Failure to Pay Overtime: A common and Costly Mistake

January 1, 2000 Advisory

The first an employer becomes aware of a wage and hour complaint is often when the Connecticut Department of Labor's (DOL) Wage and Workplace Standards Division investigator appears on the doorstep. The DOL has jurisdiction over virtually all employers, even the smallest ones, and their investigators are frequent visitors to the workplace. While the vast majority of employers pay their employees with a good faith belief they are acting within the law, it is not uncommon for an employer's pay practices to be out of compliance.

Perhaps one of the most common violations is the failure to properly pay employees overtime. Many employers misunderstand the overtime requirement. As a general rule, unless an employee falls within a classification that is exempt from the overtime requirements of state and federal law, he/she must be paid time and one half for all hours worked over forty in any one work week.

Contrary to many employers' understanding of overtime requirements, simply placing an employee on salary does not make him/her exempt. Unless the primary duties that are being performed by the employee are of an exempt nature, the employer must pay the employee overtime. Examples of non-exempt duties include those of a routine nature, bookkeeping, typing and filing, driving, operating machinery, repairing equipment - even if it is high tech equipment, telemarketing, and preparing food. Examples of exempt duties include hiring and firing employees, scheduling employees, determining credit policies, formulating personnel policies, assessing employee performance, determining staffing levels and making company investment decisions. In addition to performing exempt type duties, employees must also regularly exercise discretion and independent judgment.

Although merely paying an employee a salary does not make him/her exempt from overtime, paying a salary is a prerequisite to a finding of exempt status. Reducing a salary in any week that an employee performs work, with very limited exceptions, may result in the loss of the exemption. For example, reducing a salary because an employee was out of work one day and had no paid time coming to him/her (e.g., he/she had exhausted all sick or vacation time), may result in the retroactive loss of the exemption. Employers may only deduct from an exempt employee's salary in the following circumstances: (1) the first and last weeks of work; (2) in a week where the employee performs no work at all; and (3) a week in which the employee is absent for a Family and Medical Leave Act qualifying event.

Misclassifying an employee can result in substantial back pay liability. To avoid such liability, employers should examine the exempt status of each position by taking a close look at the actual duties performed by the employee. If the employee is performing exempt duties the employer should also be certain that his/her salary is paid in full each and every week the employee performs any work.