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Unauthorized overtime: What is it and how to prevent it
Nearly 6 million American workers qualify for overtime pay—and you have to pay them.
On January 1, 2020, the overtime salary threshold increased for the first time since 2004. The change made 1.3 million more American workers eligible for overtime pay. Under the Fair Labor Standards Act (FLSA), nonexempt employees must receive overtime pay. The standard rate is time and one-half their regular pay rate for hours worked over 40 in a workweek.
However, payroll is often a business owner’s biggest line item, and overtime pay adds up quickly. Knowing this, many business owners discourage or prohibit employees from working overtime hours. But what happens when employees work overtime anyway? If that overtime work wasn’t authorized, do business owners still have to pay? To learn more, we turned to four employment law experts.1
Is it illegal not to pay employees for unauthorized overtime?
It is illegal to not pay employees for unauthorized overtime. Under the FLSA, employers must pay overtime wages for any overtime worked—authorized or not. Failing to do so could land you with an expensive and detrimental wage and hour lawsuit.
It’s not illegal to put overtime policies into place that prohibit unauthorized overtime at your company. And it’s not unlawful to penalize or terminate employees who break company policies consistently.
Can employers refuse to pay unauthorized overtime if they have a policy banning it?
Our experts recommend creating and implementing an overtime policy to curb unauthorized overtime and overtime costs. But no policy prohibiting unauthorized overtime can relieve employers of their legal obligation to pay employees the correct wages for all hours worked.
“It’s not about policy,” says Miles. “It’s about the requirements of the FLSA.”
Are there situations in which employers do not have to pay unauthorized overtime?
Yes, there are rare instances where employers don’t have to pay unauthorized overtime. But our experts say these instances are few and far between. And they’re hard to prove.
“If the employer knows or has reason to know of the overtime, then the employer must pay for the overtime,” says Miles. But if an employee is working in secret and their employer truly has no knowledge of the overtime, “the employer may have a valid defense for refusing to pay.”
But Mulroy advises employers to pay up anyway. “The facts are often ambiguous, in respect to what the employer should have known,” he says. “Typically, attorneys advise employers to pay them overtime and treat the matter as a disciplinary issue.”
What are the penalties for failing to pay unauthorized overtime?
Employers who fail to pay for overtime worked may owe employee back wages, liquidated damages, and even the employee’s legal fees. Additionally, the Department of Labor (DOL) has the power to issue penalties for repeated or willful violations.
“Typically, these fines are $1,000 per violation,” says Mulroy. “A violation is defined as each employee who was shortchanged on overtime.”
“Repeat offenders can expect to pay even higher penalties, including criminal penalties,” warns Miles. And state agencies can impose additional penalties based on state laws. It’s a lot more expensive not to pay and get caught than it is to pay the overtime, he summarizes.
How can employers curb overtime costs and unauthorized overtime?
Experts agree that a solid time-keeping and overtime policy is the key to preventing unauthorized overtime.
“Employers should take steps to make sure that employees record and report all work time to supervisors,” says Miles. But be sure to follow through.
“Train managers and supervisors on budgeting and managing overtime,” advises Rotman. “Direct them to monitor time worked to ensure that overtime is not being abused or occurring without authorization.”
From there, Mulroy recommends creating and implementing an overtime policy. The policy should clearly state a few key things.
- How much overtime employees are authorized to work.
- How employees can get overtime authorized.
- What will happen if employees ignore the policy.
“Reminders of this policy should be published periodically,” Mulroy says. “Conduct frequent audits to ensure you pay more than lip service to these safeguards.”
Can employers discipline employees for working unauthorized overtime?
Yes. When employees work unapproved or unauthorized overtime, employers can penalize them. “Employers can, and they should,” says Rotman.
Employers are well within their rights to discipline or even terminate employees who violate company policies. But Mulroy recommends taking steps to change the employee’s behavior instead of jumping to immediate termination. And employers should document all disciplinary actions thoroughly.
Will an overtime policy protect employers from wage and hour disputes?
An overtime policy can protect employers against wage and hour disputes. But the policy must be clear, compliant with FLSA regulations, and implemented consistently.
“It’s always good business practice to have an overtime policy in place,” Hart said. “However, it does not protect the business if the business does not implement the policy or applies it willy-nilly.”
For example, if two employees are doing the same job, one cannot be allowed to work overtime while the other isn’t. “It’s fine for [them] to have different wages,” explains Hart, “but it’s not fine if one employee gets preferential treatment.”
What to include in your overtime policy
Your overtime policy should state when you allow overtime, how to get overtime authorized, and what happens when workers ignore the policy. It should include clear instructions and consequences for employees, managers, and supervisors.
Additionally, Mulroy says, the policy should explain to managers “in strong terms” that they must report all overtime. “Any statement that no overtime should be incurred does not mean that the manager should write time off or ignore hours worked,” he said.
“Employees who are working after quitting time should be asked to explain why they are still at work,” Mulroy continues. And if the work can wait, a manager should send the employee home.
All policies should be clear, concise, and compliant with FLSA and state regulations. If you’re not sure if your overtime policy is compliant, you may want to consult a legal expert.
When to create your own policy or seek legal help
Employers can create their own overtime policies using helpful online HR resources like the Society of Human Resources Managers (SHRM). Our experts recommend business owners write the first draft before seeking help.
“As an attorney, it saves me time if a client drafts their own policy first and then gives it to me to review,” says Hart.
From there, it’s a good idea to get your overtime policy reviewed by a qualified attorney who specializes in employment law. “If the policy is super complicated, it might be worth it to invest in an attorney to help you craft those policies,” Hart says.
Best practices for implementing your overtime policy
Remember, overtime policies are only effective when you apply them consistently. So “have consistent and clear discussions with managers and employees,” says Hart. They should all be on the same page when it comes to enforcing and abiding by overtime rules.
Many business owners make the mistake of discussing the overtime policy and employee expectations during onboarding—and never again. Employees get a lot of new information during this time and can forget specifics.
To rectify this, Hart recommends having overtime discussions with your entire team periodically. Schedule these discussions, so workers know to expect them. Finally, managers should enforce policies uniformly to avoid favoritism and discrimination claims.
Common overtime policy pitfalls
The most important thing is “make sure you tie your policies to a legitimate business need,” says Hart. Failing to do so could result in discrimination allegations. “Typically, wage and hour disputes are wrapped up in other allegations,” she says, “most often discrimination.”
To avoid this, make sure your policies are task-oriented and uniform. “Avoid anything that could be discriminatory,” Hart warns.
What can employers do to make sure they’re complying with overtime laws?
Keep a close eye on employee hours worked and pay rates—and consider reclassifying nonexempt employees. Ask yourself four important questions.
- Are my employees close to the overtime threshold?
- Could a small salary increase turn those employees into exempt employees?
- Would an annual bonus push them over the threshold?”
- Have I misclassified them in the first place?
Employee classification is a complex subject. And it’s something employers get wrong a lot. Employee misclassification is a major FLSA violation and can result in a detrimental wage and hour lawsuit. Hart recommends consulting an employment attorney or accounting expert to ensure your employee classifications are correct and your overtime policy is compliant.
Does every employer need to comply with overtime rules?
For the most part, yes. The FLSA applies to employers with at least two employees and $500,000 per year in business volume. “However, individual employees may still be covered, even if the employer is not,” Mulroy warns.
To be covered individually, the employee must work in “interstate commerce.” Interstate commerce includes producing goods that will be sent out of state and placing telephone calls to people out of state.
“Few employers and employees will fall outside of that range,” Miles says. “And those who do will likely face similar wage and hour laws and regulations from the state in which they operate.”
Few employers fall outside the Department of Labor’s jurisdiction. And even if they do, they still have to abide by state regulations. If you have employees, you have to comply with overtime laws.
Meet the experts
Maria O. Hart
Maria O. Hart is a member of the Litigation, Trials, and Appeals practice group at Parsons Behle and Latimer. Hart’s practice focuses on commercial litigation and business law. She has experience representing businesses and individuals in Idaho and Montana. Her practice involves litigation in both federal and state court, pursuing or defending issues related to healthcare law, employment law, and general commercial matters.
Staci Ketay Rotman
Staci Ketay Rotman, shareholder at Littler Mendelson PC, advises and represents employers in all aspects of labor and employment law. She represents clients before federal and state courts and administrative agencies, as well as in arbitration proceedings. Staci has experience with class actions, multi-plaintiff litigation, TRO/preliminary injunctions and trials. She uses her litigation experience to counsel employers on how best to achieve their business objectives while minimizing the risks of litigation. She also advises and represents employers on the FLSA and related state statutes, ranging from worker classification audits to claims alleging unpaid wages.
Philip Miles is an attorney with McQuaide Blasko. Since joining the firm, Philip has concentrated his practice on labor and employment law. He and the firm's labor and employment law team represent clients ranging from individuals to small businesses to employers with thousands of employees. Miles also publishes an independent employment law blog featuring commentary on cases, current events, and other developments in employment law.
James R. Mulroy
James R. Mulroy is the Office Managing Principal of the Memphis office of Jackson Lewis P.C. He has more than 30 years of trial and litigation experience, and he has represented clients in dozens of labor and employment cases. He counsels clients on a spectrum of employment-related issues, including FLSA compliance.