Thursday, December 11, 2014

Research Q of the Week: The OT Enforcers and Your City (12/11)

Question: I'm working on my city's employee classifications, and I'm confused. A salaried employee can't earn overtime—right?

Answer: This is always a tricky question because of a common misunderstanding about how the words “hourly wage” and “salary” relate to the payment of overtime under the Fair Labor Standards Act (FLSA). The short answer is "maybe," and it's worth a look to understand why.

First, let’s define some words and phrases:
  • Hourly wage means that the amount paid is based upon a rate per hour. 
  • Salary means that a certain amount of money is paid regardless of the hours that are worked.
  • Overtime pay is earned when more than 40 hours are worked in a week. 
  • Exempt means that workers are not eligible for overtime pay. Non-exempt means workers earn overtime pay.
—Oh yeah, and the "FLSA" is the federal law that regulates employee pay, among other things, and the U.S. Department of Labor ("DOL") enforces the FLSA. Got that?

Now, let’s take a look at that misunderstanding about overtime pay. It is a commonly held belief that salaried workers are exempt and hourly wage workers are non-exempt. However, believe it or not, a salaried worker can be non-exempt and thus eligible for overtime pay.

So, the real question is whether or not a worker is exempt or non-exempt.

To help answer that question, the DOL has created two tests: the salary test and the duties test. An employee must pass both tests in order to be classified as an exempt employee. There isn’t enough space on this page to fully explain these tests, so for more information you should take a look at the League’s Fair Labor Standards Act (FLSA): Determining Exempt vs. Non-Exempt Status information memo. 

Close enough won't cut it
Classifying your employees correctly is important because the DOL has stepped up enforcement of the law over the last several years, and the penalties for non-compliance are severe. The DOL determined that in 2013 employers failed to pay over $130 million in overtime wages. Ouch. Penalties include back pay, an equal amount of liquidated damages, attorney’s fees, and court costs.

Additionally, willful violations can result in criminal prosecution and a $10,000 fine. The typical investigation goes back two years, but records must be kept for at least three. Failure to maintain adequate records will also result in additional penalties.
If you have more questions about overtime and the FLSA I encourage you to visit the DOL website, review any of the DOL Fact Sheets, or contact the League’s Research department at (651) 281-1200 or research@lmc.org.

Written by Jake Saufley. Contact the League's Research and Information Service staff by emailing research@lmc.org, or by calling (651) 281-1200 or (800) 925-1122.


This blog post conveys general information. It’s not legal advice. Please check with your city attorney before acting on this information.

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