Human Resources: Wage Policies Are a Trap for the Unwary

An article in a February edition of Tucson Daily Star reported that a local hotel, part of a major chain, had been ordered to pay thousands of dollars in back pay to its employees. The hotel agreed to pay 44 current and previous employees back wages, interest, and damages. The complaint involved intentionally withholding overtime pay. This article reminded me once again of the wage and benefits issues I often encountered in my consulting travels. I fail to understand why some owners and managers are willing to take such huge risks by not following the laws established by the Federal Labor Standards Act (FLSA) and by State Labor laws.

The FLSA protects workers from unfair wage practices by employers. Under the FLSA and similar state laws, many workers have the right to receive the minimum wage, payment for all time worked, and overtime pay calculated at 1.5 times their regular rate of pay for all hours worked over 40 in a work week. When it comes to paying your employees, you MUST know the law and follow it.

As I worked with owners and managers, these were the cases I most often encountered:

• Misclassifying salaried employees as exempt managers, supervisors, administrators, or professionals. Just because you classified an employee as a salaried employee or given them a specific title that sounds like they are exempt does not mean they are not entitled to protection under the FLSA; and such employees may be entitled to overtime depending on the job duties performed.

• Exempt employees are those who hold positions classified as executive, administrative, professional, or outside sales and meet the specified criteria for exemption. Exempt employees must be paid on a salary basis with the exception of certain highly paid computer professionals.

• Nonexempt employees are those who must be paid overtime under the Fair Labor Standards Act. Non-exempt employees may be paid on a salaried or hourly basis.

For base pay programs, employers group jobs into three categories: hourly, salaried-nonexempt, and salaried-exempt. Hourly and salaried-nonexempt must be paid overtime under the FLSA requirements. Salaried-exempt positions are not required to have paid overtime, although some organizations have implemented policies to pay a straight rate for extensive hours of overtime.


Failing to Credit and Pay Employees for All Time Spent Working

In this day of digital time clocks, it should be very straight forward to figure the hours worked and make sure that compensation is complete for those hours worked. For that to be so, employers cannot require employees to perform work before or after punching in or out. All work must be done on the clock. Two other factors are often mistreated in calculating hours worked:

1. When employers do offer short breaks (usually lasting about five to 20 minutes), federal law considers the breaks as compensable work hours that would be included in the sum of hours worked during the work week and considered in determining if overtime was worked.

2. Some state labor laws require that there be a defined lunch break. Employees in those states need to clock out for that lunch period because federal law decrees that bona fide meal periods (typically lasting at least 30 minutes) serve a different purpose than coffee or snack breaks and, thus, are not work time and are not compensable.


Failing to Pay for “Unauthorized” Overtime

An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work. Employees must receive overtime pay for hours worked in excess of 40 hours in a workweek of at least one and one-half times their regular rates of pay. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime hours are worked on such days. On the counter side, there is no federal mandate to pay double time for overtime on holidays. That is a matter of agreement between the employer and employee and not a matter of federal law.

These are other actions that are taken by owners or managers which are clearly attempts to avoid the true cost of labor and can result in penalties if determined to be systematically undertaken:

• Making improper deductions from paychecks causing wages to fall below statutory requirements.

• Failing to include commissions, shift differential pay, and other monetary payments in the overtime calculation for hours worked over 40 in the given work week.

• Using comp time to avoid paying overtime.

• Applying rounding rules that regularly short employees of wages earned.


Bottom Line

Prudent employers who wish to limit their legal exposure should take care to comply with the requirements of hourly, salaried-nonexempt, and salaried-exempt. Just because you have been doing it the same way for so long, it doesn’t mean it is okay to continue. It only takes one disgruntled employee to get you in trouble. For further information, you may want to visit the US Department of Labor website:


Debra Thompson is president of TG & Associates, a consulting firm specializing in Human Resources for the Graphics Industry. Debra can be reached toll free at 877-842-7762 or Visit for help in finding, developing and retaining top performers and the tools to help motivate them for success.