The Quagmire That Is Overtime

Overtime seems to be the bane of many businesses, particularly smaller ones. Some folks still cling to long-held but wrong beliefs, or they don’t know what the rules are to
determine if an employee is entitled to overtime (known as non-exempt) or not (called exempt).

First, the misconception: Executives and management level employees are paid a salary and their hours are often not tracked. So, some business owners assume that if you switch
from paying a non-exempt worker hourly to a salary that you no longer have to pay overtime. As Trump would say, “Wrong.”

Some companies compound this mistake by adding in a premium to pay some overtime even if it’s not worked. For instance, this fictional company, Burgers Now! was paying
its fry cooks and counter workers $11 an hour. They wanted to stop worrying about the nuisance of keeping track of these workers’ hours, so Burgers Now! paid the workers a
salary of $522.50. This was calculated by 40 hours per week times $11 (a total of $440) plus five overtime hours paid at the overtime rate of $16.50 (5 x $16.50 = $82.50) for a
total of $522.50.

This $522.50 was paid every week, whether the worker put in 39 hours or 50 hours. Burgers Now! figured it was being an enlightened employer, paying for overtime when it
wasn’t worked, banking that pay to cover overtime when it was. But that’s not how the labor commissioner saw it.

Instead of using the calculation from Burgers Now!, the labor commissioner took the $522.50 and divided it by 40, for an effective hourly rate of $13.06 per hour and an
overtime rate of $19.60 per hour. This meant that Burgers Now! owed all of its employees more money for both straight-time hours as well as any overtime hours
actually worked – a true mess.

Another mistake employers sometimes make is trying to determine if someone is exempt from overtime or not. There are numerous categories with specific rules for executive,
administrative, professional and other types of employees to see if they qualify to be exempt from overtime.

Employers sometimes simply apply these factors to a particular employee and then decide if that person is exempt or not from overtime. But they forget about the other part
of the equation.

Under both state and federal law, besides job duty requirements to qualify for overtime, the exempt employee must also be paid a minimum salary. For California, that amount is
double whatever the applicable minimum wage is. Therefore, since the current hourly minimum wage is $10, any exempt employee must be paid at least $41,600 (which
translates into $20 per hour).

Right now, under federal law, an exempt employee must make at least $23,660 a year, or about $11.40 per hour. Since California employers must follow the stricter rule, the
$41,600 minimum applies.

Things were set to get really confusing in December 2016, when the federal law changed to increase the rate to qualify as exempt to almost $45,000/year, higher that is than the
California standard. But that change is on hold for now as a result of federal court ruling in Texas.

So, employers be alert. All employers should review their payroll practices to be sure they are compliant with the law. ©

Related Posts
  • 2021 and New Covid-19 Regulations for Employers Read More
  • The ABCs, So to Speak, of Dynamex: AB 5 Read More
  • Bye-bye, 1099 Workers Read More