Are Salaried Employees Entitled To Overtime Compensation?

“That employee is paid on a salary, he doesn’t get overtime”

Every time I heard that phrase as a Wage and Hour Investigator, I knew I would be delivering unwelcome news at the conclusion of my investigation – salaried employees not being entitled to overtime compensation is one of the most common misconceptions in business. But where does that misconception come from?

Background

Overtime compensation, at the Federal level, is dictated by the Fair Labor Standards Act of 1938. Most employees are entitled to overtime pay after 40 hours worked in one week, unless an exemption specifically applies to the type of work they perform. Some exemptions are automatic, such as the overtime exemption for employees employed in agriculture or employees working as taxicab drivers; however, others require employees to meet certain “tests” to apply.

“White Collar” Exemption Tests

There is a group of exemptions collectively known as the “White Collar Exemptions.” This group may be the culprit for the “salary equals no overtime” misconception. Each of these exemptions has three tests, all of which must be met for any one of them to apply:

The first two tests involve an employee’s compensation: An employee must be employees on a guaranteed salary basis. Moreover, this salary must be the equivalent of $684 per week. There is also a third test that employees must meet, in addition to the salary requirements for any one of these exemptions to apply. This duties test involves the nature of an employee’s work. For example, the Executive Exemption, requires that an employee has a primary duty of management; supervise two or more employees AND have the authority to hire and fire employees or whose recommendations about the hiring or firing of employees are given “particular weight”. The second of those exemptions, the Administrative Exemption, requires an employee’s primary duty to be office or nonmanual work AND this work must include the exercise of “discretion and independent judgement” with regards to “matters of significance”. Finally, the Professional Exemption requires an employee to perform work “requiring knowledge of an advanced type in a field of science or learning” that is “customarily acquired by a prolonged course of specialized intellectual instruction” or “Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”

Wage and Hour Investigations

Salaried employees usually work more hours than their hourly counterparts, they are also less likely to keep accurate records of their hours worked, which opens the door for the Investigator to reconstruct the hours worked by these individuals based on interview statements and employees’ faulty memories (would you be more likely to remember and share the times you left early or the weeks you worked 50+ hours?).

Wage and Hour Investigators reconstruct hours based on the information they obtain from employee interviews, then they calculate a weekly average of hours worked and apply that average to every single week of their two-year investigation period and calculate the overtime compensation each employee paid in violation should have received during that period.

So, I will ask you one final question: Are salaried employees entitled to overtime?

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