Don’t Let Salaries Get You in Trouble

There are many misconceptions surrounding wage and hour. Unfortunately, if you fall prey to one of these misconceptions, it can end up costing your business a lot of money.


One of the biggest that I see over and over is the idea that if a worker is paid a salary the employer doesn’t have to pay them overtime. This one gets businesses in trouble all the time.

Case in point: A California restaurant, Hibachi City Buffet, recently was ordered by a judge to pay $128,335 in back wages and penalties. Investigators from the U.S. Department of Labor (DOL) discovered the restaurant was paying cooks, dishwashers and servers a flat salary with no overtime, even though many of them worked an average of over 60 hours per workweek. In some cases, the fixed salary combined with the high number of hours worked combined to reduce the employees’ hourly rate below the federal minimum wage of $7.25 per hour.

Probably because they were paying “salaries,” the restaurant also failed to keep accurate time records of how many hours each employee worked. (The problem with that — as regular readers of this blog will know — is that means the courts will turn to the records and recollections of the individual employees to reconstruct how much time they worked. And, of course, employees tend to remember very well the times they worked overtime. The times they put in a short shift? Not so much.)

Another manifestation of this misconception shows up frequently when people discuss the upcoming increase in the overtime threshold. You’ll hear some people wringing their hands that it will “force” employers to convert salaried employees to hourly.

In fact, neither of these things is true. Simply paying someone a fixed salary does not exempt them from earning overtime. And raising the overtime threshold will not force employers to convert salaried employees to hourly.

The Real Deal

I think pretty much everybody knows by now that people who are paid by the hour — with very few exceptions — are entitled to overtime when they work more than 40 hours in a workweek. This is required by the Fair Labor Standards Act (FLSA), which has been around since 1934, so it’s not exactly a new development.

Note: some states, such as California, mandate a more stringent standard and require overtime when an eligible employee works more than eight hours in a day. Be sure to check with your employment law attorney to verify the requirements where ever you do business.

Where things get a little trickier is when employees are paid on some basis other than hourly.

In order to be exempt from overtime, employees must meet all three of these standards:

  • First, they must be paid on a salary basis. Unfortunately, this is where many business owners stop, and forget about the second and third standards.
  • Second, their salary must exceed the current overtime threshold. (Currently, $455 per week ; scheduled to increase to $913 per week on December 1, 2016)
  • Third, their actual job duties must meet specified exemption criteria. Keep in mind, this doesn’t mean their job title, but their job duties — it doesn’t matter what you call them, what matters is what they do.

So, just because you pay someone a salary, unless that salary is greater than the exemption threshold, that employee is still eligible for overtime pay. Even if you pay them more than the exemption threhold, if their job duties don’t meet the exemption criteria, they’re still eligible for overtime pay.

In other words, you could call someone the Senior Vice President of Cash Receipts and pay them $1,500 a week, but if their actual job duties involve ringing up sales and making change, you’d better be prepared to pay them overtime if they put in more than a 40 hour week.

Bringing Some Clarity

So, just to be clear, there’s nothing in the law that says you have to pay overtime-eligible employees on an hourly basis. You can pay them on a piecework basis, or you can pay them a salary, or you can pay them on commission, or however it makes sense for your business.

What you do have to do, though, is pay them the equivalent of time-and-a-half whenever they work more than 40 hours in a week. Depending on your pay basis, the math for that can sometimes get a little tricky, so it would be a really, really good idea to check with your employment law attorney to make sure you’re including all the payments you should and calculating everything correctly.

And in order to know when they’re working over 40 hours a week, you need to track their time somehow. (And maintain those time records for at least three years. The law requires it.)

Fortunately, you’ve got a friend in the business (the time-tracking business, that is!). Here at Acroprint, we’ve been “Making Every Minute Count” for over 47 years. We’ve got one of the widest selection of time-tracking products you’ll find anywhere. Whether your business would be better suited with a traditional punch clock, a high-tech facial recognition system, or a web-based solution that allows your employees to clock in remotely no matter where they’re working — and just about everything in between — we’ve got you covered.

If you need some help deciding which product is right for you, call us today at 800.334.7190. Our Customer Care representatives are waiting to hear from you!

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