Overtime Violations: How an Employee Making $50,000 Can Cost your Business Over $150,000
January 03, 2016

One of the most costly mistakes a business can make is when a business does not pay its employees overtime when required to do so by law.  At Hunter Business Law, we strive to keep our business clients compliant so that their hard earned money is spent on growing their business, not paying fines to the government or settlement checks to employees and their attorneys to resolve a lawsuit.

Under federal law there are two types of employee classifications relevant to overtime pay: exempt employees and non-exempt employees. Every employee is either exempt or non-exempt. Exempt employees are exempt from the overtime requirements and non-exempt employees are not exempt and, under federal law, must be paid overtime for each hour they work over 40 in a week.  Some states have their own overtime laws; this blog is about federal overtime laws.

One major misconception is that all salaried employees are exempt from overtime.  This is not true.  Simply because an employee is on salary does not mean the employee is not entitled to overtime. To be exempt, an employee must meet a specific salary threshold and the employee must meet a specific job duties test.  Notably, the salary threshold is under scrutiny and proposed amendments to the Fair Labor Standards Act (“FLSA”), if enacted, will significantly raise the threshold, making as many as 11 million more workers entitled to overtime.

Even under the current FLSA salary threshold, many employees do not meet the job duties test and are misclassified as exempt when they are really non-exempt. Meaning the employees are not being paid overtime when the employees should be.

Here is why not paying an employee overtime can be so costly. Let’s consider a misclassified employee who makes $50,000 per year. A misclassified employee is an employee who is classified as exempt (and not paid overtime) when he or she should be classified as non-exempt and therefore must be paid overtime.  A $50,000 annual salary equals $24.04 per hour. Overtime must be paid at 1.5 times the employee’s regular rate of pay (1.5 times $24.04 equals $36.06 per hour). If the employee works 50 hours per week for a year, consider the potential liability of the employer:

  • The employee should be paid $36.06 for each overtime hour he or she worked (even if salaried). $36.06 for 10 extra hours per week equals $360.60 per week. $360.60 times 50 weeks per year (allowing 2 vacation weeks) equals $18,030 of unpaid overtime for that one employee.
  • If the employer doesn’t pay the overtime and the employee files a claim against the employer, then the employer owes $18,030 in unpaid overtime. It doesn’t end there.
  • Under the law, the unpaid overtime amounts can be doubled as a penalty making it now over $36,000 owed by the employer to the employee. Bad enough yet?  There is more.
  • If the employee prevails, the employer can also be required to pay the employee’s attorney’s fees, on top of the employer’s own defense costs. The median hours for litigating an employment case is 374 hours of attorney time at $300 per hour, which equates to slightly more than $110,000. Granted, the employer may not fight the claim, significantly reducing the attorney’s fees expense.
  • Now add governmental fines, penalties, and back taxes owed on the unpaid overtime.

This is one employee! Imagine what happens when there are multiple employees. Unpaid overtime violations can total six figure quickly.

All employers should annually (and immediately when legislative changes have been implemented):

  • Audit each of their employees to make sure they are properly classified as exempt or non-exempt.
  • Ensure that they have proper timesheets for any non-exempt employees. Remember, even salaried employees can be non-exempt and thus their time needs to be tracked and overtime paid!

If you are an employer and have concerns about whether you are properly classifying your employees and paying overtime when it is required, please contact Hunter Business Law for guidance.   It only takes one employee who knows his rights to make your mistake a costly one for your company.

This blog was written by Hunter Business Law Attorney Adam Hersh. Attorney Profile

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