July 16, 2018, Vol. 3
by Marc Campsen

OVERTIME: “The Basics” and Not So Basic Information

Federal and state laws require employers to pay overtime to their employees unless they fall within defined exemptions. As a result, employers must be aware of existing overtime obligations and stay abreast of any changes on federal, state and local levels to avoid steep monetary penalties. Recently, a federal magistrate judge commented to me that nearly 1/3 of all cases in her courthouse scheduled for settlement conferences deal with wage and overtime violations. This is a startling number that likely equals hundreds of cases and indicates that many employers are violating the relevant overtime law, probably unknowingly.

As a starting point, under the federal Fair Labor Standards Act (“FLSA”) and Maryland law, employers must pay overtime to non-exempt employees in an amount equal to 1½ times the employee’s regular rate for every hour worked over 40 in a single week. Maryland, however, does not recognize all the federal exemptions. Certain employees may be exempt from the FLSA but not Maryland overtime law.

How does an employer calculate a regular rate for non-exempt employees to determine the overtime rate? The most common regular rate is an employee’s fixed hourly rate. If an employee is paid $10/hour, that amount is the employee’s regular rate and the overtime rate is $15/hour ($10*1.5). This is the most common and most easily understood overtime scenario employers face.

Two less-common, but still prevalent, payment methods cause a disproportionate amount of confusion and overtime pay violations – fixed day rate and fixed weekly rate.

An employee is paid a fixed day rate if the employee receives a flat sum for a single day’s work without regard to the number of hours worked in the day and if the employee receives no other form of compensation for services.   Overtime violations occur under this payment method when an employee works more than 40 hours/week but is paid only the fixed day rate. To avoid this problem, the employer must undertake the time consuming task of calculating each non-exempt employee’s regular rate by adding each fixed day rate paid during the workweek and dividing that sum by the total hours actually worked. Because a day rate employee is paid for every hour worked under this calculation, the employee is only entitled to additional “half-time” compensation for overtime hours instead of time-and-a-half. The “half-time” rate is determined by halving the regular rate. This complies with the FLSA and Maryland law because once the additional “half-time” is added to the regular rate, the employee will receive the full overtime rate for the overtime hours worked.

I recently represented a fairly large employer that used the fixed day rate calculation and failed to pay tens of employees overtime pay. As a result, over thirty employees joined together and filed a collective action against the employer (similar to a class action). The employer was forced to recalculate its employees’ weekly hours and corresponding overtime for the previous several years and pay out approximately double the unpaid overtime totaling hundreds of thousands of dollars.

Very similar to the fixed day rate scenario, an employee is paid a fixed weekly rate if the employee receives a flat sum for a workweek without regard to the number of hours worked, this is also know as a “fluctuating workweek.” In other words, the employee receives a flat weekly sum whether he/she works 10 hours or 45 hours per week. However, in the latter scenario, the employee is also entitled to additional overtime pay for 5 hours. To determine overtime pay, as in the fixed day rate scenario, the employer must first determine the employee’s regular rate by dividing the fixed weekly sum by the total hours actually worked. Again, because employee is paid for every hour worked during the week under this calculation, the employee is only entitled to additional “half-time” compensation for overtime hours.

Of course, in both payment scenarios, employee’s regular rate may vary by week if the employee’s weekly hours vary by week. This can create serious headaches for an employer, especially where multiple employees are involved, because the overtime calculations can vary by week and may require two separate calculations for a single two-week pay period. Additionally, employers must be careful that the day rate or weekly rate, when divided by the total hours, also complies with the applicable federal and state minimum wage laws.

Finally, the penalties under the FLSA and Maryland law for overtime violations are harsh. Under the FLSA, a violating employer is generally required to pay double the unpaid overtime wages – the amount in unpaid overtime wages and a penalty equal to the amount of unpaid overtime wages. Under Maryland law, if there is no “bona fide dispute” that the unpaid overtime wages are owed, the employer may be obligated to pay up to three times the amount of the unpaid overtime wages. Importantly, simply because an employer misunderstood or was ignorant of the overtime laws does not prevent a violation. Employers should also understand that their liability for unpaid overtime generally extends back two years under federal law and three years under Maryland law. Also, under both the FLSA and Maryland law, an employer is obligated to pay the employee’s attorneys’ fees incurred in recovering unpaid overtime wages.

In sum, properly calculating overtime wages can be extremely complicated and time consuming but the monetary consequences for failure to follow the relevant federal and state laws can be so severe that an employer may be unable to continue operating if found liable.

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About The Author:

Marc A. Campsen is an attorney at Wright, Constable & Skeen, LLP, where he focuses his practice primarily on litigating employment and business law matters. He is recognized as a Maryland Super Lawyer.

DISCLAIMER: The materials available on this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.

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