FLSA Rule 3: Unauthorized Overtime Threats to Businesses
It has been over eight decades since the Fair Labor Standard Act (FLSA) was enacted in America. The law introduced the concept of overtime pay, which compelled companies to compensate their employees for time worked exceeding 40 hours per week.
According to the FLSA section 785.11, “work not requested but suffered or permitted is work time.” That is, an employee who is unable to finish a task within the stipulated time must be paid for the overtime worked to complete the job. There were also provisions for ensuring monetary compensation instead of comp time.
As of January 1, when the rule was implemented this year, business owners who were exempt from the jurisdiction of unauthorized overtime found themselves in the same bracket with those who had struggled with the legal liability.
What's more is the stats showing an estimated 4.2 million employees, which received the eligibility status to be counted as non-exempt to obtain payment for unauthorized overtime work.
The following notable changes are in the U.S. Department of Labor’s final document:
- The compensation test for Highly Compensated Employees (HCE) will be increased from the current $100,000 per year to $107,432 per year to maintain exemption status.
- There must be an increase from the standard $455 per week ($23,660 per year) salary level to $684 per week ($35,568 per year) to qualify for overtime eligibility status.
- Employers to count bonuses, incentives, and commissions where applicable, as part of employees’ basic salary level for as much as 10%, because of current practices.
- A new revision of salary for workers earning special pay and workers in the movie or T.V. industry within the U.S.
According to the DOL, “the FLSA also doesn’t cover employees of firms with less than $500,000 annual revenue per year and that are not engaged in interstate commerce.” However, this is not always the case when considering the criteria for employee eligibility.
The FLSA Rule and Interstate Commerce Businesses
Interstate commerce is defined in the U.S. constitutional law as "any commercial transaction or traffic that cross state boundaries or that involve more than one state.” This definition broadly applies to nearly all kinds of business.
A business that daily depends on communication to parties operating outside its state of operation, but doesn’t necessarily ship goods to other states, would still be classified under interstate commerce. With this wide range of applications, it implies only a few employers and employees may be exempt from the overtime rule.
Does the FLSA Rule Apply to Exempt Employers?
Under the jurisdiction of the FLSA, employers not paying overtime can still find themselves legally liable to pay unauthorized overtime. They are obliged to do so as long as the employee satisfies the eligibility requirement. When broadly considered, the FLSA applies to all workplaces.
The introduction of overtime law came at the back of justified reasons, such as the adverse effects of overtime duties on physical and mental health. Recent findings show that prevalent illnesses, such as hypertension, diabetes, anxiety, and depression, are mostly caused by excessively long working hours.
According to another report, employees within the U.S. work more than 50 hours weekly. The main reasons include frequent staff meetings set up by executives and unit heads, too much work delegated to individual employees by superiors, in-office distractions, and defective workplace culture.
While the rule was not primarily to target companies, business owners can hardly regulate unauthorized overtime, which is a challenge for them. According to SESCO’s June 2012 report, "unauthorized overtime is extremely costly and affects any organization's bottom line." There are three critical ways unauthorized overtime payment can affect businesses, including the following:
1. Pressures on Payroll Management
Under the FLSA, employers must pay employees overtime at an index of 1.5 the usual hourly rates. Most companies budget their workers’ wages at the start of every financial year. However, such budgets can be adversely affected when employees claim overtime hours worked.
2. A Tool in the Hand of Malicious Employees
Without supervision, the FLSA rule on overtime can become a weakness. Ill-meaning employees would seek to exploit and exact 'revenge' to the business's management.
3. Lawsuit Actions
Let’s say an employee files a lawsuit or submits claims of unpaid overtime worked hours to the Fed or the state’s DOL. If the ruling favors the employee, the employer may have to pay double the overtime wage. What’s more, they may bear the legal fees and compensation for any damages. The penalties can be even higher if the U.S. DOL's audit team discovers any overtime rules violation. That’s the reason employers are mandated by law to submit to auditory by the DOL.
While the problem of employees working overtime may never go away completely, employers are permitted by the FLSA to set measures and policies against overtime duties in the workplace. Section 785.13, Duty of Management of the FLSA states:
Employers can do the following to guard against any violation of the rule in the workplace:
Set Policy Standards
A clearly written workplace policy stating the employers’ intentions against overtime duties, with strict penalties for defaulters, can help dissuade employees from exceeding scheduled work hours.
Unit Heads to Ensure Compliance
To ensure compliance, employers can also assign unit heads to draw a daily work plan and delegate tasks to employees. They can also provide training on using automation systems to track time around the workplace effectively.
Using a reliable time management software can help employees monitor the number of minutes and hours spent working on a task. This will help to assess productivity and employees’ mindfulness with workplace standards.
Overtime Approval Mechanism
When an employee has justifiable reasons to work overtime, a system or communication route must be provided for seeking approval. The governing committee must assess the urgency and importance of the work before giving its approval.
Internal Audit to Monitor Compliance
Companies should assign internal audit personnel to monitor every days’ work and assess compliance. It would help increase the effectiveness of the company’s overtime policy. Have automation systems designed to give more in-depth insight and better workplace accountability remotely and in real-time. This way, the personnel can be better equipped to ensure stricter compliance to management overtime policy.
Registers for Time and Record-Keeping
The management should adopt registers for recording employees’ clock-in and clock-out times. This would serve as an extra layer for employee supervision to avoid surprise overtime claims. However, it is more efficient to use a time tracking software such as Traqq.
Conclusively, the best way to curb your employees from overtime work hours is using employee monitoring software to track their productivity and time management. That way, you will be able to provide the necessary training and put a stop to overtime hours for good.