What Employers Need to Know About Overtime: Top 12 Q&A’s

April 25, 2023

What Employers Need to Know About Overtime: Top 12 Q&A’s

During our April 13th webinar, Overtime: What Employers Need to Know Today, we received a lot of great questions. The most popular and need-to-know questions and their answers are below.

*The information on this page is not legally binding advice. If you have questions, please seek advice of counsel. For follow-up questions regarding any of the below, please do not hesitate to reach out to their authors.

    1. Question: Paralegal seems to be a hot topic for exempt versus non-exempt.  What is your take?

      Answer: Paralegals generally are not exempt under the FLSA. Under guidance from the Department of Labor, paralegals do not fall under the administrative exemption because they do not exercise discretion and independent judgment. Additionally, paralegals do not fall under the learned professional exemption because an advanced specialized academic degree is not a standard prerequisite.

    2. Question: Given the compensation test, how do some CEOs agree to take a salary of $1 a year and they receive a huge bonus.  How are these CEOs allowed to be classified as a salary employee?

      Answer: If a CEO is making one dollar a year for his or her salary, even if you include bonuses, the CEO will not qualify for the executive exemption. 29 C.F.R. § 541.100. Non-discretionary bonuses only qualify for 10 percent of the salary amount. 29 C.F.R. § 541.602(3). However, an exception may occur if the CEO qualifies as a business owner by owning 20-percent or more equity interest. 29. C.F.R. § 541.101.

    3. Question: Can employers terminate employees who violate a timecard policy?

      Answer: Assuming the policy is equally applied, and no other facts are in play, you may terminate an employee if you discover that the employee is violating your company’s timecard policy.

    4. Question: What about tips? Are tips included in the calculations of overtime?

      Answer: Yes, the FLSA permits an employer to take a tip credit toward its overtime obligations. Specifically, an employer must pay a tipped worker at least $2.13 per hour under the FLSA. However, the employer can take a tip credit equal to the difference between the direct wage or the cash wage paid directly to the employee. The federal minimum wage is currently $7.25 per hour which means that the maximum tip credit is $5.12.  Both the cash wage, and the tip credit, together are used to calculate overtime. Tips above the tip credit, however, are not included in the calculation of overtime.

    5. Question: What establishments qualify under the retail exemption?

      Answer: In relation to the Section 7(i) commissioned sales exemption, to qualify as a retail or service establishment, the following must apply (29 C.F.R. § 779.313.):

      • A business must “engage in the making of sales of goods or services”
      • “75 percent of its sales of goods or services, or both, must be recognized as retail in the particular industry”
      • Not over 25 percent of its sales of goods or services, or of both, may be sales for resale.”

      Whether a business meets each prong requires a detailed, case-specific analysis.

      For the Section 7(i) exemption to apply, whether the employee is employed by a retail or service establishment is one of three conditions considered. The employee’s regular rate of pay must also exceed 1.5x the applicable minimum wage. Additionally, more than 50% of the employee’s total earnings in a representative period must consist of commissions on goods or services. An hourly employee working the floor or the register at a retail store who does not receive commission would therefore not qualify for the Section 7(i) exemption.

    6. Question: Is it a best practice to have employees record their time to the minute or is it ok to have them enter their normal hours such as 8 am to 5 pm?

      Answer: It is best practice to require employees to record the time in which the employee is actually working, whether or not he or she is required to be working that entire time. The same principle applies to the time when the employee must be on duty, on company property, or at a particular workplace. Whether or not this time occurs before or after an employee’s scheduled hours is irrelevant to whether it should be recorded.

    7. Question:  Issue with truck drivers in TX. They are told they have to take a half hour lunch break, but some are not entering that on their timecards. What options does the employer have?

      Answer: If the Company has reason to believe employees are working through their meal break, the Company should first make sure the employees are paid for that time.

      Next, it should ensure employees are complying with the Company’s policy to take a meal break. One option is to provide coaching and counseling to individual employees and/or training on that policy to employees and management. These sessions should emphasize that taking an uninterrupted meal break is required by company policy. If a meal break is not taken, or is interrupted, employees should report that to management shortly after the missed meal break via the appropriate channels per policy. Once reported, the Company will compensate the employee for the meal break. In addition, the Company can require drivers to attest to the accuracy of their timecards. This includes that they have noted any exceptions including missed meal breaks. Another option is to mandate daily or weekly check-ins or timecard reviews to ensure meal breaks are being properly recorded.

    8. Question:  When calculating OT, does it matter what the work week looks like?  Can it be Saturday – Friday or Wednesday – Tuesday depending on what our needs are?

      Answer: The workweek is any recurring period of seven, consecutive 24-hour workdays. Once established, the workweek is expected to remain in effect indefinitely.

    9. Question: What does “offset” for jury duty mean? I was under the impression that if an exempt employee works one day and is on jury duty the rest of the week, then you have to pay them for the full week?

      Answer: Generally speaking, an employer cannot make deductions for absences of an exempt employee due to jury duty or serving as a witness, unless the absence spans the full workweek. However, some states offer a nominal fee to appear as jurors or witnesses. In those cases, the employer can offset the amounts received by an employee as jury or witness fees against the salary due for that particular week without loss of the exemption.

    10. Question: With the learned professional exemption, can work experience be used in place of the college degree requirement?

      Answer: Maybe. The Department of Labor takes the position that the learned professional exemption requires work that is customarily acquired by a prolonged course of specialized intellectual instruction. While the exemption may be available to employees who have attained the requisite knowledge through a combination of work experience and intellectual instruction, the exemption may be subject to challenge in occupations in which most employees acquire their skill by experience rather than by advanced specialized intellectual instruction.

    11. Question: Can you talk about gift cards more?  How is that included in the Regular rate of pay?

      Answer: 29 U.S.C. § 207(e)(1) excludes “payments in the nature of gifts made at Christmas time or on other special occasions” from an employee’s “regular rate,” provided, however, that the gift amounts are not “measured by or dependent on hours worked, production, or efficiency.”

      There are nuances in how the exclusion is applied depending on the nature and amount of the gift and whether such gift is intended to be discretionary or nondiscretionary. If the gift card is not discretionary; that is measured by hours worked, production or efficiency, for example, you add it to the total compensation paid that week to calculate the regular rate for purposes of the overtime premium. When in doubt, consider avoiding using gift cards in lieu of otherwise-entitled compensation.

    12. Question: What is the employer’s liability if an employee is working undisclosed OT without reporting on time sheet.

      Answer: Generally speaking, an employer is required to pay an employee who the employer knows has worked overtime, even when such work was initially undisclosed or unauthorized. See, e.g., 29 C.F.R. § 785.11; § 785.13. Even a clearly communicated policy against unauthorized overtime may not legally insulate an employer from payment for such work performed. However, the FLSA does not prohibit employers from enforcing such policy against unauthorized work. This includes implementing disciplinary measures as appropriate for violations of the policy.

    About the Webinar: Overtime: What Every Employer Needs to Know Today

    What do employers need to know about overtime? Classifying an employee’s overtime exemption sounds like it would be simple: Are they salaried? However, it is so much more complex than just how an employee is paid. It’s not just what they are making, it’s also what they are doing.

    In this 60-minute webinar, Littler Shareholder, David Jordan, will walk you through overtime, what employers need to know.

        • Employee Overtime 101 – what employers must consider when evaluating an exemption status
        • The power of the job description
        • When to perform an employee overtime audit
        • What types of wage and hour issues should be audited
        • How to prepare for the upcoming DOL changes

    Additionally, Michael Worth will walk you through the Navigator Overtime solution. This tool provides actionable risk assessments and instant guidance to mitigate employee exemption misclassification risks.

    About ComplianceHR

    ComplianceHR offers the only on-demand, intelligent suite of compliance applications. They are focused on helping companies address changing federal and state requirements on minimum wage, overtime, independent contracting, and more.

    We provide solutions for employers of all industries, sizes, and locations. This empowers employers to handle complex compliance issues with less time, cost, and complexity than traditional methods. The Navigator Suite simplifies employment law compliance, allowing you to streamline your compliance workflow in only a few simple clicks.

    If you are not an existing client, we welcome you to see a demonstration of our solutions. After you’ve met with our compliance consultant, you can receive a free, 7-day trial to use all of the Navigator Suite applications. Register for a demonstration.

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