How to Avoid Issues with FLSA Overtime Pay

Tips for keeping your payroll and bottom line in sync

The Fair Labor and Standards Act (FLSA) requires employers to compensate employees for overtime hours, usually equal to one and a half times their wages, for any time worked that exceeds 40 hours in a one week period.

While this policy is an essential component for providing fair wages, it can lead to confusion and frustration for an employer. While you want to do what is right from a legal standpoint, paying excessive amounts of overtime can severely harm your bottom line, which may negatively impact your business.

So how can you legally combat overtime hours and keep your payroll under control? Keep these simple tips in mind, and when in doubt, seek the assistance of a knowledgeable attorney.

Establish Company Policies that Address Overtime

The first step is to create policies and procedures that addresses how your company pays overtime hours. It should, in clear and concise language, explain to your entire team of employees that 40 hours is the maximum time allowed for a standard work week, unless otherwise approved by management. The policy should layout a clear procedure for going over 40 hours, perhaps obtaining approval of management, and define disciplinary measure for employees who do not follow the company’s policy.

Employee Handbook

In order to effectively communicate your overtime policy, make sure you have included this information in an employee handbook. All employees should be given this handbook at the time of hire, but it falls on managers and company leaders to make sure that it is reviewed and understood by everyone on your team.

Keep Records of Time Worked

Having a system for tracking time is an effective way to monitor hours and combat overtime. If an employee is nearing overtime pay, having accurate information available to management allows them to take the necessary steps to address the issue in a timely fashion.  Such information is also critical to combat a claim for FLSA so that you can prove the actual hours worked.

Classify All Employees Properly

The classification of employees can be very confusing for employers.  It is important to become familiar with the U.S. Department of Labor’s website and fact sheets on exemptions (e.g. click here to view), in addition to the actual provisions of the FLSA (click here to view), to better under the types of employee exemptions.    There are numerous exemptions, and some of the most common are Executive, Administrative, Professional, Highly Paid, and Outside Sales.  Make sure you thoroughly evaluate the status, duties and responsibilities of each employee to determine whether or not they qualify for overtime, and if you are unsure, seek the assistance of experienced legal counsel. Despite common perception, hourly wages and/or payment of a salary are not the only determining factors, as salaried employees who are paid less than $455 a week could also be eligible for overtime, or a salaried employee that is meet a specific exemption, must still be paid overtime. The employee’s job duties are a factor as well, so if you need help with classifications to determine if an employee is entitled to overtime, seek the assistance of a qualified attorney who specializes in employment and business law.

Don’t Try to Average Hours

Weekly hours do not necessarily need to coincide with a calendar week (Sunday through Saturday), and different employees or groups of employees can have varying workweeks. However, averaging time is not allowed. For example, you cannot have an employee work 50 hours one week, 30 hours the next, and count it as 80 standard hours. In this example, you would be required to pay 70 hours at the regular wage with 10 hours of overtime.

Refusing to Pay “Unauthorized” Overtime

Pursuant to FLSA, employers are required to pay for all overtime hours worked, regardless of whether the hours were authorize or unauthorized. Despite having a clear policy stating that overtime is not permitted, if an employee goes over 40 hours in a one week period, the employee may still be entitled to overtime compensation. It is the employer’s duty to oversee employees’ working hours in order to comply with the FLSA’s overtime pay requirements. If you ever have legal questions regarding employee overtime, consult with a corporate business lawyer who can provide you with the information and guidance you need.