Overtime Laws

Most people know that certain employees are entitled to overtime and others are not. In my practice, however, I’ve run across certain myths on this topic – such as the mistaken beliefs that salaried employees or employees with the word “manager” in their titles are not entitled to overtime. Business owners would be well advised to familiarize themselves with this area of the law or, literally, pay the consequences.

Employers may require employees to work overtime hours, but must pay overtime pay. Illinois and Federal law require that “non-exempt” employees receive overtime equal to 1.5 times their regular hourly pay for any hours worked over 40 in a week in any combination.

Some employers are not covered by these laws. For example, companies with gross revenues (not profits) of less than $500,000 are not required to pay overtime. Likewise, some kinds of employees are exempt: salesmen, agricultural employees, computer analysts, restaurant severs, and employees of not for profit educational or residential child care institutions. The number of people employed, unlike the Family and Medical Leave Act, makes no difference.

Overtime pay that has been improperly paid can still be collected for up to three years (two years for federal law, three years for state law) from the date the pay was earned. In addition, when the failure to pay was intentional, the employer can be made to pay an additional sum as a penalty.

It all comes down to whether an employee is exempt or non-exempt. Exempt employees are generally expected to devote the number of hours necessary to complete their respective tasks, regardless of whether that requires 35 hours per week or 55 hours per week. Their compensation doesn’t change based on actual hours expended. Exempt employees aren’t paid extra for putting in more than 40 hours per week; they’re paid for getting the job done. On the other hand, nonexempt employees must be paid overtime if they work more than 40 hours per workweek.

Under the law, all employees who make less than $23,660 per year are entitled to overtime and are considered non-exempt. For those making between $23,660 and $100,000 per year, overtime pay might still be available depending on whether an employee fit the criteria for exempt or non-exempt status. Those making more than $100,000 per year will likely not be eligible for overtime.

An employee who is paid by the hour and not by salary is automatically non-exempt and is entitled to overtime pay for working more than 40 hours in a week. But one must actually be an employee and not an independent contractor (that is you must actually be an employee of the company and not be your own business doing work for the employer).

Generally, high paying executive, professional, or managerial jobs are exempt and therefore cannot get overtime pay. Executives are people who are officers of corporations or have a very high degree of responsibility. Professionals are usually people who have to have special educational achievements like, lawyers, architects, doctors, and teachers. Managers are usually people who supervise others. But just because a job title is has the word “manager” in it does not make it exempt. The key is what work the job does.

It may help to keep in mind some general criteria for employees who are considered “exempt” (and hence not entitled to overtime):

“Executive” Employees:

The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise
The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

“Administrative” Employees:

The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

“Professional” Employees:

The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
The advanced knowledge must be in a field of science or learning; and
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

The federal government has provided a helpful website for additional guidance: http://www.dol.gov/dol/topic/wages/overtimepay.htm

Aggrieved employees usually pursue their individual remedies and also report their employer to the Department of Labor. Many times, the latter action results in a wage and hour audit – something that you should want to avoid as an employer if only because it can be so time consuming.

Keep in mind that it is also illegal for an employer to retaliate against an employee for asking for his overtime pay, for contacting an attorney, or even filing a claim.

As employers, what can you do to reduce the risk of such litigation or wage and hour audits? Identify white-collar workers who make less than $23,660 per year. Provided such employees meet one of the new exemptions, consider whether the additional payroll costs justify raising their salaries above the $23,660 floor. Review each employee’s job duties and honestly assess whether he or she falls under any of the exemptions. If you use written job descriptions, revise them to accurately reflect the duties being performed. Update your payroll system to make sure that, where required, your employees actually receive the overtime to which they may soon be entitled. Seek the advice of a competent professional for assistance. The applicable rules contain additional details and aspects that are beyond the scope of this column. Those specific rules may well apply to your business.

by Thomas C. Pavlik, Jr.

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