Don't Forget To Track Employee Hours and Overtime

Paying overtime is not just a matter of paying employees the standard 1.5 times their normal pay rate when they work more than 40 hours in a week. Overtime payment errors can occur if you miss a payment: 

• When employees work during break times.
• When employees travel between work sites.
• When employees are required to participate in activities outside normal hours for training, team building or company parties.

The Fair Labor Standards Act (FLSA) indicates that employers must track employee time and ensure that they’re paid for the hours they’ve worked. Sometimes an employee who’s paid on a salary basis is eligible for overtime, depending on the job classification and employment contract.

Everyone works together

Employees should be encouraged to keep track of hours worked per day, clocking in and out times, breaks, overtime and wages paid so they have supporting documentation that shows time worked. Wage theft is a crime, and you can face harsh penalties from the Equal Employment Opportunity Commission, including paying for the employee’s damages. Comply with federal and state labor laws and regulations to avoid any potential federal penalties and fines.

The FLSA doesn’t stipulate the method to use to manage and track employee hours but establishes a set of employee time-tracking requirements for hourly, salaried and nonexempt staff. You also need to be aware of any state-level employee monitoring laws.

Under the FLSA, an employee is considered exempt from overtime pay if the employee is paid on a salary basis, the position is paid a certain minimum per week and the duties are deemed as executive, administrative or professional. There are both exempt and non-exempt salaried employees.

The Supreme Court ruled in February 2023 that an offshore rig worker who earned more than $200,000 annually — and whose company classified him as a “bona fide executive” — is entitled to overtime pay for having worked more than 40 hours per week.

The company argued that the worker wasn’t entitled to overtime under the FLSA even though he regularly worked 84 hours per week. Employment attorneys saw the decision as an enormous windfall for workers who are paid on a daily rate basis — that they are entitled to overtime after 40 hours of work.

The Court noted the case hinged on the issue of whether the worker, whose job is called tool pushing, was paid on a salary basis. The worker’s biweekly paycheck amounted to his daily pay rate multiplied by the number of days he worked in a pay period.

The Court wrote: “The question here is whether a high-earning employee is compensated on a ‘salary basis’ when his paycheck is based solely on a daily rate — so that he receives a certain amount if he works one day a week, twice as much for two days, three times as much for three, and so on. We hold that such an employee is not paid on a salary basis, and thus is entitled to overtime pay.”

The majority opinion said that the worker “was not an executive exempt from the FLSA’s overtime pay guarantee” and that “daily-rate workers, of whatever income level, qualify as paid on a salary basis only if the conditions set out in” the special rule are met.

A lawyer who teaches a class on wage theft at Fordham Law School in New York said, “This case highlights one of the quirks about the FLSA in that sometimes liability is not a result of how much a worker gets paid but rather how he is paid.”  

Employee time attendance software and/or third-party payroll processors can help you maintain FLSA compliance.