For many manufacturers and distributors, employee overtime has become a complicated issue. Some firms pay too much in overtime, while others misclassifying employees as exempt from overtime when they’re actually entitled to it under the law. Either way, it can be an expensive mistake.
Clarifying the Rules
Let’s begin with the first instance where employee overtime becomes the rule rather than the exception. In effect, these companies are operating on permanent overtime. When this
happens, some employees tend to regard overtime pay as a “fringe benefit” they’re entitled to, whether the company needs extra work or not. Indeed, they come to depend on that extra income and sometimes become creative at finding ways to make sure it continues.
Although state overtime rules vary, the national standard is clear: Unless your employees are exempt from the Federal Fair Labor Standards Act because they hold managerial, professional or administrative positions (or are outside salespeople or certain computer employees), you must generally pay them time-and-a-half for any hours worked in excess of a 40-hour week.
At 150% of an employee’s normal hourly wage, overtime pay scales can cause labor costs to skyrocket. To reduce excessive overtime costs, consider imposing a company-wide moratorium on overtime pay. At a minimum, require written authorization from a key management official before any non-exempt employee works more than 40 hours a week. This policy eliminates misunderstandings, as well as unnecessary payroll costs.
Solving Problems
Before you can fix your overtime problem, you have to search for the root causes. If work can’t be done during the normal hours, analyze why. Do you need to reshuffle job responsibilities or hire part-timers to catch-up? Consider paying a bonus for coming up with ideas to eliminate overtime by finishing the work on time.
But while you want to cut back on unnecessary overtime, be careful that you don’t go too far. There have been numerous class action suits filed by employees who claimed they were misclassified as being exempt from receiving overtime pay when they were entitled to it.
If a company incorrectly categorizes employees as exempt, it could be liable for back pay, overtime and punitive damages for the past two or three years. If an employee files a complaint, your business could be subject to an investigation by the U.S. Department of Labor (DOL).
Need Help?
Labor laws can be confusing. Consult with a professional advisor who specializes in employment issues to help ensure your company complies with state and federal laws.
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