Legal Blog

It’s Not That Simple: Many Employers Calculate Overtime Incorrectly

As an employer, you probably know that you need to pay your non-exempt employees at least minimum wage.  Being a responsible employer, you also are likely to understand that you need to pay your non-exempt employees time and a half for overtime hours.  But, what even the most responsible employers often fail to realize is that an overtime premium needs to be paid on commissions and production bonuses paid to non-exempt employees, not just on the hourly rate. This is a common mistake with respect to salespeople.  Many companies employ salespeople who receive the bulk of their compensation through commissions.  For example, many employers pay salespeople a relatively low (or near minimum wage) hourly rate plus commissions.  When overtime is worked it usually gets paid, but only at time and a half of the hourly rate.  Most employers fail to include the commission amounts in the calculation of the overtime premiums that both state and federal law require to be paid to non-exempt employees.  The applicable law makes very clear that commissions paid need to be included in the calculation of the overtime rate and actually provide an algebraic formula for determining the amount to be paid. Similar issues occur with respect to the payment of production bonuses.  Many employers will pay their employees a bonus for getting a certain amount of work completed.  For example, some employers will pay a $100 bonus if an employee can complete a review of a specified number of files in a week.  There is nothing wrong with paying such a bonus and it may very well be a cost-effective incentive for increasing production.  However, like commissions to salespeople, employers generally need to pay overtime premiums on such production bonuses, assuming overtime is worked. The failure to account for incentive-based compensation in the determination of overtime premiums can be problematic and, add up very quickly.  If commissions are significant and not factored in to overtime pay (and why wouldn’t employers want good salespeople working more hours?), the potential exposure for an employer may include not just the unpaid overtime wages, but also two or three times that amount in statutory damages, as well as the employee’s attorney’s fees.  Additionally, if this is a common practice that applies to multiple employees, both state and federal law provide mechanisms whereby similarly situated employees can be joined to a lawsuit, thus further increasing exposure. Fortunately, there are proactive steps that an employer can take to ensure compliance with the law.  While the applicable law can sometimes appear unclear as to what compensation needs to be included in overtime payments and how that should be accomplished, there are certain procedures and protocols that can be implemented to minimize these risks. As a corporate employment attorney, I frequently advise employers in several industries on wage payment issues. Think you may be calculating overtime incorrectly? Arrange a private consultation with Russell Berger.

About Russell Berger | 410.209.6449 Russell BergerRussell Berger is an experienced labor lawyer and litigator who is well versed in both state and federal court proceedings. He has received the honor of being named as a Rising Star by Super Lawyers in both 2012 and 2013. In addition to handling general litigation matters, Mr. Berger’s practice focuses on labor and employment disputes. Working as a labor attorney, Mr. Berger handles many different labor issues, including minimum wage and overtime litigation (under the Fair Labor Standards Act), wrongful termination claims, non-compete agreements, employment agreements, and severance agreements.  

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