Owning and operating a small business requires compliance with a myriad of employment laws. Failing to comply with these laws can result in an expensive lesson. There are many employment law myths that entrepreneurs and small business owners face in the context of overtime and minimum wage laws that can lead to serious consequences if the proper protocols are not put in place.
The federal overtime law applies to employers regardless of the number of employees. So an owner who thinks “That doesn’t include me – I just have a few workers” is sadly mistaken. For example, if the business has at least $500,000 in annual gross revenue, then the overtime and minimum wage laws apply. Even if the business does not have $500,000 in annual gross revenue, the laws can still apply in certain circumstances (and more than likely, your business will be covered by these laws). Moreover, employees cannot waive their right to overtime – period. In fact, in the unlikely event that an administrative assistant/secretary, for example, signs a contract agreeing that he or she will not be paid overtime, that person can still sue for the unpaid overtime. This is why employees sue employers for unpaid overtime or minimum wage violations more often than for any other reason.
Many small business owners wrongly assume that if an employee works overtime without advance approval, in violation of a written policy, the company does not have to pay for that overtime. This is simply not true. A supervisor, manager, or owner who is aware that the employee is working overtime is liable and must compensate the employee for that work. While disciplining the employee for violating the policy may be in order, not paying is not an option. Small business owners, start up companies, and all individuals with an entrepreneurial instinct must maintain good records. In the overtime context, it is the employer’s obligation to keep and maintain accurate time records. A work schedule does not constitute an accurate time record – it’s a start, but the precise times that the work was actually performed is required.
Small business owners may be particularly cost-conscious, but it is never a good idea to require an employee to work off-the-clock or reduce their hours worked to keep labor costs down.
If, for example, your receptionist sues for overtime because of an especially busy time that required her to remain after hours, and there are no accurate time records, the law allows the employee to merely estimate the number of hours worked. This could be as simple as the employee stating that she worked an average of “X” number of hours per week. Moreover, if she recovers even one penny in unpaid overtime, then the business owner more than likely will be required to pay double that amount as a penalty. The overtime law also requires the employer to pay the employee’s reasonable attorney’s fees if the employee wins. However, if the employer wins, in most cases the costs cannot be recouped.
As the owner or operator of a small business, there are numerous things you should know when it comes to overtime for your employees. Among the most important things to understand is that the federal overtime law is an extremely unforgiving law for employers and is almost entirely skewed in favor of the employee. For example, individuals who have the authority to hire, fire, and set pay rates and/or work schedules can be held liable for unpaid overtime and minimum wages, regardless of the type of small business and how it is set up.
Another problem area is misclassifying employees as exempt from the overtime laws, an issue that is not uncommon among small businesses, restaurant owners and start-ups. “Classifying” employees as exempt does not guarantee that the law will see them as such. Paying an employee a salary or giving him or her the “title” of manager does not mean the employee is not entitled to overtime. Being paid a salary simply changes how to calculate the overtime rate. Likewise, only certain types of jobs are exempt from the overtime requirements. For example, if your small business is a local coffee shop that serves food, the head cook or service manager must be paid a minimum salary in order to be exempt; however, being paid a salary alone does not make the cook or manager exempt from the overtime law. Exemptions focus on the employee’s actual day-to-day job duties and responsibilities, and not the job title. A creative employment attorney can assist in determining whether any of the exemptions can be properly applied to different categories of employees.
The best thing small business owners can do to protect themselves is to maintain accurate time and pay records and consult with an attorney who is experienced in labor and employment law.