Patricia E. Pannell, J.D.

Labor and Employment Law Practitioner

With very limited exception, all employers, regardless of size or total number of employees, are subject to the federal wage and hour laws.  This means that virtually every employee must be paid at least the minimum wage, currently $7.25 per hour, for all hours worked in a seven-consecutive day period (generally referred to as the “workweek”), and must also be paid an overtime premium for hours worked over 40. 

The overtime law requires that all hours worked over 40 in a given workweek must be compensated at a rate of not less than time and one-half.  Thus, for a nonexempt hourly worker who earns minimum wage and works 45 hours during the workweek, the employer must pay 40 hours at straight time ($7.25 x 40 = $290) plus an additional amount in overtime pay ($10.87 x 5 = 54.35) for a total of $344.35 for that workweek.

            
While at first blush this seems a simple calculation, there are numerous ways that employers run afoul of the law in their pay practices.  For example:

• Merely because an employee is salaried does not mean that she is not entitled to overtime pay.

• Employees who are paid on a piece-rate basis must still earn the equivalent of the minimum wage for hours actually worked, and they are likewise entitled to overtime pay for hours worked in excess of 40 per workweek.

• Classifying a worker as an “independent contractor” does not always protect the employer from being required to pay that worker minimum wage and overtime.

• Misclassifying a worker as “exempt” is a common error.  Only those individuals who meet rigid tests for being either an executive, professional, or administrative employee are exempt from the overtime requirements.

• Employees who work at home, or “telecommute,” may still be subject to minimum wage and hour laws.

• Employees who are “on call” may have to be compensated for the time spent while they are waiting to be called to duty.

In addition to the problems associated with determining when an employee is entitled to overtime pay, employers often make mistakes in determining the “regular rate” of pay for purposes of calculating the overtime rate.  If an employer fails to include all compensation in the determination of the regular rate, then the employee’s overtime pay will be too low.  The general rule is that everything the employee receives by way of compensation must be included in the regular rate.  For example, the following types of compensation must generally be included in the regular rate but are often overlooked:

• Nondiscretionary bonuses (such as those awarded for accuracy of work, good attendance, production and quality of work, etc.)
• On call pay
• Contest prizes
• Shift differentials

The calculation of overtime pay is one of the major areas of litigation arising under the federal labor laws.  As an employer, if you are unsure as to whether you have responsibilities for overtime pay, you should consult an attorney who is well-versed in this area.  Likewise, if you are an employee and believe that you have not been paid properly according to the law, you may have legal rights that a competent attorney can assist you in redressing.