Who is entitled to overtime pay?

The Fair Labor Standards Act (the “Act”) is a long-established federal law that applies to almost all U.S. workers and employers. In general, the Act requires that all workers must be paid time-and-a-half (overtime pay) for all hours worked over 40 in any given workweek. The only workers to whom an employer is not required to pay overtime are those who are “exempt” from the Act, meaning that they meet the requirements of any one of several loopholes called “exemptions.”

The Act is a dangerous weapon for workers and a scary law for employers, in part because it falls on employers to gather and keep documents necessary to prove that a worker is exempt from the Act’s overtime and minimum wage requirements. The exemptions are also construed in favor of workers. Thus, when a worker files a lawsuit seeking overtime, an employer has to prove the overtime is not owed. If the employer has made mistakes or has not kept good records, the worker’s chances of success can increase significantly.

Sometimes, even workers who are paid a salary but are referred to as “independent contractors” can recover unpaid overtime. How is this possible? Because merely calling someone an “independent contractor” does not automatically make them into an “independent contractor” under the law. In fact, many so-called “independent contractors” are really employees who are entitled to be paid overtime.

Lawsuits seeking overtime pay are common, and when workers who believe they have been denied overtime pay come together as a group, the group can file a “collective action” lawsuit in which hundreds or even thousands of workers join the lawsuit. These lawsuits are a nightmare for employers because of the severe and costly penalties involved as well as the high cost of investigation and preparation for trial.

Because of the risks associated with the Act, employers and employees/independent contractors should understand the law. When trying to determine whether overtime wages are owed, each of the following issues should be carefully considered:

I. Who is and is not an “independent contractor”?

Some companies improperly designate employees as independent contractors to avoid paying overtime, taxes, and other employment benefits. This is often illegal, even when the “independent contractor” pushes for that designation or consents to it. To avoid confusion associated with potential unpaid wages and other benefits, let us help you determine whether your “independent contractor” designations are proper.

There is no single rule or test to determine whether a worker is an independent contractor or an employee. However, here are some of the more important aspects of the relationship between worker and company that courts evaluate when deciding whether a worker is entitled to overtime pay:

1. Whether the services rendered by the worker are an integral part of the company’s business;
2. Whether the relationship with the worker is permanent or temporary;
3. Whether the worker supplies his/her own tools or other equipment;
4. Whether the worker controls the details of the work; and
5. The worker’s opportunities for profit and loss.

II. Blue-collar employees are almost always entitled to overtime pay

Manual laborers and “blue-collar” workers are generally entitled to overtime pay. This right to overtime generally includes electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen and people who perform production, maintenance, construction, carpentry, or other forms of labor. Usually, such workers are entitled to overtime pay no matter how highly they are paid.

III. Not all office workers can lawfully be paid a salary

Employees who are paid a salary and who are legitimately not entitled to overtime are called “exempt.” All others are called “non-exempt” and must be paid overtime. To be exempt, an employee must generally be paid a salary of at least $455 per week and have specific job duties, such as management duties or other important administrative job duties. Often, employers violate the Act by refusing to pay overtime to anyone in the office, regardless of job duties, simply because they pay employees on a salary basis. Even if the employer does this by accident, employees who are denied overtime pay may still be entitled to a full recovery for all overtime hours worked going back as long as three years. Let us help determine whether certain categories of workers are lawfully classified as exempt employees.

IV. The employer has the burden of proof

Some employees or “independent contractors” never pursue overtime claims because they have no records that prove they worked overtime. However, this is really the employer’s problem, since the law requires all employers to maintain accurate records of non-exempt employees’ work hours. If an employer fails to do so, an employee’s (or independent contractor’s) best estimate will typically be presumed correct by courts, and the employer will face an uphill battle of (1) proving that the employee’s best estimate is not accurate, and (2) explaining why it broke the law to begin with by not keeping accurate records and refusing to pay overtime.

V. Damages available for violation of overtime laws

If an employer fails to properly classify one or more employees as non-exempt and therefore does not pay overtime earned, the employer may be liable for the following remedies, among others:

1. All unpaid overtime for up to three years, depending on whether the employee can show that the employer willfully violated the Act; and
2. An additional equal amount as liquidated damages, which doubles the amount of overtime compensation; and
3. A reasonable attorney’s fee to be paid by the employer, as well as the costs of court.

These same penalties apply to persons misclassified as “independent contractors.” This is a very common mistake made by employers who sometimes think that merely by labeling a worker an “independent contractor” the law allows the employer to avoid paying overtime, taxes, and other employment benefits. When this happens, it is common for independent contractors to recover not only unpaid overtime wages but also penalties and attorney’s fees.

VI. Common mistakes

Over our years of experience handling overtime claims, we have learned to identify employers’ most common mistakes regarding overtime pay, including:

1. Unlawfully labeling employees as “independent contractors” in order to avoid paying overtime;
2. Failing to train supervisors as to when an employee is entitled to overtime and how records must be kept in order to comply with the Act;
3. Believing that employees are exempt from overtime provisions of the Act simply because the employees are paid a salary;
4. Relying on an employee’s job title to determine whether an employee is exempt from the overtime provisions of the Act;
5. Failing to require employees to report, write down and/or get paid for all time worked;
6. Refusing to pay overtime pay because it was not approved or authorized;
7. Improperly designating employees as “managers” and not paying them overtime;
8. Failing to calculate and include time spent on meal periods, rest breaks, and time spent putting on and taking off protective safety equipment and other specialized “equipment” needed to perform the employee’s job;
9. Failing to compensate employees for meetings; and
10. Making improper deductions from an employee’s salary.

Our principal attorneys, who are Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, are experienced with these and other issues related to overtime compensation under the Act. We would be happy to assist you determine if you or your workers are entitled to overtime compensation in accordance with federal law. Please do not hesitate to contact us today. After all, if it happens at work, we can help.