and "professional" employees. For each category of white collar workers, there are two tests: a "long" test and a "streamlined" test. To exempt an employee from overtime, the employer must be able to provide the employee satisfies either the "long" test or the "streamlined" test.

When determining if a white collar worker is exempt, the employer should first examine the "primary duty" definitions, which are set forth in the following table. Then, the employer should use whichever test applies to the employee’s weekly income to decide if the employee is exempt. Of the two tests, the "streamlined" test is the easier.

Additional points for employers to keep in mind about the above tests are:

• To exempt an employee from overtime, the employer must be able to show that the employee can pass all parts of the applicable test.
• Exempt "white collar" workers must be paid on a salaried basis. As defined by the DOL, "salary" may include offsets, excused leaves, bonuses, wage reductions, etc.
• Generally, a salaried employee must be paid his/her full salary for any week in which he/she performs any work, regardless of the number of days or hours worked. However, this is an especially tricky area. Some courts have ruled that reducing an employee’s salary for an absence of less than one day defeats an executive or administrative exemption. Other courts maintain that an "improper" deduction does not mean the employee is non salaried; these courts examine the facts and circumstances of the case to decide if the employee is salaried or non salaried.
• In the eyes of the DOL, job titles are relatively unimportant. What the employee does in the actual performance of his/her job duties is determinative.
• The "primary duty" standard asks the employer to determine which of the employee’s duties are of principal value to the employer. An employer cannot simply decide that, because an employee spends "X" number of hours at a certain task each week, his/her "primary duty" is that particular task.
• Keep in mind that an employee may satisfy the "primary duty" part of the test and still not be able to meet all of the other parts of the "long" test, particularly the maximum allowable percentage of non-exempt work.

Mistakenly categorizing employees as exempt can be costly for an employer. When an employer wrongly exempts an employee from overtime, employers may be liable for:

• Unpaid back wages at the overtime rate; and
• Attorney fees, court costs and interest.

In addition, the employer must be able to prove that failure to pay overtime was done in "good faith" and with reasonable grounds for believing it was not a violation. If an employer cannot prove this, the court may award additional monies as "liquidated damages" to the employee.

On a "dollar and cents" level, overtime cases can rapidly escalate into sizable dollars. Here’s an illustration:

Employee making $16,000 per year and working an average of 5 hours each week in excess of 40 hour workweek for 3 years

Multiply these figures by the number of employees improperly classified and the employer’s exposure to damages may mushroom into hundreds of thousands of dollars.

Because there are many exceptions to the basic exemption tests, employers may want to consult an attorney regarding questionable classifications.

Posted 10/9/1997