The federal Fair Labor Standards Act (FLSA) regulates the payment of overtime. Here are three common overtime mistakes:
Mistake #1: Misclassifying employees – some employers classify workers as independent contractors to escape liability for overtime wages. Courts look at whether an individual is “economically dependent on the business to which he renders service or is, as a matter of economic fact, in business for himself,” and they use a variety of factors to determine whether an individual is an employee or independent contractor.
Mistake #2: Exemption confusion – Paying an employee a salary does not necessarily make him exempt from overtime wages. Most employees who are exempt from overtime fall under the executive, administrative, or professional exemptions (also known as the white- collar exemptions), which require payment on a salary basis. However, for the white-collar exemption to apply, an employee must meet the duties test and be paid a minimum salary of $455 per week.
Mistake #3: Calculating the regular rate – employers should make sure to properly calculate employees’ regular rate of pay. Overtime is calculated at 1.5 times an employee’s regular rate for all hours worked in excess of 8 hours up to and including 12 hours in any workday and for the first 8 hours worked on the seventh consecutive day of work in a workweek. Further, double overtime is calculated as 2 times the employee’s regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of 8 on the seventh consecutive day of work in a workweek. However, an employee’s regular rate is not necessarily the same as the hourly rate. If an employee’s only compensation is his hourly rate, the regular rate is the same as his hourly rate, and the overtime rate is 1.5 or 2 times that amount. If you provide any compensation over and above straight hourly wages, make sure you calculate any bonuses or compensations which must be included in the calculation of the regular rate.
The Law Offices of Payab & Associates is a Los Angeles based law firm with more than 17 years of experience in employment cases. Our office has successfully litigated many complex disputes including wrongful termination, sexual harassment, racial discrimination, wage and labor disputes, and retaliation cases.