Overtime Pay: Who Qualifies?

Just when you think you know the answer, someone changes the question.

Rules regarding overtime pay, which were fairly stable and consistently applied for decades, are suddenly subject to a great deal of attention. At issue is exactly which employees, based on job description and regular responsibilities, are eligible to be compensated for working beyond 40 hours a week.

The overtime issue grabbed attention in early April when the U.S. Supreme Court heard a case involving pharmaceutical representatives who claim they’re owed overtime pay even though their employer, GlaxoSmithKline, contends they’re sales people and not entitled to it.

Earlier this year, restaurants owned by celebrity chef Mario Batali settled – for $5.2 million – a case with employees who alleged they were not paid for overtime work, and Swiss pharmaceutical company Norvartis AG settled a class action suit brought by its sales representatives for $99 million.

Unfortunately for employers, these high profile cases appear to represent the prevailing trend. According to the Department of Labor, complaints involving disputed overtime pay jumped from about 8,800 in 2010 to just under 12,000 last year, resulting in $140 million in additional compensation for employees.

Overtime 101

Federal and state laws require most employers to pay overtime. The Fair Labor Standards Act (FSLA), enacted in 1938, dictates that the overtime premium is 50% of the employee’s usual hourly wage, or, “time-and-a-half.” For most states, the overtime scale starts after 40 hours in a week. California and several other states mandate that workers be paid the overtime rate for any hours worked beyond eight in a single work day. The laws contain a number of exceptions, so not all employees who work extended hours are eligible for the elevated pay rate. Employees who are eligible for overtime are called “nonexempt” employees, and those who are not eligible for overtime are called “exempt” employees.

Probably the most common exceptions to the overtime laws are for white collar workers. Employees the law defines as “administrative, executive, or professional,” and paid on a salary basis, are not entitled to overtime pay.

Outside sales people, “employees who customarily and regularly work away from the employer’s business, selling or taking orders to sell goods and services,” according to the FSLA, are also normally exempt, but the Norvartis AG settlement and the pending ruling on the GlaxoSmithKline case may have serious implications for employers.

Factors in the Overtime Debate

Much of the chatter relating to overtime laws can be attributed to the profound changes in the workplace over the nearly 75 years since the FSLA was enacted. Sales reps, service techs and other workers spend significant time, often unsupervised, outside the office.

Other factors driving the overtime pay discussion include:

  • Confusion over overtime laws. Certain parts of the law are difficult to interpret for the modern work environment. As a result, some employees may be misclassified as either exempt or non-exempt.
  • Economic conditions. With the U.S. economy still recovering, it makes sense that belt-tightening companies are trying to maximize productivity from the employees they still have in the fold. With everyone trying to do more with less, it’s possible that certain parameters regarding overtime pay could be overlooked.
  • Technology. The presence of portable computers, cell phones and other work-connected technology often lead to employees spending what was traditionally personal time on job-related responsibilities.
  • Increased enforcement of overtime laws. The Labor Department has hired 300 additional investigators since 2009.

Changes Coming?

The GlaxoSmithKline ruling will be of interest to employers well beyond the pharmaceutical industry. But already some companies have taken steps to avoid legal troubles by reclassifying employees, restricting telecommuting, and curbing the use of company-issued communications devices after hours.

The Supreme Court is expected to rule on the case sometime this summer. In the meantime, consult a reputable labor attorney if you have questions regarding your company’s current overtime policies.

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