Do Your Employees Qualify for Overtime?

The answer to this question may suprise you.

There are a number of reasons employers may give to the question of whether an employee qualifies for overtime, however in many cases these reasons are not legally valid.

It's something that business owners have been learning the hard way. Indeed, the number of overtime lawsuits has exploded over the past couple of years, even surpassing discrimination cases as the most widespread workforce class action.

In 2005, the Department of Labor collected $166 million in back wages, most of which was overtime pay — an increase of 26% since 2001. Large companies, including Cingular Wireless, have been hitting the headlines as they are forced to pay out millions of dollars in back overtime wages. Smaller companies have faired no better.

The litigation has been fueled, in parge part, by changes to the Fair Labour Standards Act in 2004. This antiquated piece of legislation was updated by the Department of Labor in order to eliminate references to outdated jobs and establish guidelines for contemporary workers.

Among other changes, it was determined that employees must make at least $455 a week to be ineligible for overtime pay, a sharp increase over the previous benchmark of $250 a week. As a result of this change in the legislation, 1.3 million workers suddenly qualified for extra pay.

It is only now, a full two years after the legislation was updated, that the effects of those changes are being felt. Not only are more workers aware of their overtime rights, but employment lawyers are increasingly looking out for potential overtime suits.

Employers have been caught off guard by the rise in overtime disputes. As is often the case, the value of spending time on these issues does not become apparent until it is too late.

Many employers realize they're in violation of the revised overtime laws only after they've been contacted by the Department of Labor. Most audits are the result of a complaint from a single worker that blows up into a companywide investigation.

Audit results are rarely good news for companies. Those found to be in violation must pony up two years of back overtime wages, in addition to fines for repeat offenders, and lawsuits are even more damaging.

To stay out of trouble, consider paying a labor attorney a few thousand dollars to vet your pay policies. In addition, you may want to take a hard look at what your employees do all day, regardless of their job descriptions. If they don't make many independent decisions, there's a good chance they qualify for overtime pay.

Flexitime hours sometimes seem like a good idea, but be wary: if an employee with a flexible schedule works more than 40 hours in a given week, regardless of how much he or she worked the previous or following weeks, that person may qualify for overtime.

Of course, you might not like what you discover. And correcting overtime mistakes isn't easy. Workers will probably ask about back wages when they find out they are eligible for overtime. To avoid a pricey lawsuit and bad press, some companies bite the bullet and hand over two years of back wages and pay overtime going forward.

With changes in legislation an inevitable part of the future, you may wish to consider investing in a time and attendance system, which automates the process of recording and paying overtime to your employees.