As a general rule, employees are entitled to overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked over forty in a week. 29 U.S.C. §§ 206, 207(a)(1); 820 ILCS 105/4a. In certain limited circumstances, employers are not required to pay overtime to workers. This occurs when the employee is classified as exempt from overtime payments. The most common type of exempt workers are for executive, professional, computer, and outside sales employees. The majority of employees are non-exempt, and thus entitled to overtime payments for all hours worked over forty.
Salary Exemption Test
For executive, administrative, and professional employees, an employer must satisfy a three-part test to determine whether the employee is exempt from overtime:
- The employee must be paid on a salary basis;
- The salary must be not less than a certain amount; and
- The employee’s actual job duties fit within one of the limited exemption classes.
All three tests must be met for an employee to be classified as exempt under the executive, administrative, and professional exemptions. Otherwise, he or she is entitled to overtime for all hours worked over forty in a given week.
1. Salary Basis
The first step is the worker must be paid “on a salary basis.” As defined by federal regulations, this means under the employment agreement the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.118(a). In other words, the employee is paid a given amount, whether weekly, bi-weekly, semi-monthly, or other regular pay period, without regards to the amount of hours or work actually performed. An employee paid based on the number of hours worked is non-exempt and entitled to overtime.
2. Salary Threshold
Not only must the employee be paid on a salary basis, but the employee must be paid a certain amount to be considered exempt under federal and Illinois law. Since 2004, the salary threshold for exemption has been $455 per week ($23,660 annually). Accordingly, even if an employee is paid on a salary basis, and the job duties fit within one of the exempt category, the employee is entitled to overtime if the salary is less than $23,660 per year.
On May 23, 2016, the Department of Labor announced a new final regulation, significantly raising the salary threshold to $921 per week ($47,892 annually) for executive, administrative, professional, outside sales, and computer employees. The new rule was set to go into effect on December 1, 2016. However, a federal district court judge in Texas stayed the implementation of the new overtime rule. The Department of Labor immediately appealed the Judge’s ruling, which is pending in the Fifth Circuit Court of Appeals. As of right now, the salary threshold remains $455 per week until an appellate court rules otherwise.
3. Employee’s Job Duties Fit Within Exempt Category
The third test is whether the employee’s actual job duties fit within one of the defined exempt job classifications. In evaluating if an employee’s job duties can be classified within one of these categories, one is to look at the employee’s primary duty. For example, for an administrative employee to fit within the nonexempt category, the individual’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Keep in mind the federal and state laws and regulations define whether an employee is entitled to overtime – not the employer. Therefore, if you believe you may be improperly classified as an exempt employee, reach out to a wage and hour litigator immediately.
Types of Unpaid Overtime Cases
There are several different ways businesses can fail to abide by their overtime obligations. These include misclassification, off-the-clock, and improper calculations classification
Misclassification occurs when an employer improperly classifies an employee as exempt from overtime. The company may intentionally misclassify the employee as exempt to avoid necessary overtime payments, or may reasonably, although incorrectly, believe the employee is exempt from federal and state mandated overtime payments. Regardless of the reason, the misclassified employee is entitled to recover his or her unpaid wages, along with other types types of damages.
Employers often run afoul of overtime requirements by failing to include all time worked by an employee in determining how many overtime hours the employee worked. A common situation involving off-the-clock working involves the situation where the employee is required (and sometimes automatically) to clock out during lunch time, and is not permitted to include this time in determining total time worked for the week. This may be acceptable if the employee enjoys a bona fide lunch break, whereby the employee is not required to actually perform any work during the break. However, it is often the case that employees are required to perform work during their unpaid lunch break, such as answering phones, responding to supervisor’s questions, and sending and/or responding to work emails. If the employee performs work during their unpaid lunch break with the knowledge of his or her employer, it is likely compensable working time under state and federal law.
Another common and increasingly prevalent situation involving off-the-clock work is employees remotely performing work using email and cell phones during non-scheduling work hours. In the ever-mobile world, companies increasingly want workers to be available night and day. While this is generally legal, all work performed by individuals outside of their normal scheduled work hours must be included in their overtime calculation. This is the case even if the employee occasionally checks and responds to emails, text messages, or phone calls.
Improper Overtime Calculations
Another way businesses skirt overtime obligations is by accounting for time worked over forty hours, but failing to account for it properly. For example, sometimes business (often restaurants) will pay individuals for over of forty worked in a week, but pay the employee the regular pay rate instead of one and one-half (1 ½) the regular rate of pay. If an employee is nonexempt, any agreement to withhold appropriate overtime payments is legally unenforceable. These illegal payments are often paid in cash to avoid taxes and other obligations.
An individual who prevails in an unpaid overtime lawsuit against his or her employer is entitled to different types of damages under state and federal law. Under both the FLSA and Illinois law, the employee is entitled to recover the unpaid overtime wages, the costs in bringing the lawsuit, and reasonable attorneys’ fees. Both federal and state law also include a penalty designed to incentivize businesses to pay their employees properly. Under the FLSA, the employee is entitled to liquidated damages in the amount of any unpaid overtime wages if he or she can show the employer used good faith in attempting to comply with their overtime obligations. Under Illinois law, the employee is entitled to a penalty in the amount of 2% of the amount of the unpaid overtime for each month following the date payment was due.
Illinois Labor and Employment Attorney
If you think you may be owed unpaid overtime for any reason, call, email, or message Osborne Employment Law today for a free consultation. Keep in mind regardless of the employment attorney you consult, it is best to consult with an attorney as soon as possible to avoid losing any claims to the statute of limitations. Under the FLSA, an employee generally has two years to file a lawsuit for unpaid wages, or three years if the violation is shown to be willful. 29 U.S.C. 255(a). Under Illinois overtime law, the employee generally has three years from the date of the underpayment to file suit. 820 ILCS 105/12.