I. Common Employer Mistakes

A. Misclassification as Exempt

In an effort to keep payroll costs down, some unscrupulous employers adopt strategies to avoid paying their employees for overtime hours worked.  One such strategy is to misclassify employees as exempt from overtime when in fact they should be receiving it.  Exemptions commonly relied on by employers to avoid paying overtime are the Administrative, Executive and Professional exemptions, as well as the Computer Professional and Commissioned Sales employee exemptions.

1. Administrative Employees

For you to be denied overtime pay as an administrative employee, each of the following must be true:

• You must be paid on a salary basis at a rate not less than $684 per week.
• Your primary duty must be the performance of office or non-manual work directly related to the management or general business operations of your employer or your employer’s customers.
• Your primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

Examples of employees who are often misclassified under the administrative exemption include financial service workers, assistant managers and insurance adjusters.

2. Executive Employees

For you to be denied overtime pay as an executive employee, each of the following must be true:

• You must be paid on a salary basis at a rate not less than $684 per week.
• Your primary duty must be managing the business, or managing a customarily recognized department or subdivision of the business.
• You must customarily and regularly direct the work of at least two or more full-time employees or their equivalent.
• You must have authority to hire or fire other employees, or your suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Examples of employees who are often misclassified under the executive exemption include managers of business locations with only one or two employees, like check-cashing or payday loan locations and other small retail or service businesses.

3. Professional Exemption

The FLSA recognizes two professional exemptions: (1) the learned professional exemption; and (2) the creative professional exemption.

For you to be denied overtime pay as a learned professional, each of the following must be true:

• You must be paid on a salary basis at a rate not less than $684 per week.
• Your primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominately 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.
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Examples of employees who are often misclassified under the learned professional exemption include vocational nurses, and other health care workers who do no have an advance degree.

For you to be denied overtime pay as a creative professional, each of the following must be true:

• You must be paid on a salary basis at a rate not less than $684 per week.
• Your primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

4. Computer Professional

For you to be denied overtime pay as a computer professional, each of the following must be true:

• You must be paid on a salary basis at a rate not less than $684 per week.
• You must be employed as a computer system analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field.
• Your primary duty must consist of at least one of the following: (1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; (3) the design, documentation, testing, creation or modification of computer programs related to machine operating systems; or (4) a combination of the aforementioned duties.
  • Employees engaged in the manufacture or repair of computer hardware and related equipment generally are entitled to overtime pay.
• Examples of computer employees who are probably entitled to overtime pay include:
  • Systems Engineers
  • Tape librarians
  • Junior programmers
  • Programmer trainees
  • Keypunch operators
  • Computer operators
  • Technical Writers
  • You must be employed by a retail or service establishment.  Retail and service establishments are defined as establishments 75% of whose annual dollar volume of sales of goods and/or services is not for resale and is recognized as retail sales or services in a particular industry.
  • More than half of your total earnings must represent commissions.
  • Your total compensation divided by the number of hours you work or your regular hourly rate must be greater than one and one-half times (150%) the federal minimum wage.
  • Your employer must notify you that it intends to take the tip credit.
  • Your tips belong to you and you can’t be required to share them with other employees except as part of a valid tip pool.
  • Even when you are required to contribute to a tip pool, the tips you give up generally can only be shared with other restaurant employees who have direct customer contact.  This means that your tips cannot be shared with kitchen workers (chefs, cooks, salad preparers, line workers, dishwashers, pastry chefs, etc.), managers, door men, valets, cashiers or other non-service employees.
  • You cannot be required to pay for walked tabs, glass or dish breakage, or uniforms at of your tips.

5. Commissioned Sales Employees

The FLSA recognizes two exemptions covering employees who work on commission: (1) the “outside sales” exemption; and (2) the retail or service establishment exemption.

For you to be denied overtime pay as an outside sales employee you must be customarily and regularly engaged away from your employer’s place of business for the purpose of making sales.  It is not necessary that you be paid a certain amount per week to qualify for the outside sales exemption.

For you to be denied overtime pay as an outside sales employee, each of the following must be true:

B. Misclassification as Independent Contractor

Employers often classify workers as “independent contractors” not only to avoid obligations to pay taxes and make withholdings, but in an effort to avoid requirements to pay minimum wage and overtime.   But simply calling someone an independent contractor does not make it so.

Importantly, even if you are properly classified as an independent contractor for purposes of tax withholdings, you may still be an employee, entitled to minimum wage and overtime, under other laws. Your employer’s use of a Form 1099 does not make you an independent contractor for purposes of overtime and minimum wage laws. Instead, courts consider several important factors to determine whether a worker has been improperly classified as an independent contractor including: (1) the degree of control exercised by the employer over the worker, (2) the worker’s opportunity for profit and loss and the worker’s investment into the business, (3) the worker’s investment into tools and materials, (4) the degree of specialized skill and independent initiative required to perform the work, (5) the duration of the working relationship, and (6) the extent to which the work is an integral part of the employer’s business. No single factor is determinative.  Courts look at all circumstances of a working relationship to decide.

Examples of employees who are often misclassified as independent contractors include satellite dish installers, installers of fiber optics and other telecommunications equipment, delivery drivers, and field or maintenance technicians.

C. Off-the-Clock Work

If you do not meet the requirements of an exemption from the FLSA and are not properly classified as an independent contractor, you are probably entitled to overtime pay.

1. Pre-Shift & Post-Shift Work

You are entitled to overtime pay for all hours you spend working, even time spent working outside your regularly scheduled shift.  Your employer cannot refuse to pay overtime because it was not approved in advance or otherwise authorized.  If your employer suffers or permits overtime work, it must pay you for it.

Sometimes it can be unclear whether pre-shift or post-shift activities are work for which you should be paid.  Time you spend walking, riding, or traveling to and from the actual place where you perform the job you are hired to do may not be considered work.  However, in general, any time you spend that is primarily for the benefit of your employer is work.

2. Denied Meal/Rest Breaks

Under Federal law, employers are not required to provide meal breaks to employees.  But if a meal break is provided, you do not have to be paid for it if it is, in general, 30 minutes or more in length and you are completely relieved from your job duties.  If you are required to perform any work during the break, like responding to calls or emails, assisting customers, or preparing to begin work again, then the entire meal break probably should be paid.

Rest breaks lasting from 5 to 20 minutes do count as hours worked and must be paid.

3. Unpaid Travel Time

Time you spend traveling as part of your job, such as driving from one job site to another during the workday, should be paid. Travel that keeps you away from home overnight generally should be paid when it take place during your normal workday, unless you are merely a passenger.

4. Home Work

Smart phones, laptop computers, and remote access software has made it very easy for employees to work from home or other places outside the workplace. However, time spent in activities of this type, if they are work related, must still be paid.

D. Illegal Tip Pooling or Sharing

As a restaurant employee who receives tips, you may be paid an hourly wage that is less than the minimum wage.  Restaurants are allowed to pay tipped employees less than minimum wage, provided the difference between the hourly wage and the minimum wage is made up in tips.  Under federal law, the current minimum wage is $7.25/hour.  If your employer complies with the tip pool laws and pays you $2.13/hour, they may claim a “tip credit” for the difference between the federal minimum wage ($7.25) and the wage you are paid ($2.13), or $5.12. The difference is paid out in the tips earned by the employee.  The tips and wages you are paid must add up to at least $7.25/hour.  Your employer’s taking a “tip credit” is legal if the employer follows certain rules:

E. Denying Overtime to Drivers

If you drive for a living, except under certain circumstances, you should still be getting overtime pay.  Delivery drivers, route drivers, and service technicians are some examples of employees who should generally be getting overtime.

Long-haul or “over the road” truck drivers may not be entitled to overtime under a Federal law known as the Motor Carrier Act, if they are employed by a motor carrier and haul fright in interstate commerce.

F. Other Mistakes

1. Comp. Time

Paying employees compensatory time or “comp time” for working overtime is allowed only among certain governmental employers.  Private businesses may not give comp’ time as a way to avoid paying for overtime for hours worked in different workweeks.  For example, if you work 50 hours in a workweek and are told that you can have time off the next week for the extra ten hours you worked the previous week, you are not properly being paid for your overtime work.

Young & Newsom, P.C. has its principal office in Amarillo, Texas.