Don't Get Caught Up in an Overtime Lawsuit

We’ve all seen the headlines about the half-billion dollars that Walmart recently agreed to pay to settle many of the class action wage and hour lawsuits against it. When we think of overtime claims, we tend to think of retailers such as Walmart, or sweatshops with employees working at or close to minimum wage. Many fail to realize that overtime claims are also the curse of white collar employers. Merrill Lynch, Morgan Stanley, UBS and virtually all of the players in big pharma (Abbott Laboratories, AstraZeneca, and Eli Lilly, to name a few) have something in common with Walmart–they are all either facing large scale class-action overtime lawsuits or have recently paid out eight- or nine-figure settlements in overtime cases. And small to mid-size employers are not exempt from similar fates.

Salaried Employees May Be Entitled to Overtime Pay

When should an employee receive overtime pay? Everyone thinks they know the answer—hourly employees get overtime pay, those paid on a salary do not get overtime pay, right? Unfortunately, it is not quite that simple.

Federal laws for overtime and state laws for overtime identify which employees should receive overtime pay—and it is not an "hourly" or "salaried" distinction. Employers might be shocked to learn that according to laws for overtime, many salaried employees are entitled to overtime pay. The employee’s job duties and responsibilities govern that determination, not how they are paid.

Which Employees are Exempt From the Overtime Pay Requirements?

The major exemptions from overtime pay requirements apply to:

• Executives
• Certain administrative employees
• Professionals
• Outside Salespeople

Generally, executives run the organization, or a major division of it. They hire and fire people, assign work and manage the business. Administrators use independent judgment and discretion to make important decisions affecting the business. They do not necessarily supervise others, but serve in key administrative roles such as Marketing Manager or HR Director. Professionals have advanced degrees (doctors, dentists, CPAs, lawyers, etc.), or serve in creative roles (artist, musician, actor, etc.)–but the U.S. Department of Labor is very specific about exactly which professionals qualify for this exemption from overtime pay. Outside Salespeople primarily spend their time away from the office calling on clients. The outside sales exemption applies exclusively to real road warriors–inside salespersons usually do not qualify.

To maintain these exemptions, employees (except outside salespersons and some professionals) generally must also be paid on a salary basis (rather than hourly or otherwise) and must receive at least $455.00 per week (or another weekly amount as required by applicable state law). Exempt salaried employees need to be paid their full weekly salary for every week in which they perform work, with very limited exceptions. Improper deductions from the wages of exempt employees can void overtime exemptions.

If an employee does not fall into one of these (or a limited number of other) specialized exemptions, federal overtime law requires the employee to be paid time and one-half for all hours worked in excess of 40 in a single workweek. Additional state overtime regulations may apply–e.g., California requires overtime pay after eight hours in a single workday.

Beware the "Account Executive"

Impressive job titles may make employees feel good (Walmart has 88,000 "Associates"), but titles alone have no impact on overtime pay exemption status. Many companies run into trouble with workers engaged in the sale of goods or services. Providing telemarketers with a fancy job title and limited training does not turn them into exempt executives, administrators or outside salespersons who are exempt from overtime pay. As noted above, some of America’s largest companies–with large human resources departments–have guessed wrong when it came to overtime exemptions relating to sales.

Overtime Pay Reality Check

It is not just big companies that get hit with overtime lawsuits–and wage claims are generally not covered by EPLI. So even though you may find yourself under pressure to support management’s fantasy about how state and federal overtime law works, remember that an expensive overtime lawsuit is probably not in line with the company’s strategic plan. Check the state and federal laws, and get help from employment counsel to clarify and support exemption classifications for overtime pay.

First published on Human Resources IQ.