Give Me a Big Mac, Fries and Overtime, Please!

Article by Dr. Larry Phillips, SPHR, management consultant, educator and author of SPHR: Senior Professional in Human Resources (2nd ed.). He is affiliated with Ergo Resource Management Inc. in Syracuse, Ind.
Jul 2, 2012
Dr. Larry Phillips

You are the owner of a small electronics retail shop and computer repair business located in a strip mail. You have 10 employees (sales clerks and technicians). Your business hours are from 9:00 a.m. to 5:30 p.m. Tuesday through Saturday. To keep it simple, let’s assume that all of your employees are paid an hourly rate of $15 and are on the same schedule (9 a.m. to 5:30 p.m., with a 30 minute unpaid lunch break). There is a fast food restaurant next door where all of the employees usually take lunch. The lunch breaks are staggered so that there is always at least one sales clerk and one technician on duty. Like clockwork, each of your employees leaves for lunch at the scheduled time and returns to work 25 minutes later resuming their normal duties. How much do you pay each employee at the end of the week?

The correct answer, of course, is $600 (40 X $15), isn’t it? Unfortunately, that answer is incorrect!

The correct answer is that each employee is entitled to payment of 42.5 hours for the week and 2.5 hours is payable as overtime because it is in excess of 40 hours per week.

Let me explain.

The Department of Labor (DOL), Wage and Hour Division, enforces the Fair Labor Standards Act of 1938 (FLSA). FLSA regulations require that work breaks under 20 minutes must be “on the clock,” meaning that the employer must pay the employee for that time. Bona fide meal periods of at least 30 minutes are not compensated time. But what about a meal break that falls between 20 and 30 minutes? That question has recently been answered by the DOL in a news release that it issued on April 19. This release announced that an employer in South Dakota had agreed to pay more than $70,000 in back wages because it deducted meal and rest breaks of less than 30 minutes from employees’ total work hours. This is a clarification (many would say a new interpretation) of FLSA regulations. Employers must closely monitor employee break periods, particularly meal breaks, to ensure that breaks less than 30 minutes are counted as hours worked.

How can you protect yourself from claims of unpaid overtime? This presents a bit of a dilemma in both managing the business in terms of serving the customer and in maintaining good employee relations. Luckily in Indiana we don’t have the issue of daily overtime requirements as some states (California, for example) and the federal government does (overtime payments are required after 8 hours of work per day), so we don’t have to necessarily monitor total hours worked each day. We do, however, have to monitor total hours worked in the week.

Assuming that you wish to avoid paying overtime, you must control your employees work hours so that they do not exceed 40 per week. There are a couple of options here. You can issue a policy statement or work directive to all employees requiring them to take a full half-hour lunch break. This would need to be put in writing and presented to all employees. The employees must be placed on notice that violation of this work requirement will subject them to discipline. However, this seems a bit harsh and de-motivating in that it can be interpreted as punishing good employees for hard work. Allied with the promulgation of work requirements could be the installation of some sort of electronic time-keeping system in which management can more accurately monitor employee time. Again this can be a bit problematical because it is both expensive and may be perceived as “big brother” constantly monitoring employees.

Once you are getting accurate information on work time, either from a time-keeping system or from direct observation, then you should mandate that employees quit work after the prescribed number of hours (8 hours per day or 40 hours per week). This, however, could potentially create a production problem in certain types of businesses (i.e., a small cabinet shop where production would be halted for lack of manpower) or a customer service issue in other types of businesses. For example, in our example, if all of the employees had worked their 40 hours by Saturday afternoon, there would be only the owner (YOU) to serve customers for the last 2.5 hours of the workweek and for your business that could be the peak demand period.

You can do nothing and assume that your loyal employees don’t know about FLSA and would never claim unpaid overtime. That is what many managers and owners have done who are now faced with paying thousands of dollars in back overtime to their employees. On the other hand you can be proactive and monitor employee behavior, taking appropriate action as necessary.

IMG Insurance Management Group

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