If you think your employees are exempt from the Fair Labor Standards Act (FLSA), think again. In 2012, one Texas remodeling company ended up paying $15,000 to a now-former employee for overtime work that the company owners thought was covered in the employee’s salary. The employee was a project manager. The company had no carpenters, and the PM was responsible for managing all the trade partners. He worked more than 40 hours a week and earned more than minimum wage. He was not required to do carpentry.
According to the Department of Labor, the FLSA “establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in federal, state, and local governments.” To be “exempt” from these rules, an employee must fit certain criteria. It turns out the Texas project manager was not exempt from the rules.
The project manager wasn’t doing his job well, and the owners spoke with him about improving his performance. “The more we got serious about that,” says the owner, “the more he began to make comments about the number of hours he was working.”
They eventually fired the project manager for violating his performance improvement plan (he had also stopped turning in his time cards) and paid him the overtime he likely would have sued them for. But there’s no reason to let things go that far.
“You can take steps ahead of time,” says construction attorney and Remodeling columnist D.S. Berenson.
Categorize each employee. Job descriptions and titles help. Manual laborers — plumbers, craftsmen, carpenters, installers — are not subject to exemptions unless they are independent contractors. A manager’s primary duty must be management, and he or she must direct at least two employees. “If you can show that he has managing authority — hiring, firing ... and that he’s on a salary of at least $450 a week, he’d be exempt from overtime,” Berenson says. “It won’t kill the exemption if part of his duties is to swing a hammer — as long as his primary duty is management.”
Track overtime or assume the risk. “You want to avoid the claim where someone says that you haven’t paid them overtime in three years,” Berenson says.
Provide incentives for people to avoid overtime. For example, have a policy that an employee cannot work overtime without a manager’s authorization. Hold reviews at certain times of the year to make sure people won’t make retroactive claims.
Always check with your attorney. Not every state has the same definition of exempt and non-exempt, full-time and part-time, or weekly salary levels. In some states, you can pay someone part-time and get away with not paying overtime.
The Texas remodeler paid the employee $15,000, plus workers’ compensation on top of that and liability paid to the company’s insurer.
So far, the former employee has not filed a lawsuit, and the remodeling company owner has learned his lesson: Paying someone a salary doesn’t mean that employee can’t collect overtime pay. “Whoever we hire from here on will be paid overtime,” the remodeler says.