Payroll Compliance Series Part 1: Overtime Misconceptions
Payroll Compliance can be overwhelming with documenting, deadlines, filing reports and paying all of the taxes. Not to mention, abiding by all of the laws and regulations in place. There're the Federal levels including the Dept of Labor and Fair Labor Standards Act, but State and County as well. There are not many Alabama specific laws regarding Payroll, but don’t let that lull you into a false of security!
There are a lot of misconceptions regarding Overtime Pay and how it has to be paid out. While most business owners never intentionally break the law, not having an in depth understanding of the laws can have unintended consequences. Some of the common mistaken beliefs I have heard are paying employees overtime after 80 hours because they are on a bi-weekly schedule or using a manager title with a Salary (mis)Classification. One of my personal favorites is “Our employees fall under this (random and misunderstood) Overtime Exemption.
Overtime must be paid for anything worked over 40 hours within a pay week, regardless of the pay schedule. Employees must be paid for all work spent in the service of their employer. This includes coming in early to prepare meeting rooms, stopping by the post office on the way home, interrupting employee lunch breaks, (and the lunch break times must start over if they are interrupted) and drive time from site to site. All of these hours must be accounted for. The hard part is having to pay when the employee has been told it is not authorized. Unfortunately, it does not matter if the employee(s) are breaking the policies; it still has to be paid. This turns into more of a disciplinary issue, and different measures should be taken.
Did you know? Employee agreements do not supersede any governing law. An employee signing an agreement to “bank” the overtime hours, to be paid at the regular rate at a later date, (like using for vacation or sick time) can also get you sued for back wages. An audit will be completed and everyone who was paid incorrectly will be part of that suit; not just the one individual who blew the whistle.
According to a Press Release dated May 25, 2022, from the Wage & Hour Division of the Department of Labor, there was a lawsuit in Birmingham, AL very recently. The two companies involved were Steel City Couriers Inc., and Cahaba Valley Couriers Inc. stating they misclassified 235 workers, preventing them from getting overtime pay. These 2 companies thought they found a loophole by using an FLSA Exemption from Overtime. Unfortunately, because the 2 companies wrongly assumed this specific exemption legally covered them, that was not the case. The Dept of Labor recovered $181,379 in back wages for these 235 employees. While your business may be small, a lawsuit like that can easily cause a company to fold. The article can be found here: https://www.dol.gov/newsroom/releases/whd/whd20220525-1
If you’re not sure if you can classify someone as exempt, consider the following. Employees who tend to be involved in more of an operational aspect, as opposed to management. For example, Receptionists, administrative assistants, and technicians are all non-exempt. Exempt employees include CEO’s, managers (who pass the “duties test”, teachers, graphic artists, etc. Fact Sheet 17A outlines who can be classified as Exempt. Here's the link: https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fs17a_overview.pdf
Still have questions about your Overtime Policies? Call us for a free review!