If your company is like most and cutting costs is a top priority, reducing overtime expenditures can make a big difference. Be careful with how you go about reining in overtime, though.
Failing to properly pay for all overtime hours worked could result in more financial harm than good. In addition to paying employees back wages, you will also pay liquidated—or double—damages. And liquidated damages are the rule, not the exception.
Paying employees correctly the first time is your best strategy. Employees have two years to sue for non-willful mistakes, and three years for willful mistakes. Read on to learn from others’ mistakes.
Mistake #1: Not paying for all of employees’ pre- and post-work activities
Employees’ pre-work or post-work activities are compensable if the activities are principal activities that benefit the employer, not the employees. Examples: A class of sales associates for Polo Ralph Lauren wanted to be paid for approximately nine minutes per shift per day during which their bags were checked for stolen merchandise. The company settled to the tune of $4 million. The Department of Labor accused the Maricopa County (Ariz.) Sheriff’s Office of leaving the time for pre-shift meetings off the official paid time records for detention officers and sergeants. The employees received over $2 million in back wages.
Mistake #2: Not paying employees who work through breaks
Employees don’t need to be paid for their meal breaks if those breaks are at least 30 minutes long and employees are completely relieved from work. Watch out: Some time-keeping systems automatically deduct for meal breaks, whether or not employees are completely relieved during that time. Rest breaks, which normally last between five and 20 minutes, are compensable.
Mistake #3: Not paying employees for waiting time
Employees who show up for work, but then must wait around for something to do, must be paid for that time. Example: Call center employees for Teleperformance USA who spent time waiting for work areas to become available after their shifts started had to be paid for that time.
Mistake #4: Not paying employees for travel time
Employees’ commuting time isn’t normally compensable. This is true even if employees go from home to the first job of the day and return home after the last job of the day. But employees’ travel time to different job sites during the day is compensable. Flip side: Employees who first report to the office and then travel to job sites must be paid for the travel time between the office and the job site.
Mistake #5: Not paying telecommuters for all hours worked
Employees who work from home must be paid for every hour worked. The problem is getting them to keep accurate track of their hours. Judging from their output, you may determine that telecommuters are working longer than their records indicate. Employees who work unauthorized overtime must be paid, but can be disciplined. Work with the IT department to allow managers to monitor telecommuters’ work hours.
Mistake #6: Not combining hours for employees who work at different locations
Employees who work for the same employer, but at different locations during the same workweek, must have their work hours combined and be paid for all hours worked.
Mistake #7: Averaging hours worked during different weeks in a pay period
Employees are paid per workweek — a continuous 168-hour period. Employees who work 50 hours during one week and 30 hours during the second week of a two-week pay period must be paid overtime for the 10 overtime hours worked during the first week. You can’t average hours over those two weeks, which would result in no overtime pay.
Mistake #8: Miscalculating overtime pay
Employees earn overtime at 1.5 times their regular rates of pay. As a general rule, any payment that’s measured by or based on employees’ hours worked, production, or efficiency must be included as part of the regular rate of pay for purposes of calculating overtime. So don’t forget to include the following: shift differentials, bonuses, commissions, and other incentive payments.
The right ways to reduce overtime costs
Eliminate unnecessary overtime hours — along with potential wage-and-hour violations — by taking the following steps.- Find and fix inefficiencies in employees' time management skills.
- Evaluate employees' skill sets. Ideally, employees are working on tasks at which they are the most skilled and can complete in the most efficient and timely manner.
- Check that workloads are reasonable and balanced, especially if your company has recently gone through a downsizing. Determine whether deadlines can be lengthened, tasks can be reassigned for maximum efficiency, non-essential tasks can be eliminated, or processes can be tightened.
