Compensating Overtime Employees

Here's why one entrepreneur hired on an HR person to take care of overtime pay.

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Ben Wolin sometimes pays hourly employees time and a half. "We have some employees who are subject to overtime pay," says Wolin, 33, co-founder of 6-year-old Waterfront Media, a New York City firm that operates 15 health and wellness websites.

But overtime pay is a growing area of litigation. According to the Department of Labor, back wages for overtime violations represented about 89 percent of all back wages collected in 2006. And employers who lose in court could end up paying both damages and plaintiffs' legal fees. As a result, most overtime cases settle out of court. 

The Federal Labor Standards Act governs federal overtime law. "You'll hear the [plaintiffs' lawyers] joke that FLSA litigation is like shooting fish in a barrel," says Lee Schreter, an employment law partner at Littler Mendelson. "It's frustrating for employers because it's very hard to get in compliance." Here are a few tips for paying overtime properly:

  • Avoid the salary trap. Some employers assume they don't need to pay overtime for salaried employees, but you could be in trouble if you misclassify job positions. For example, a salaried retail manager could end up doing tasks typically done by hourly employees—cashiering, unpacking boxes, etc.—resulting in a longer workday and eligibility for overtime. James M. Craig, an employment law partner at Williams Schifino Mangione & Steady, says, "Titles don't [matter]; it's what your actual duties are."
  • Lay down the law. Some employees will tell you they worked overtime after the fact. You might be tempted not to pay it, but if it's verified, you should to avoid problems. Create a written policy stating that employees must get a manager's OK before working overtime. This offers grounds for disciplinary action (including termination) if an employee keeps working unapproved overtime hours.
  • Train managers. If they don't understand overtime laws, provide a training session on the topic.
  • Be resourceful. Check out dol.gov to find overtime information, fact sheets and a back wage calculator. Wolin hired an in-house HR person when Waterfront Media reached 50 employees. Says Wolin, "It pays to spend a little bit of money and get the right help."

—By Chris Penttila

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