T Common FLSA Mistakes and Misconceptions ABOUT OVERTIME PAY BY DEBRA A. MASTRIAN, AMUNDSEN DAVIS LLC The Fair Labor Standards Act is a federal law that sets minimum wage and overtime requirements for covered employees.1 Under the FLSA, employees must be properly classified as either exempt or nonexempt. Exempt employees are not subject to the minimum wage and overtime protections of the FLSA, whereas nonexempt employees are and must be paid minimum wage and overtime pay (1½ times their regular rate of pay for all hours worked over 40 hours in a workweek).2 The Wage and Hour Division of the U.S. Department of Labor enforces the minimum wage and overtime provisions of the FLSA and can audit an employer at any time. An audit can be triggered due to a complaint from an employee, complaint from a third party, referral from another governmental agency, etc. The DOL normally will not tell an employer how the audit originated. What are some common mistakes employers make? ▶ Misclassification of employees as exempt versus nonexempt. Exempt employees are paid on a salary (or fee basis) and are not entitled to overtime pay. Nonexempt employees may be paid on an hourly, salary, commission or other basis, but must be paid at least minimum wage for all hours worked each workweek and overtime pay for all hours worked over 40 in a workweek. The form of payment does not determine exemption status. Exempt and nonexempt employees can both be paid on a salary basis (although, typically, nonexempt employees are paid on an hourly basis). Employees may be classified as exempt if they satisfy one of the specified statutory exemptions, the most common of which are the administrative, executive and learned professional exemptions (including the creative professional exemption and the computer employee exemption).3 To satisfy those exemptions, an employee has to meet both a salary basis test (be paid at least the minimum required amount of salary each workweek) and job duties test (have certain job responsibilities).4 Just because an employee is paid a salary does not mean they are exempt. The employee must also meet the job duties test. A position’s title is not relevant in determining whether the job duties test is met. The work the employee performs on a daily basis is the main inquiry. ▶ Failure to pay overtime. Employers are required to pay nonexempt employees for all hours they “suffer or permit” an employee to work, and any hours worked over 40 in a workweek must be paid at time-and-a-half, regardless of whether the overtime was authorized. Employers should be familiar with the overtime thresholds and what time must be counted as hours worked. Any time spent in physical or mental exertion controlled by an employer, and primarily for the benefit of the employer and its business, must be paid in accordance with the minimum wage and overtime requirements of the FLSA and Indiana (or other applicable state) law. This includes work that occurs outside of regularly scheduled working hours and can include time spent responding to emails and phone calls after hours, even if the employer has a policy prohibiting the “off-the-clock” work. ▶ Improper calculation of overtime (did not include all hours worked in a workweek and/or did not use the correct regular rate of pay). Employers who pay biweekly cannot spread the hours over the two weeks paying overtime only for time worked over 80 hours in a two-week period. Forty hours a workweek is 40 hours a week, and it is based on the regular seven-day workweek, not the pay period. If an employee works 30 hours one workweek and 50 hours the next workweek, HUMAN RESOURCES SEPTEMBER/OCTOBER 2024 41
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