That promotion to manager you just received feels fantastic. You’re now on salary, so your pay will be consistent, and the extra hours you’re expected to work are worth it. Or are they? You might be surprised to learn that employers are increasingly mislabeling non-managerial employees as managers to avoid federal overtime wage rules. Here’s what you need to know.
When Must You Receive Overtime?
Employers must pay overtime at a time-and-a-half rate to hourly workers after they work 40 hours in a week, and to most salaried workers whose salary is below about $35,500 a year. Companies can avoid paying overtime to salaried employees who are managers that make more than that amount.
A recent paper published by the National Bureau of Economic Research describes how companies are increasingly paying salaries just above the federal threshold while at the same time mislabeling workers who have no real management responsibilities as managers to avoid the overtime requirement.
According to the paper, manager titles in a large job posting database were almost five times more common among workers who were at or just above the federal salary threshold for mandatory overtime than those among equivalent workers who fell right below the threshold.
The authors of the paper estimate that mislabeling workers as managers to deny overtime costs workers approximately $4 billion per year, an amount that equals about $3,000 per mislabeled employee. The paper indicates that companies that are struggling financially are more prone to misclassify workers as managers than are those on solid financial ground. The practice is most common in industries that traditionally pay low wages, such as retail.
Litigation
Lawsuits over alleged overtime avoidance are not uncommon. The authors cite a class-action lawsuit against Family Dollar Stores filed in 2008. In the suit, 1,424 store managers alleged that they performed only occasional managerial duties. The “managers” spent 60 to 90 hours per week doing non-managerial tasks like “stocking shelves, running the cash registers, unloading trucks, and cleaning.” Ultimately, the employees were awarded $35.6 million for unpaid overtime.
In 2010, Staples agreed to pay $42 million to settle several lawsuits alleging mislabeled workers as “assistant store managers” to avoid paying overtime.
In 2017, JPMorgan Chase agreed to a $16.7 million settlement payment after a lawsuit that alleged it misclassified assistant branch managers at some of its retail bank locations, failing to pay them for overtime.
Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) is the federal law that regulates how employees must be paid. To qualify as exempt from overtime requirements under its executive exemption, the exemption that outlines the definition of a manager, an employee must:
- Be compensated at a rate of at least $684 per week on a salary basis
- Have the primary duty of managing the enterprise or managing a customarily recognized department or subdivision of the enterprise
- Customarily and regularly direct the work of at least two or more other full-time employees or their equivalent
- Have the authority to hire or fire other employees, or have influence in the process of hiring, firing, advancement, promotion, or any other change of status of other employees
What To Do if You’re Owed Overtime
The U.S. Department of Labor has an Overtime Security Advisor application that provides employers and employees with information to understand Federal overtime requirements.
You can file a complaint with the Wage and Hour Division (WHD) of the U.S. Department of Labor if you feel you are not in the appropriate wage category.
The WHD also recovers unpaid wages on behalf of employees after violations occur. You can check if you are owed back wages collected by WHD by searching their database containing the names of workers for whom they have collected money.
Federal labor laws are complicated. In addition to taking the steps outlined above, if you believe you have been misclassified as a manager and are owed overtime wages, consider contacting a knowledgeable employment law attorney to shepherd you through any legal requirements for recovery.
Related Resources:
- Find an Employment Law Attorney Near You (FindLaw’s Lawyer Directory)
- Learn More About Wage and Hour Laws (FindLaw’s Learn About the Law)
- Wage Theft Is Increasing. What Can You Do? (FindLaw’s Law and Daily Life)
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