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Introduction To Overtime Pay

The Fair Labor Standards Act (FLSA) is a federal law that requires overtime pay to be paid to most employees at the rate of one and one-half times their “regular rate” of pay when employees work more than 40 hours in a week. As is explained below, the regular rate of pay is equal to an employee’s hourly rate of pay or higher. The majority of employees in the United States are covered by the FLSA. In addition, employees in the majority of states are covered by state overtime laws, many of which are more favorable to employees than the Fair Labor Standards Act.

Unfortunately, employers violate these overtime pay laws in many different and occasionally creative ways.

Some of the most common ways that employers violate the overtime laws are:

  • Improper calculation of an employee’s “regular rate,” thereby failing to proper calculate overtime pay and underpaying employees each time overtime is paid.
  • Failure to count work time in computing overtime pay such as working employees “off-the-clock” or failing to count pre-shift or post-shift activities as work time, and
  • Failure to pay employees true time and one-half overtime pay by wrongly claiming that the employees are exempt from the overtime laws.
  • Charging tipped employees for uniforms or equipment used in their work.
  • Failing to pay for a full 30 minutes as a “meal period,” but requiring employees to be on-call or otherwise failing to provide a full 30 minute , duty-free meal period.
  • Failing to include bonuses in the rate at which overtime is paid.

Perhaps the greatest misconception among employees is that their employer does not have to pay them overtime if they are paid on a salaried basis. THIS IS FALSE. Salaried employees are entitled to overtime pay unless THE EMPLOYER proves that their ACTUAL job duties somehow fit within one of the exemptions to the overtime pay laws, which are described below. Indeed, in overtime pay cases, courts presume that all employees are entitled to time and one-half overtime compensation. Only those employees who an employer can prove fit within one of the exemptions to the FLSA can lawfully be denied overtime pay.

State laws can provide benefits that are in addition to the benefits provided under the FLSA. For example, some states require employees who are not covered by the FLSA to be paid overtime compensation. In addition, some states require that overtime be calculated at higher rates than the FLSA and some states require overtime to be paid for work in excess of 8 hours a day, as does the Federal government.

Special rules apply to employees of federal, state and local governments in the areas of fire protection and law enforcement, volunteering, and compensatory time. A limited partial overtime exemption applies to law enforcement and fire protection employees. These rules are explained in the sections of this Web site pertaining to fire protection and law enforcement employees. To view those sections, click on the appropriate topic. In addition, as explained below and in the section of this Web site on federal employees, compensatory time can be paid to government employees under certain circumstances.

An overview of the federal overtime laws is set forth below. This explanation is intended as an introduction and overview of some of the overtime rights provided for by federal law. It is not intended to replace the detailed, case-specific analysis of a lawyer.

How Is Overtime Required To Be Calculated And When Must Overtime Be Paid?

How to Compute the Regular Rate of Pay (i.e., The Overtime Rate of Pay)

The regular rate of pay is the rate at which overtime compensation must be calculated. For each hour of overtime worked a non-exempt employee must be paid one and one-half times the employee’s regular rate of pay. The regular rate of pay does not necessarily equal an employee’s hourly rate of pay. Included in the regular rate of pay are work-related payments that are not made for overtime work such as shift differentials, bonuses, longevity pay, and educational incentive pay. Thus, the regular rate always equals or exceeds an employee’s hourly rate of pay or, if the employee is salaried, the employee’s hourly equivalent.

Payments Included in the Regular Rate

Included in the regular rate of pay, regardless of whether or not an employee is salaried or hourly paid, are bonuses, shift differentials, educational incentive pay, longevity pay, and, with the exception of the items listed below, any other non-discretionary type of payment. Gifts, discretionary bonuses, pension benefit plans, profit sharing, and thrift saving plans may all properly be excluded from the calculation of the regular rate. In addition, if an employer pays an extra hourly premium that equals or exceeds the time and one-half rate for working on a particular holiday or day of the week, the employer may exclude that premium. Some examples of types of payments included in the regular rate are explained below:

  • Shift Differentials — Some employers pay a shift differential if an employee works at night, on Sundays, or on holidays. If the differential is less than 50% of the employee’s hourly rate of pay, it must be included in the calculation of the regular rate of pay used to compute the employee’s overtime rate.
  • Bonuses — Some employers fail to adjust an employee’s rate of pay after the employer pays the employee a bonus. Non-discretionary bonuses — bonuses that are tied to working certain hours or achieving certain results — must be included in the overtime rate paid. Discretionary bonuses, which are in the nature of a gift, may be excluded. In determining the overtime rate, a non-discretionary bonus may be prorated back over the life of the time period for which it is being paid, within reason.
  • Longevity pay — Some employees receive additional pay in recognition of how long they have been employed. These types of payments must be included in the regular rate of pay.
  • Incentive pay — Some employers provide an additional payment if an employee achieves an additional level of education or training. These payments must be included in the regular rate of pay.

How to Compute the Regular Rate for Salaried Employees

As noted above, many salaried employees are entitled to receive time and one-half overtime compensation. Computation of the rate at which overtime must be paid for salaried employees is based on the number of hours for which the employee’s salary is intended to compensate him or her. As with hourly rate employees, included in the computation of the regular rate must be bonuses, shift differentials, educational incentive pay, longevity pay, and the like.

Salary for Fixed Number of Hours. Most salaries are intended to compensate an employee for his or her regularly scheduled hours during the workweek. To compute the regular rate of pay, the salary plus all other inclusions in the regular rate is divided by the number of hours that the salary is intended to compensate the employee. The employee is entitled to receive one and one-half times his or her regular rate of pay for each hour of overtime worked over 40 hours in a week.

For example, if an employee is paid $1000 a week as salary and works a work schedule of 40 hours a week, the employee’s overtime rate of pay is computed by dividing $1000 by 40. Thus, for each hour of overtime over 40 hours worked in a week, the employee is entitled to receive 1.5 times $25, which equals $37.50 an hour.

Fixed Salary for Varying Number of Hours. Some employers pay employees a fixed salary for whatever hours an employee is required to work in a workweek. This is permitted under the U.S. Department of Labor’s regulations only if the employee and employer have a clear mutual understanding that the salary is intended to compensate the employee for the straight time portion of his or her hours whatever the number of hours that the employee is required to work. If such an arrangement is properly established, according to the Department of Labor, an employer is obligated to pay only additional “half-time” pay for each hour in excess of 40 hours a week. Some courts and some state overtime laws, however, prohibit this type of calculation method and require that time and one-half overtime pay, rather than just “half-time” pay, be made in addition to employees’ salaries.

What are Some Commonly Used, But Prohibited, Payment Methods?

Fixed sum for varying amounts of overtime. Some employers pay a fixed sum that they attempt to use as overtime compensation. A lump sum payment for work performed during overtime hours without regard to the number of hours worked does not qualify as overtime compensation. This is true even if the lump sum exceeds the amount to which the employee would be paid on a per hour basis. To properly compute the employee’s overtime pay, the lump sum payment must be added to the employee’s other overtime compensation and then the employee’s regular rate of pay determined. The employee is entitled to overtime pay equal to 1.5 times this regular rate of pay.

Salary includes regularly scheduled overtime hours: Another similar method occurs where an employer asserts that a portion of an employee’s salary constitutes overtime pay. This is not allowed except under very specific circumstances called “Belo contracts,” which can only be used if:

  • the arrangement is pursuant to a specific agreement between the employee and the employer, or a collective bargaining agreement,
  • the employee’s duties necessitate irregular hours of work,
  • the fluctuation in the employee’s hours is not entirely in the overtime range, and
  • the contract guarantees a weekly overtime payment not to exceed 60 hours per week and the employee receives that payment regardless of the number of hours actually worked.

Overtime pay must be in addition to and can not be a part of an employee’s salary.

Bonus as part of overtime pay: Some employers pay bonuses to employees and tell them that the bonus includes the employee’s overtime pay for working on a particular project or job. Unless the “bonus” is tied to each hour worked, it does not properly constitute overtime compensation.
Overtime Must Be Paid In Cash

With the exception of local and federal government employees, overtime compensation must be paid in cash. Compensatory time off is not permitted as payment for hours worked in excess of forty hours a week for private sector employees. Government workers may be paid in compensatory time under certain circumstances that are described below.

Under certain limited circumstances, employers are permitted to meet their minimum wage obligations by including the reasonable value of meals and housing. If this is done, the value of meals and housing should increase the overtime rate.

When Must Overtime Be Paid?

Overtime compensation must be paid on the regular payday for the pay period covered and, with one exception, overtime compensation must be paid in cash. Compensatory time or payment of overtime with “chits” or “IOUs” is prohibited. The only exception to this rule is that employers may deduct the reasonable value of lodging or meals in certain circumstances.

What Counts As Work Time?

Employer abuse of “Suffer Permitted” Rule

All work time must be counted in computing an employee’s overtime pay including work not requested but suffered or permitted by an employer.

Three types of work primarily are involved when employers violate the “suffered or permitted” rule:

1) Work that is a necessary part of the job, such as picking up a piece of equipment, cleaning up after a shift end, or putting on clothing at the work site, but the employer simply fails to pay for;

2) Work an employer orders to be done and then refuses to count as work time, such as many pre-shift and post-shift activities and

3) Work that an employer knows is being done, or would know about if it made a reasonable inquiry, but which the employer ignores such as employees at a loan office being required to check company websites or     e-mail before officially logging on.

Pre-shift and post-shift duties are activities that employees perform before and after their scheduled shifts. Any activity that benefits the employer is generally counted as work time. For example, getting a restaurant ready to open for business, meeting with wait staff about evening specials, donning protective gear and preparing equipment in a factory, or law enforcement employees checking in and out their guns or other equipment are all considered to be work time even if these activities occur before the employer’s scheduled shift begins. Some employers will hold employees after their scheduled hours to wait for a co-worker or to perform clean-up activities. Time spent performing these activities is also compensable work time.

Examples of pre-shift and post-shift duties that courts have found to be compensable under the FLSA include:

  • showering and cleaning up after work at a battery plant,
  • changing into security guard uniforms,
  • guards picking up batteries for radios upon entering a prison
  • checking in and out firearms,
  • conducting safety inspections, and
  • caring for police dogs while at home.

Work that is suffered or permitted is work that benefits the employer in some way, that the employer knows or should know the employee is performing, and that the employer has not taken reasonable steps to prevent from occurring. Work that typically falls within this category is occurs when an employer allows an employee to work after hours outside the employer’s presence, such as work the employee takes home or an employee who closes up a shop. The FLSA does not permit the employer to accept the benefits of the employees’ work time without paying the employee for it.

In addition, employers can not escape the payment of overtime for compensable overtime hours worked by virtue of an announcement that no overtime is authorized without prior supervisory approval. If an employer has such a rule it can not accept the fruits of the employees’ labor without paying the employees.

Records of suffered or permitted work time are often incomplete or nonexistent; however, his does not prevent recovery of damages. Under the FLSA, employers bear the burden of keeping accurate employment records. If the employer fails to maintain records, the courts will rely on employees’ reasonable estimates of their work time.

Employment Violations in the Restaurant, Grocery, and Food Preparation Industries

FLSA violations are rampant among restaurants, grocery, and other food preparation employers. Remember, no one can “volunteer” to work for free for their employer. Yet, employers try to either trick or to intimidate employees into doing so. Some recent cases illustrate this:

  • Chain restaurants have been sued in court for working employees “off-the-clock,” failing to pay restaurant managers overtime compensation, and improperly taking a “tip credit” for time in which workers are not working in a job in which tips are paid. These cases have been settled for millions of dollars.
  • Restaurants have been sued for taking a percentage of the employees’ tips when the employer charges a fixed percentage of patrons’ meals as tips. An employer was successfully sued for fraud as well as wage violations.
  • Workers at meat packing facilities have sued to recover millions of dollars against facilities for unpaid time spent donning garments and preparing equipment before and after their shifts.
  • Workers at a grocery chain have successfully sued to recover millions of dollars for off-the-clock work. The employees alleged they worked off-the-clock and their employer engaged in the following unlawful practices:
  • Punishing employees who fail to perform assignments within unrealistic time periods thereby encouraging and rewarding employees who perform work “off-the-clock” without compensation.
  • Instructing bookkeepers and others to record meal periods as non-worktime even where the employees worked through their meal periods
  • Reducing alleged salaried managers pay for disciplinary infractions for periods of less than a day. This can make the managers hourly workers eligible for FLSA overtime compensation.
  • Rewarding employees who work off-the-clock by commenting favorably on their working off-the-clock, and encouraging them to do so by suggesting promotions and other benefits may be tied to working off-the-clock.
  • Poultry workers are suing for overtime for time spent donning and taking off safety and sanitary gear before and after work hours, and for working them off the clock, and failing to pay for short breaks.
  • Chicken catchers are suing for overtime that they were denied when their employer alleged the chicken catchers are “independent contractors.”

Employment violations in the restaurant, grocery, and food preparation industries

FLSA violations are rampant among restaurants, grocery, and other food preparation employers. Remember, no one can “volunteer” to work for free for their employer. Yet, employers try to either trick or to intimidate employees into doing so. Some recent cases illustrate this:

  • Chain restaurants have been sued in court for working employees “off-the-clock,” failing to pay restaurant managers overtime compensation, and improperly taking a “tip credit” for time in which workers are not working in a job in which tips are paid. These cases have been settled for millions of dollars.
  • Restaurants have been sued for taking a percentage of the employees’ tips when the employer charges a fixed percentage of patrons’ meals as tips. The employer was successfully sued for fraud as well as wage violations.
  • Workers at meat packing facilities have sued to recover millions of dollars against facilities for unpaid time spent donning garments and preparing equipment before and after their shifts.
  • Grocery works at a grocery chain have successfully sued to recover millions of dollars for off-the-clock work. The employees alleged they worked off-the-clock and their employer engaged in the following unlawful practices:
  • Punishing employees who fail to perform assignments within unrealistic time periods thereby encouraging and rewarding employees who perform work “off-the-clock” without compensation.
  • Instructing bookkeepers and others to record meal periods as non-worktime even where the employees worked through their meal periods
  • Reducing alleged salaried managers pay for disciplinary infractions for periods of less than a day. This can make the managers hourly workers eligible for FLSA overtime compensation.
  • Rewarding employees who work off-the-clock by commenting favorably on their working off-the-clock, and encouraging them to do so by suggesting promotions and other benefits may be tied to working off-the-clock.
  • Poultry workers are suing for overtime for time spent donning and taking off safety and sanitary gear before and after work hours, and for working them off the clock, and failing to pay for short breaks.
  • Chicken catchers are suing for overtime that they were denied when their employer alleged the chicken catchers are “independent contractors.”

When does travel time count as work?

Generally, travel time conducted for work during work hours is compensable whereas ordinary home-to-work travel is not. Set forth below are some different travel circumstances:

Working While Traveling:Time spent working while traveling is compensable. For example, in the federal government travel, time while driving a government vehicle, at least outside of the employee’s regular commute, is considered compensable work time.

Travel On Weekends:Travel on weekends is compensable even if no work is performed so long as the work hours cut across the administrative workday for the employee. For example, if the employee’s administrative workday is 7:00 a.m. to 5:00 p.m. and the employee travels on a weekend during those hours, the travel time is compensable.

Emergency Travel from Home to Work:Depending on the circumstances, this time can be compensable. For example, if a worker is called in the middle of the night and ordered to go to an emergency work site, the time is compensable. However, if the employee is called to return to his or hertypicalwork site, the travel time is not considered compensable.

When does training time count as work?

Attendance at training, meetings and lectures must be counted as work activities unless all four of the following criteria are met:

  1. Attendance is outside the employee’s regular work hours;
  2. Attendance is voluntary;
  3. The course is not directly related to the employee’s job; and
  4. The employee does not perform any productive work while attending the lecture.

Attendance is not voluntary if the employee is led to believe that his or her present employment would be adversely affected if he or she did not attend.

Certain DOL approved apprenticeship training programs are exempt from the FLSA.

When does an employer have to pay for on-call time, waiting time, and break time?

Break Time is Compensable Unless the Breaks are Really Long

Although there is little case law on the issue of whether breaks are compensable, the U.S. Department of Labor’s rule is that if a break or rest period is twenty minutes or less, the break time is compensable. Longer breaks, including meal breaks, may be compensable, as well, depending on the circumstances.

Waiting Time is Often Compensable

Time spent waiting while on-duty is compensable, particularly if it is on the employer’s premises, is unpredictable and/or is of relatively short duration. For example, a restaurant worker who is required to report to work at a certain time, though he does not have to bus tables until a certain number of customers are present, is probably entitled to compensation for his waiting time.

In addition, in certain occupations employees are hired to be “engaged to wait” for something to occur. For example, fire fighters and emergency workers are hired, in part, to be available to respond immediately to emergencies. Some people are hired to be available to immediately repair expensive machinery. Some truck drivers are hired to wait until assignments come in so that they can leave immediately. All of these employees have been found to be “engaged to wait” and, therefore, their waiting time has been found to be compensable.

Must an Employer Pay Employees for On-Call Time?

Some employees are required to remain available at home or on the employer’s premises during meal periods to respond to calls in person, or through a telephone or pager. Clearly, the time spent responding to calls, including time spent at home on the telephone or computer responding to calls or e-mail, is compensable. With regard to waiting time, however, there is no bright line rule as to whether or not on-call time is compensable or not.

In determining whether on-call time is compensable, the factors that courts have viewed include:

  • the average number of calls the employee responds to during the on-call period;
  • the required response time: in other words, the amount of time in which the employee has to be at the work site after being called in;
  • whether an employee is subject to discipline for missing or being late to a call-back;
  • the extent to which an employee is able to engage in other activities while on-call; and
  • the nature of the employee’s occupation (in some jobs, it is the nature of the job to be paid to be available to respond immediately to a situation).

Based on these criteria, fire fighters and emergency medical personnel have been found to be entitled to overtime pay for the entire on-call period where the on-call period was spent at home.
Are meal periods and sleep periods counted as overtime?

Meal periods and sleep time spent on the employer’s premises are compensable under certain circumstances. Employers who require employees to remain on the employer’s premises and to respond to calls and interruptions during an employee’s meal periods and sleep time are required, in most circumstances, to pay the employees for their meal periods and sleep time.

On-Duty Meal Periods are Compensable

The Department of Labor’s regulations require that meal periods be counted as compensable work time unless the employee is “completely relieved from duty for the purposes of eating regular meals.” Thus, employers who impose work-related restrictions on employees during their meal periods, such as answering phones or responding to work related requests should pay employees for their meal periods.

An example of how this test is applied is a case involving telephone line installation workers. Their employer required them to eat lunch at their worksite and to remain there throughout the meal period to ensure that the expensive equipment that they used was not stolen. The entire lunch period was found to be compensable work time.

Some courts apply a different test than the Department of Labor’s meal period test. These courts have applied what is called the predominant beneficiary test. Under the predominant beneficiary test, courts determine whether the employer or the employee is the predominant beneficiary of the meal period. Under this test, employees who are required to remain on the employer’s premises in a place which is not a dining room, or some other area which is not an eating facility, are usually found to be entitled to compensation for their meal periods. In these circumstances, the employer has been found to place substantial restrictions on the employee during the meal period for the employer’s benefit.

For example, in cases in which police officers and fire fighters have been required to monitor their radios and to remain on the employer’s premises during a meal period, the employer is usually considered to be the predominant beneficiary of the meal period and the employer must pay the employees for their meal periods. These cases are particularly strong if the police officers receive 1 or more calls on average during each meal period.

On-Duty Sleep Periods are Compensable
Under Most Circumstances

As a general rule, employers must count on-duty sleep periods as compensable work time. On-duty sleep periods are occasions in which an employee is required to sleep on the employer’s premises and may have his or her sleep interrupted by some type of incident to which the employee must respond.

Employers can avoid paying for on-duty sleep periods only if the employer has an express or implied agreement to exclude such periods, the employer has furnished adequate sleeping facilities and the employee’s work day is 24 hours or longer. In addition, under no circumstances may an employer avoid paying for on-duty sleep time if the employee has not had the opportunity to receive 5 or more hours of sleep. Under no circumstances can an employer exclude more than 8 hours of on-duty sleep time per 24 hour shift when computing employees’ overtime pay.

Can an employer and employee agree to waive overtime pay?

No! Overtime pay may not be waived by agreement between the employer and employee. If the employer does not want employees to work overtime, it must establish and enforce workplace rules prohibiting overtime.  In addition, an employer who is caught violating the overtime laws will not avoid back payments by cutting a deal directly with employees. Courts have found that agreements that purport to waive back overtime pay claims are unenforceable unless the Department of Labor supervises them or the employee is represented by an attorney.

There is no such thing as “volunteers” who work for for-profit enterprises. For example, persons who “volunteer” to work for computer or internet companies in exchange for free internet service would be covered by the FLSA. They would be entitled to the minimum wage and overtime pay. Volunteering as part of an apprenticeship or a school internship is permitted provided certain criteria are met.

Overtime pay cases

Under the FLSA, backpay damages equal the difference between what an employee would have been paid for overtime hours had the employer complied with the FLSA and the amount that the employee actually received as payment, if anything, for working overtime. In addition, liquidated damages equal to the amount of backpay are owed unless the employer is able to prove that it acted in good faith. In cases in which liquidated damages are not awarded, prejudgment interest is recovered in most cases. The recovery of attorneys’ fees and costs from the employer is mandatory under the FLSA.

Most state overtime laws prescribe similar or identical remedies.

Anti-Retaliation remedies

In addition to the remedies that are available in an overtime case, in a retaliation case, injunctive relief and front pay are available. Injunctive relief is the court ordering requiring an employer to refrain from certain conduct or ordering it to engage in certain conduct. Front pay is pay which is an estimate of how much in benefits and money an employee would have received in the future had he not been retaliated against.

How far back can damages be obtained?

There is a two year statute of limitations that applies to FLSA overtime claims which is extended to three years if it is proven that the employer “willfully” violated the law. This means that if you filed a case today, you would be able to recover back overtime pay going back two years and possibly three years from today.

Most state overtime laws follow the FLSA recovery period, though some are longer.

WARNING! Filing a wage and hour complaint with the U.S. Department of Labor (DOL) does not toll the statute of limitations! For example, if you file a complaint with DOL today and DOL takes a year to investigate your claim without taking any action, you have lost a year of backpay. If you then decide to pursue a case on your own or DOL takes your case to court, the statute of limitations will be determined by going back two years from the date your complaint is filed in court (three years for a willful violation).

How do employees prove damages? Do they keep their payroll records?

The FLSA requires employers to keep accurate payroll records of employees’ work hours and the amounts paid to them. This is true even for employees who the employer thinks are excluded from the overtime laws. If an employer fails to maintain records, the courts rely on employees’ reasonable estimates of their work time that is provided through employee testimony or written documentation.  Obviously, if an employee has maintained his or her payroll records that is very helpful. However, if an employee does not have pay records, and the employer does not either, the courts will usually credit the employee’s recollection of work time.

The application of the overtime laws to federal, state, and local government employees is, for the most part, the same as the application in the private sector. There are a few noteworthy differences, however.

Police and fire fighters are subject to a partial overtime exemption so that they are not entitled to FLSA overtime until after they have worked more hours than other employees. For information regarding the unique overtime laws applicable to fire fighters and police, click on the one that applies to you.

The rules applicable to state and local government employees differ from those applicable to federal employees. To view the overtime laws applicable to federal employees click here.

The main differences between the application of the FLSA overtime laws in the private sector and in the government are as follows:

  1. The payment of compensatory time is permitted to government employees as long as there is an agreement before overtime work commences that compensatory time will be paid. The maximum amount of compensatory time that can be accrued is 240 hours for most government employees (480 hours for public safety workers). Employers can not compel employees to accept compensatory time as payment for overtime work;
  2. Employees can volunteer to work for their governmental employer to perform work that is not of the same type that the employee normally performs. For example, a fire fighter can volunteer to be a counselor at a youth facility. Moreover, (s)he cannot act as a volunteer fire fighter for her employer. Private citizens can volunteer for public employers.
  3. Governmental employees who are employed by the same public agency may, with their employer’s approval, trade work shifts without affecting their overtime compensation.
  4. Training time that is required by a higher governmental authority — such as a state requiring a city to train its employees — does not have to count as work time.

Who Can Legally Be Denied FLSA Overtime Pay?

The FLSA has a number of categories of employees who are exempt from the overtime laws. In some cases, however, state laws cover the employees who are exempt from the FLSA. In addition, exemptions are applied on a workweek basis. Employees who perform non-exempt duties in a workweek typically are not exempt that week and are entitled to FLSA overtime compensation for overtime hours worked that week – regardless of their FLSA status the rest of the year.

General Principles

There are a few well-established principles regarding exemptions to the Act.

  • Employees are presumed to be entitled to overtime pay;
  • The employer bears the burden of proving that an employee fits within a claimed exemption;
  • Job duties, not job titles govern whether an exemption applies. Employers often give employees fancy administrative or professional sounding job titles for purposes of exempting them from overtime pay. Legally, this does not work. In determining whether or not an exemption to overtime pay applies, an employee’s actual job duties must be evaluated;
  • Lastly, the exemptions to the overtime exemptions are narrowly construed against the employer and if there is a reasonable doubt as to whether an exemption applies, the employee is supposed to receive overtime compensation.

What are the so-called “white collar” exemptions?

These are the administrative, professional and executive exemptions. They are misnamed the “white collar” exemptions because in today’s economy many office workers are covered by the overtime laws.

These are the most commonly misapplied exemptions. Many employers and employees mistakenly believe that if an employee is salaried, then regardless of what the employee does, he or she qualifies as an administrative or professional employee. This is wrong. To qualify as an administrative, executive or professional employee, an employer must prove both that an employee is paid on a salaried basis and that the employee performs the duties of the claimed exemption. This means that no workers paid on an hourly basis can be excluded from receiving overtime pay on the basis that they are an administrative, professional or executive employee. Many employees, however, who are paid on a salaried basis are entitled to overtime compensation because they do not perform the duties of an administrative, executive or professional employee.

How is payment on a salaried basis defined?

The U.S. Department of Labor defines payment on a salaried basis as receipt of an employee’s full salary in any workweek in which the employee performs any work without regard to the number of hours or days worked. There are exceptions to this in that some courts have found the payment of straight time overtime pay to employees does not necessarily mean that they are paid on an hourly basis. Employees whose pay is docked because they do not work their full scheduled workday are considered to be hourly paid, and are not paid on a salaried basis.

IMPORTANT! The administrative, executive and professional exemptions do not apply to hourly paid employees. In other words, to apply these exemptions to an employee, an employer must prove that the employee is paid on a salaried basis, and that the employee’s job duties fit within the claimed exemption. Many salaried employees are entitled to overtime pay because their duties do not meet the test for the overtime exemption their employer is claiming.

The duty tests for each of these exemptions can be quite complicated. Each exemption sets forth a three-part test which is briefly outlined below. To qualify for the exemption, the employer must prove that the employee’s primary job duties meet all aspects of the duty test.

The term primary job duty means the principal, main, or most important duty that an employee performs. An employee can only have one primary job duty, which is determined on a case-by-case basis.

ADMINISTRATIVE DUTIES TEST

The administrative exemption is limited to employees who make decisions with regard to matters of significance concerning the internal operations of their employer.  It is intended to apply to people in jobs such as personnel, labor relations, high level budget analysts, management analysts, and other similar types of employees.

To be exempt from receiving overtime compensation as an administrative employee, an employee must:

  • receive a weekly salary of at least $455 (unless employed by someone other than the government in American Samoa, in which case the employee must make at least $380 per week);
  • primarily perform office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  • exercise discretion and independent judgment with respect to matters of significance in the performance of their primary duties.

Note that the test for the exemption is a three-part test and that all three parts must be established for the employer to exempt employees from receiving overtime pay.  Thus, an employee who performs non-manual work directly related to the management or general business operations of the employer may not qualify for the exemption if the employee does not customarily and regularly exercise independent judgment and discretion with regard to matters of significance.  For example, someone who simply reviews and summarizes data would likely not be found to be an administrative employee and would be entitled to FLSA overtime compensation.

In addition, the Department of Labor and courts have applied a production worker/administrative worker distinction in which the workers who perform the day-to-day work necessary for an employer to fulfill its mission do not qualify as administrative employees.

Set forth below are some examples of workers who were found by courts or the Department of Labor to be entitled to overtime pay:

  • Escrow workers working for a title company
  • Paralegals
  • Inspectors
  • Quality assurance specialists
  • Indoor wholesale salespeople working for an electrical supplier
  • State police detectives
  • Import/Export specialists who work for the federal government
  • Probation officers and district attorney investigators
  • Convention planners employed by a tourist bureau
  • Electronics technicians troubleshooting repair of satellite equipment
  • Insurance claims investigators
  • Senior border patrol agents
  • Computer specialists performing simple programming
  • Television news producers for a local television station
  • INS anti-smuggling criminal investigators
  • Case Managers for a service provider for disabled individuals
  • Senior legal analysts who only wrote memoranda for attorneys to review

PROFESSIONAL EXEMPTION — LEARNED PROFESSIONALS, CREATIVE PROFESSIONALS AND COMPUTER PROFESSIONALS

(1)   LEARNED PROFESSIONS

The professional exemption is intended to apply to employees who work in recognized professions that typically require a four year college degree or higher such as doctors, lawyers, engineers, architects, scientists, teachers in a recognized school system, etc. Disputes involving the professional exemption typically arise when an employee has developed an area of expertise through on-the-job experience that the employer attempts to claim is a profession such as equipment technicians or journalists or when a person trained as a professional is not performing professional work such as an accountant who is doing bookkeeping.

There is a three-part duty test for the professional exemption.  The employer must prove all three parts of the test.  The three parts are:

  • The employee must perform work requiring advanced knowledge;
  • The advanced knowledge must be in a field of science or learning; and
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

The first step of the test “work requiring advance knowledge”rdquo; means that the work must be “predominantly intellectual in character.”  The work must also require “consistent exercise of discretion and judgment.”  There is no set level of education required in order for work to qualify under this test.  The work can be “attained at the high school level.”

The second step “field of science or learning” includes such fields as law, medicine, engineering, teaching, pharmaceuticals, and other professions.  The regulations state that mechanical arts or skilled trades do not qualify under this exemption.

The final part of the test “customarily acquired by a prolonged course of specialized intellectual instruction” makes the exemption applicable only to professions where “specialized academic training is a standard prerequisite.”  This does not mean that the exempt employee must have said academic training, but in general people of that profession must “customarily” have it.

The federal regulations list several professions to whom this exemption does or does not generally apply

Some professions that the regulation lists as exempt under the learned professional exemption are:

  • Registered or certified medical technologists
  • Registered Nurses, registered by a state examining board
  • Dental hygienists who have completed an accredited academic program
  • Physician assistants who have completed an accredited academic program
  • Certified Public Accountants
  • Chiefs and sous-chefs who hold degrees in culinary arts
  • Athletic trainers who have completed an accredited academic program
  • Licensed funeral directors and embalmers

Some professions that the regulation lists as non-exempt under the learned professional exemption are:

  • Licensed practical nurses and other similar health care employees
  • Accounting clerks
  • Bookkeepers
  • Cooks who perform routine mental, manual, mechanical, or physical work
  • Paralegals
  • Legal assistants

(2)   CREATIVE PROFESSIONALS

Persons employed in the arts are exempt from receiving overtime under the creative professional exemption. This is most often misapplied to persons who work in fields that have limited avenues for creativity such as draftsman, journalists, technical writers, copy writers and the like.  This exemption can apply to journalists, if they write more creative pieces, such as opinion columns.  Journalists who only collect information and issue standard reports or whose work product is substantially controlled by their employer do not qualify for the exemption.

To be excluded from receiving overtime as a creative professional, an employee’s primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.  Examples of fields to which this exemption apply include music, writing, acting, or the graphic arts.  The results must be dependent primarily on the invention, imagination or talent of the employee.

(3)   COMPUTER PROFESSIONALS

This exemption applies to computer programmers and computer systems analysts.  In contrast, employees who are engaged in the maintenance, operation or repair of computers and software are clearly entitled to receive overtime.  Because these positions can change quickly due to technology, it is important to look at the duties of a position instead of just the title.  Computer systems analysts, computer programmers, and software engineers in the computer software field are exempt from receiving FLSA overtime only if they meet certain tests Congress has established for the computer professional exemption.

To meet this exemption, an employee must make at least $455 per week and meet the specified duties.  The employee’s primary duty must involve one of the following four duties:

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
  • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  • A combination of the aforementioned duties, the performance of which requires the same level of skills.

The exemption only applies to highly skilled employees who have achieved a level of proficiency in the theoretical and practical application of a body of specialized knowledge in computer systems analysis, programming and software engineering.  The exemption does not apply to employees who work in computer repair or manufacturing or whose work is not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations.

EXECUTIVE EXEMPTION

The executive exemption applies to managers and high level supervisors who are paid on a salaried basis of at least $455 per week.  A three-part duty test is used to determine whether salaried employees can legally be denied overtime compensation on the basis that they are “executives.”

To prove that its employees meet the duty test, an employer must establish that the primary, or most important, duty of the employee is managerial.  This includes anyone who owns at least a 20 percent interest in his or her employer.  Management duties include work such as, for instance:  interviewing and training of employees, setting and adjusting employees’ rates of pay and hours of work, directing the work of employees, evaluating employees’ work, dealing with employee complaints, disciplining employees, planning the work, assigning work, and controlling the budget.

An employee does not have to spend a certain percentage of his or her time managing employees to be primarily involved in managing, but must spend some time managing and it must be his or her primary duty.  For instance, a relief manager, who only occasionally performs any managerial tasks, would not be exempt under this rule.

Second, the employer must establish that the employee customarily and regularly directs the work of two or more employees.  The employees must be either full-time employees or the employees directed must be the equivalent of two full-time employees.  In order for the exemption to apply, the employee must actually direct the employees and may not merely assist in directing them.

Finally, in order for the executive exemption to apply, the employee must have the authority to hire and fire employees or the authority to make decisions or recommendations with respect to changes in employment status that are given “particular weight,” his or her opinion as to the hiring and firing of employees must be given “particular rate.”  Even if the employee does not have the ultimate authority to hire and fire, the executive exemption can apply to him or her.  The employee must be able, though, to make more than just an occasional suggestion as to the hiring or firing of the employees that he or she manages.

OUTSIDE SALES EXEMPTION

This exemption applies to employees who engage in making sales away from the employer’s place of business. It does not apply to telemarketers or any other salespeople who make sales from their employer’s place of business.

The outside sales exemption is limited to employees whose primary duty is to work away from the employer’s business making sales or obtaining orders or contracts from clients.

COMMISSIONED RETAIL SALES EXEMPTION

Employees of retail or service establishments are exempt from receiving overtime if more than half of the employee’s earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.

In addition, for this exemption to apply, 75 percent of the employer’s annual dollar volume of sales must be recognized as retail sales. This prevents the retail sales exemption from applying to wholesalers.

MOTOR CARRIER EXEMPTION

Excluded from receiving overtime are drivers, driver’s helpers, loaders and mechanics employed by a motor carrier (cars, trucks, etc.), if the employee’s duties affect the safety of operation of vehicles in transportation of passengers or property in interstate commerce. This exclusion was enacted because these types of employees are subject to regulation by the Department of Transportation.  Generally, though, this exemption does not apply to employees whose work involves motor vehicles that weigh 10,000 pounds or less.  Thus, drivers of vehicles weighing less than 10,000 pounds are covered by the FLSA overtime pay requirements.

Independent Contractors

Independent contractors are not, of course, entitled to FLSA overtime pay.

People who work as employees are entitled to greater legal protections and monetary benefits than independent contractors. In theory, independent contractors are free from the set work time, discipline, and other restrictions that govern employees’ conduct and buy their own tools and equipment – they run their own businesses.

There is much less regulation involved for employers if they treat their workers as “independent contractors” rather than “employees.”  Employees have many more legal rights: the right to overtime pay, to unionize, to social security credits, to protection against discrimination (age, race, sex, disability, national origin, etc.), unemployment insurance and to a multitude of other benefits.  Independent contractors primarily only have the right to be paid pursuant to their contract with the employer.

Many state and federal laws cover employees that do not cover independent contractors.  A sampling of some of the important laws that only cover employees are:

  • Fair Labor Standards Act and state overtime laws:  These are laws that require employers to pay time and one-half overtime compensation to employees who work over 40 hours in a week.
  • Laws Prohibiting Discrimination:  Generally, only employees are protected from discrimination on the basis of race, color, national origin, disability, religion, sex, age and disability.
  • Family and Medical Leave:  Only employees are entitled to leave under the Family and Medical Leave Act and similar state statutes.  This can be particularly important if a person is compelled to leave work for a period of time due to illness and wishes to return to work in the same job that the person held when he or she left.
  • Employee Retirement and Related Benefits:  Generally, employees’ retirement and other related benefits are protected by the Employment Retirement and Income Security Act (ERISA), but independent contractors are not.
  • Employment Taxes: The Internal Revenue Code obligates employers to pay employment taxes (unemployment insurance, Social Security, Medicare) and to withhold taxes (income, Social Security and Medicare) for employees.  Generally, this is not true for independent contractors. Of course, independent contractors must still pay their own taxes.
  • Right to Organize Unions and Engage in Collective Bargaining:  Generally, collective bargaining rights and the protections from retaliation and discrimination under the National Labor Relations Act and similar state laws are afforded only to employees and not to independent contractors.

The Tests to Determine Status as Employee or Independent Contractor

Classifying certain workers as employees or independent contractors can be difficult.  Currently, there are essentially two tests used to determine whether or not a worker is an independent contractor or employee.  The Internal Revenue Service applies the “right to control test.”  Under the Fair Labor Standards Act (FLSA) and other statutes, the courts have applied the “economic reality test.”

Right to Control Test (also called the Master-Servant or common law agency test):

This test distinguishes independent contractors from employees based on the degree to which an employer exercises control over the worker.  The control factors that are considered include:

  • What is the degree of control the employer exercises over the day-to-day work performed?
  • Is the worker engaged in a business or occupation that is distinct from the employer?
  • Is the occupation a specialist job or one usually performed under supervisor?
  • What is the degree of skill involved in the job?
  • Does the employer or the worker supply the tools and equipment necessary to perform the job?
  • How long is the worker employed by this employer?
  • Is the work performed part of the regular business of the employer?
  • Does the worker perform the same type of work for other business entities?
  • Do the parties believe they are creating an employer/employee relationship business?
  • How is the worker paid for his work: by the job or project or by the hour or salary?

These factors are analyzed in their totality to determine whether a worker is an employee or independent contractor.

Economic Reality Test

This test is somewhat broader than the control test and it classifies greater numbers of workers as employees.  Courts and the Department of Labor look to the “economic realities as a whole” to determine how to classify a worker.  Generally, there are seven factors viewed under this test:

  • The amount of the worker’s investment in facilities and work equipment;
  • The nature and degree of control retained or exercised by the company over the worker’s work product;
  • The worker’s opportunities for profit and loss;
  • The degree to which the worker’s independent initiative, judgment, and planning in market competition with others is necessary for the success of the worker’s operation;
  • The degree of the permanency of the relationship between the employer and the worker;
  • The extent to which the services are a part of the employer’s business; and
  • The degree of dependency of the worker on the employer for continued work.

The overtime laws are intended to provide broad coverage.  As a result, these factors are construed in favor of a worker having the status as “an employee.”

Hybrid Test

Some courts apply a hybrid test combining the control test and the economic realities test.  This is often done in interpreting the law under the Age Discrimination in Employment Act (ADEA) and the federal Civil Rights Act of 1964.  The hybrid approach includes the factors under the right of control test, but also includes such factors as:

  • The type of occupation;
  • The skill required;
  • Whether the worker is furnished with equipment;
  • How long the worker has been employed by the employer;
  • Whether paid leave is provided;
  • How the employee is paid; and
  • How the work relationship was terminated.

Other Considerations

In determining how to classify an employee the courts view the purpose and nature of the law (or laws) at issue.  The failure to consider a worker as an employee can result in a great diminishment of a person’s employment protections and benefits.  Thus in close cases, courts often decide in favor of finding an employee/employer relationship rather than independent contractor status.

Other Exemptions

There are other exemptions that apply to employees in certain other occupations.  For example, some taxicab drivers, seaman, railway employees, airline employees, employees of some seasonal and recreational establishments, and some agricultural workers are exempt from the FLSA.  Again, the general presumption is that employees are entitled to receive overtime compensation and the vast majority of workers, including workers in office jobs and service jobs, are entitled to FLSA overtime compensation.

Exemption For Employees Of Hospitals And Residential Care Facilities

There is a special partial overtime exemption for employees of hospitals and residential care facilities. If an employer has a prior agreement or understanding with these employees that overtime will be computed over 14 days instead of 7 days, it may do so and pay employees on the basis of 80 hours every two weeks rather than 40 hours a week. The agreement or understanding must be reached before the overtime is worked.

Are Employees Protected From Retaliation?

There is a special partial overtime exemption for employees of hospitals and residential care facilities. If an employer has a prior agreement or understanding with these employees that overtime will be computed over 14 days instead of 7 days, it may do so and pay employees on the basis of 80 hours every two weeks rather than 40 hours a week. The agreement or understanding must be reached before the overtime is worked.

The FLSA and many state laws contain provisions that protect workers who file cases to recover overtime from retaliation by their employers. The FLSA provides for backpay, frontpay (the estimated amount of money that the employee would have earned in the future had he or she not been retaliated against), injunctive relief ordering the employer to refrain from its conduct and monitoring the employer’s behavior, double damages, interest, attorneys’ fees, and costs

The minimum wage in the United States is currently $7.25 per hour. An employee’s pay must average this amount for each hour worked regardless of whether the employee is paid on an hourly basis, a salaried basis, a task basis, or any other type of payment scheme.

Many states and cities have minimum wage rates that are higher than the national law. If an employee works in a city or a state that has a minimum wage that is higher than $7.25 per hour, the employee is entitled to receive the higher wage.

State Current Minimum Wage Future
Alabama No state minimum wage law.
Alaska $7.75

State minimum wage higher than federal minimum wage.

Arizona 7.90

State minimum wage higher than federal minimum wage.

Since 2006, rate is increased annually based on a cost of living formula.
Arkansas $6.25

State minimum wage lower than federal minimum wage.

California $9.00

State minimum wage higher

than federal minimum wage.

State minimum wage will raise to $10.00, effective January 1, 2016.
Colorado $8.00

State minimum wage higher than federal minimum wage.

Since 2006, rate is increased annually based on a cost of living formula.
Connecticut $8.70

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$9.15 effective January 1, 2015

$9.60 effective January 1, 2016

$10.10 effective January 1, 2017

Delaware $7.75

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$8.25 effective June 1, 2015.

District of Columbia $9.50

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$10.50 effective July 1, 2015

$11.50 effective July 1, 2016

*Annual indexed increases will take effect July 1, 2017.

Florida $7.93

State minimum wage higher

than federal minimum wage.

Since 2006, rate is increased annually based upon a cost of living formula.
Georgia $5.15

State minimum wage lower than federal minimum wage.

Hawaii $7.25

State minimum wage same as federal minimum wage.

State minimum wage will raise to:

$7.75 effective January 1, 2015

$8.50 effective January 1, 2016

$9.25 effective January 1, 2017

$10.10 effective January 1, 2018

Idaho $7.25

State minimum wage same as federal minimum wage.

Illinois $8.25

State minimum wage higher than federal minimum wage.

Indiana $7.25

State minimum wage same as federal minimum wage.

Iowa $7.25

State minimum wage same as federal minimum wage.

Kansas $7.25

State minimum wage same as federal minimum wage.

Kentucky $7.25

State minimum wage same as federal minimum wage.

Louisiana No state minimum wage law.
Maine $7.50

State minimum wage higher than federal minimum wage.

Maryland $7.25

State minimum wage same

as federal minimum wage.

State minimum wage will raise to:

$8.00 effective January 1, 2015

$8.25 effective July 1, 2015

$8.75 effective July 1, 2016

$9.25 effective July 1, 2017

$10.10 effective July 1, 2018

Massachusetts $8.00

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$9.00 effective January 1, 2015

$10.00 effective January 1, 2016

$11.00 effective January 1, 2017

Michigan $7.40

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$8.15 effective September 1, 2014

$8.50 effective January 1, 2016

$8.90 effective January 1, 2017

$9.25 effective January 1, 2018

*Annual indexed increases begin in January 2019, linked to CPI, with increases not to exceed 3.5%

Minnesota $6.15

State minimum wage lower than federal minimum wage.

State minimum wage will raise to:

 

 

*Annual indexed increases will take effect January 1, 2018

Mississippi No state minimum wage law.  

 

 

 

Missouri $7.50

State minimum wage higher than federal minimum wage.

Minimum wage is to be increased or decreased by a cost of living factor starting January 1, 2008, and every January 1 thereafter.
Montana $7.90

State minimum wage higher than federal minimum wage.

Beginning in 2006, minimum wage is subject to a cost of living adjustment tied to the Consumer Price Index, done by September 30 of each year and effective on January 1 of the following year.
Nebraska $7.25

State minimum wage same as federal minimum wage.

Nevada $8.25

State minimum wage higher than federal minimum wage.

Beginning in 2007, future adjustments subject to increases in the federal minimum wage and consumer price index. Increases will take effect each July 1.
New Hampshire $7.25

State minimum wage same as federal minimum wage.

New Jersey $8.25

State minimum wage higher than federal minimum wage.

Starting in 2014, the minimum wage will be automatically adjusted each September and increases implemented each January, based on inflation as determined by the Consumer Price Index.
New Mexico $7.50

State minimum wage higher than federal minimum wage.

New York $8.00

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$8.75 effective December 31, 2014

$9.00 effective December 31, 2015

North Carolina $7.25

State minimum wage same as federal minimum wage.

North Dakota $7.25

State minimum wage same as federal minimum wage.

Ohio $7.95

State minimum wage higher than federal minimum wage.

Beginning in 2006, minimum wage will be automatically adjusted each September and increases implemented each January, based on inflation as determined by the Consumer Price Index.

 

Oklahoma $7.25

State minimum wage same as federal minimum wage.

Oregon $9.10

State minimum wage higher than federal minimum wage.

Beginning January 1, 2004, and annually thereafter, the rate will be adjusted for inflation by a calculation using the U.S. City Average Consumer Price Index for All Urban Consumers for All Items. The wage amount established will be rounded to the nearest 5 cents.
Pennsylvania $7.25

State minimum wage same as federal minimum wage.

Rhode Island $8.00

State minimum wage higher than federal minimum wage.

Utah $7.25

State minimum wage same as federal minimum wage.

South Carolina No state minimum wage law.
South Dakota $7.25

State minimum wage same as federal minimum wage.

Tennessee No state minimum wage law.
Texas $7.25

State minimum wage same as federal minimum wage.

Vermont $8.73

State minimum wage higher than federal minimum wage.

State minimum wage will raise to:

$9.15 effective January 1, 2015

$9.60 effective January 1, 2016

$10.00 effective January 1, 2017

$10.50 effective January 1, 2018

* Beginning January 1, 2019, and on each subsequent January 1, the minimum wage rate shall be increased by 5% or the percentage increase of the CPI, whichever is smaller; the minimum wage shall not be decreased.

Virginia $7.25

State minimum wage same as federal minimum wage.

 

 

 

 

 

 

Washington $9.32

State minimum wage higher than federal minimum wage.

Beginning January 1, 2001, and annually thereafter, the rate will be adjusted for inflation by a calculation using the CPI for urban wage earners and clerical workers for the prior year.
West Virginia $7.25

State minimum wage same as federal minimum wage.

Wisconsin $7.25

State minimum wage same as federal minimum wage.

Wyoming $5.15

State minimum wage lower than federal minimum wage.

There are a few limited exceptions to the minimum wage. Provided that they meet certain strict criteria, employers may take credit for the reasonable value of meals and lodging. In addition, as explained below, in certain industries, the employer may apply a tip credit.

Tipped Employees

Congress has enacted a special exception to the rules for computing the minimum wage for tipped employees. An employer is permitted to pay tipped employees a “cash wage” of only one-half the 1996 minimum wage ($4.25/hour). This means employers can pay tipped employees a cash wage of only $2.13 an hour and it may credit tips to make up the rest of the minimum wage.

The tip credit the employer receives may not exceed the value of the tips the employee has actually received. If this amount fails to meet the minimum wage, the employer must make up the difference.

Employers may apply the tip credit only if:

  • The employee is working in a job in which the employee customarily and regularly receives $30 per month in tips;
  • The tipped employee has been informed by the employer about the tip credit law and that the employee must be allowed to retain all tips the employee receives, with the exception that tip pooling with other employees arrangements are allowed; and
  • Employers cannot require employees to share tips with their employer.

If an employer violates any of these three elements, a tip credit is not allowed.

Examples of Employer Abuse of the Tip Credit

Examples of employer abuse concerning the tip credit are employers who compel employees to kickback tips or who do not provide employees with all the tips received. For examples, some restaurants mandate a 15% or higher tip charge on large parties at a restaurant. This is a tip that is the employee’s to keep if the employer is using the tip credit provisions of the Act. Another example is that some emplo.

There are a number of sources available that provide general information regarding overtime laws. For example, the U.S. Department of Labor’s homepage is helpful in providing general information and many states have a homepage if they have a department of labor.

Most cases, however, involve unique circumstances that warrant individual analysis and evaluation by attorneys who are experienced in pursuing overtime wage cases. Over the past fifty years, McGillivary Steele Elkin LLP has successfully handled overtime cases obtaining millions of dollars for thousands of employees. Employees with individual questions may contact McGillivary Steele Elkin LLP for free consultations by filling out our questionnaire or writing to us at:

McGillivary Steele Elkin LLP

1101 Vermont Avenue, N.W.

Suite 1000

Washington, D.C. 20005