Contributed Column

Gary FranklinRed Tape

by Gary Franklin, Attorney at Law 

Watching the clock and your wallet. Who gets overtime?

Decisions about pay require more than just good business sense. The federal government has specific guidelines about handling compensation, and employers ignore them at their  peril.

In general, employees must be paid at least the federal minimum wage for all hours worked, plus overtime pay at one and one-half times the calculated regular rate of pay for all hours worked over 40 hours in a work week. Overtime pay may not be waived.

When employees are eligible for overtime, the clock must be watched. The “work week” is a fixed, regularly recurring period of seven consecutive 24-hour periods that may begin on any day at any hour of the day. The work week ordinarily includes all time during which employees are required to be on the employer’s premises, on duty, or at a prescribed workplace. 

“Work hours” may include time an employee voluntarily continues to work beyond the end of a shift, brief rest periods, and time spent waiting for instructions. Bona fide lunch breaks generally do not need to be compensated as long as the employee is completely relieved from duty. There is no limit to the number of hours an employee may work in any work week, and overtime pay is not necessarily required for work on Saturdays, Sundays or holidays. 

Certain employees are exempt from overtime pay requirements. For them, although a business may have other reasons to account for their hours, it is not necessary to watch the clock for overtime purposes. Exempt employees include bona fide executives; administrative, professional, and outside sales employees; and certain computer employees. To qualify for the exemption, the employees generally must meet certain tests regarding their job duties and be paid, on a salary basis, not less than $455 per week. 

In basic terms, the exempt status applies only to “white collar” employees, not to “blue collar” workers. Job titles, however, do not determine exempt status. Rather, you must look to what the employees actually do. 

Because there are many types of employers and employees, each situation should be analyzed. To fit within a recognized exemption, the position must meet certain defined tests. While not an exhaustive list, factors include whether the employee is engaged in non-manual work, manages the company or a distinct department, directs the work of others, occupies a position that requires advanced education and specialized intellectual knowledge, and has independent judgment and discretion with respect to matters of significance. 

Examples of exempt employees might include teachers, doctors, archaeologists, insurance claims adjusters, human resource managers, purchasing agents, and computer programmers. Examples of non-exempt employees might include production-line employees, carpenters, plumbers, craftsmen, police officers, EMTs, and firefighters.

An employee who regularly receives, in each pay period, a predetermined amount constituting all or part of his/her compensation will be considered to be paid on a salary basis. This employee’s pay cannot be docked because of variations in the quality or quantity of the work performed. The employee must receive the full weekly wage regardless of the number of days or hours actually worked. 

Generally, however, if an employee is absent from work for a full day for personal reasons other than sickness or accident, deductions may be made. Deductions may also be made for full-day absences occasioned by sickness or disability as long as the employee receives compensation under a bona fide plan such as a disability insurance policy.

For absences of less than one day, deductions in salary are not permissible. The extent that personal leave, sick leave, or other fringe benefits are applied to absences of less than one day is of no consequence. That’s because fringe benefits do not constitute salary, and their reduction is not the equivalent of a reduction of pay that would cause an employee to lose status as a salaried employee.

As long as the employee is paid the pre-determined salary on no less than a weekly basis, there should be no loss of exempt status as a salaried employee. While an employee’s salary cannot be docked, a bona fide reduction in the employee’s salary that is not designed to circumvent the salary basis requirement is permissible. Consequently, aside from any contractual obligations to the employee, salaries may be adjusted prospectively — for example upon an employee review. 

Beware, however, that if the adjustments occur too frequently — for example on a weekly or monthly basis — the employee might lose the exempt status. 

The penalties for failing to pay overtime when due are stiff. Don’t guess. As an employer, you should know your employees and keep close tabs on who is exempt and who is not. •

Gary Franklin is a shareholder and director of Primmer, Piper, Eggleston, Cramer PC and is a commercial litigator in Vermont.

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