Carl Kanowsky: The quagmire that is overtime

Carl Kanowsky
Carl Kanowsky

Overtime seems to be the bane of many businesses, particularly smaller ones.  Some folks still cling to long-held but wrong beliefs, or they don’t know what the rules are to determine if an employee is entitled to overtime (known as non-exempt) or not (called exempt).

First, the misconception:  Executives and management level employees are paid a salary and their hours are often not tracked. So, some business owners assume that if you switch from paying a non-exempt worker hourly to a salary that you no longer have to pay overtime. As Trump would say, “Wrong.”

Some companies compound this mistake by adding in a premium to pay some overtime even if it’s not worked.  For instance, this fictional company, Burgers Now!, was paying its fry cooks and counter workers $11 an hour.  They wanted to stop worrying about the nuisance of keeping track of these workers’ hours, so Burgers Now! paid the workers a salary of $522.50.  This was calculated by 40 hours per week times $11 (a total of $440) plus five overtime hours paid at the overtime rate of $16.50 (5 x $16.50 = $82.50) for a total of $522.50.

This $522.50 was paid every week, whether the worker put in 39 hours or 50 hours.  Burgers Now! figured it was being an enlightened employer, paying for overtime when it wasn’t worked, banking that pay to cover overtime when it was.  But that’s not how the labor commissioner saw it.

Instead of using the calculation from Burgers Now!, the labor commissioner took the $522.50 and divided it by 40, for an effective hourly rate of $13.06 per hour and an overtime rate of $19.60 per hour. This meant that Burgers Now! owed all of its employees more money for both straight-time hours as well as any overtime hours actually worked – a true mess.

Another mistake employers sometimes make is trying to determine if someone is exempt from overtime or not.  There are numerous categories with specific rules for executive, administrative, professional and other types of employees to see if they qualify to be exempt from overtime.

Employers sometimes simply apply these factors to a particular employee and then decide if that person is exempt or not from overtime. But they forget about the other part of the equation.

Under both state and federal law, besides job duty requirements to qualify for overtime, the exempt employee must also be paid a minimum salary. For California, that amount is double whatever the applicable minimum wage is. Therefore, since the current hourly minimum wage is $10, any exempt employee must be paid at least $41,600 (which translates into $20 per hour).

Right now, under federal law, an exempt employee must make at least $23,660 a year, or about $11.40 per hour.  Since California employers must follow the stricter rule, the $41,600 minimum applies.

But come December, things are going to get really confusing. That is when the federal minimum wage to qualify for overtime doubles from $23,660 a year to $47,476 a year – about $23 per hour.

So, employers be alert.  If you’re paying an executive $45,000 a year and don’t pay her or him overtime, that changes come Dec. 1. All employers should review their payroll practices to be sure they are compliant with the law.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at [email protected]. Mr. Kanowsky’s column represents his own views, and not necessarily those of The Signal. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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