Unpaid overtime to workers who have been misclassified as exempt employees is a ticking financial time bomb just waiting to explode in the face of employers. Is your company at risk?
Unpaid overtime to workers who have been misclassified as exempt employees is a ticking financial time bomb just waiting to explode in the face of employers. For instance, suppose you have a worker who earns $65,000 a year but who does not meet other qualifications to be considered exempt from overtime under the FLSA. (Ie, they do not supervise more than 2 people, are not an executive, etc.) If that person works 50 hours a week for three years – just 10 hours of overtime a week – they will be due $146,250 if the unpaid overtime is doubled as a penalty for “willful violation” of the law. (The two-year statute of limitations is also extended to three years for “willful violation.)
This explosion could cost a company “thousands or even millions of dollars” depending on the company size and number of violations. It only takes one disgruntled employee to file a complaint with the Wage and Hour Division of the US Department of Labor or the State Department of Labor to open an investigation into your classification system.
In recent years, wage and hour setttlements have cost corporations over a billion dollars a year. In the past five years, more than 450 class-action “wage-and-hour” lawsuits have been filed throughout the nation and companies continue to be inundated with them. Executives should not expect a receptive ear in court, either, as overworked employees who are seeking payment for overtime find a sympathetic forum from the courts.
The quality of life issue has created an environment where our workforce is angry about the amount of hours that are worked. The backlash, especially in times of reduced staffing, causes employees to respond in ways that are normally not seen such as contacting government agencies to “get even” for the perceived company indifference.
Although the cases that make the news are usually very large companies, small and medium sized organizations need to be vigilant and proactive in their pay structures and overtime pay issues. The big pocket book to afford the legal defense necessary in these types of cases, is often not available to small and medium size organizations.
One would think that these large companies would have a staff that should know what they are doing. If these kinds of companies can be hit with a class-action overtime suit, what’s to say that your organization cannot also be hit with an overtime class-action suit? Or at minimum a visit from the Wage and Hour office? Do you really want the DOL going through your records?
Human resource professionals or senior management need to review the job responsibilities of everyone at the company and compare that information to the exemptions contained in the Fair Labor Standards Act (FLSA) to determine if the exempt workers are correctly classified. If not, corrective action should be taken at once.
Many CEO’s and HR professionals mistakenly believe that if an employee is salaried, then he or she is correctly classified as exempt, but much more information is needed to make a proper determination. An executive, for example, must have management as his or her primary duty, supervise two or more full-time-equivalent employees, exercise independent judgment and discretion, and earn at least $684 a week as of January, 2020 (salary level may be higher based on State law). These are the bare bones areas needed to qualify as exempt. The FLSA also has different requirements for various other job categories such as administrative, professional, inside or outside salespersons and computer professionals. There is a “short” test as well as a “long”test to help determine if the employee is exempt.
If a company believes it has misclassified workers who are due overtime pay, it should first survey its employees to ask them to list their overtime hours for the past two years (the federal statute of limitations) – and then pay them while having them sign a legal release. You have a legal obligation to pay them the money. There is no legal way around that.
Moreover, if your CEO or CFO do not appreciate your concern, you should determine and alert them to the extent of the company’s liability as a way to get their attention. The dollar amounts ought to be enough to get your executive’s immediate attention since the potential liability could be significant. If the executive staff ignores the situation, somewhere along the line if the issues are investigated, there will be someone that will be the “scape goat” for the organization.
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