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March 13, 2018 in Employee Related, HR

When Calculating Payroll, Unauthorized Overtime is Bad for Business

If you did not give an employee permission to work overtime but he or she does so anyway, under the Fair Labor Standards Act (FLSA), you must pay the employee overtime wages.

As noted in §785.11 of the FLSA, “Work not requested but suffered or permitted is work time.” The FLSA’s reasoning is that if the employer knew or had reason to believe the employee was working overtime hours then the employee should be paid overtime wages. In addition,§785.13 of the FLSA puts the onus of prevention on the employer, stating that it is management’s job to avoid unauthorized overtime. In other words, it’s up to managers and supervisors to ensure that employees stop working after their scheduled shift has ended.

Even states that have their own overtime laws require payment for all hours worked, including unauthorized overtime.

Avoiding the Pitfalls of Unauthorized Overtime

Unauthorized overtime adversely affects a company in two major ways. First, under federal law, overtime hours must be paid at 1.5 times the employee’s regular hourly wage. Because unauthorized overtime normally is not accounted for in the company’s budget, it puts the employer in the position of compensating the employee for wages it may not be prepared to pay.

Second, unauthorized overtime, if left unchecked, sends the wrong message to employees: that they can work overtime whenever they please, without repercussion.

Establishing an Overtime Policy

The FLSA does not prohibit employers from having a policy that forbids unauthorized overtime, and it does not bar employers from disciplining employees who breach such policies. Therefore, employers should develop a written policy that clearly prohibits unauthorized overtime, because this policy can serve as an effective deterrent.

Details of the policy should be included in your employee handbook, but remember that employees are notorious for skimming, rather than thoroughly reading, company handbooks. Therefore, if overtime is routine in your business, personally reiterate to your employees the company’s position on unauthorized overtime. Consider, for example, sending your employees an e-mail explaining the issue. Additionally, post the policy in conspicuous areas throughout the worksite, including near the timeclocks.

Taking Disciplinary Action

Because you cannot guarantee that employees will adhere to the written policy, you must be prepared to discipline employees who violate the policy. Doing so will send a strong message to the offending employee, as well as would-be offenders, that unauthorized overtime comes with consequences.

Disciplinary actions for unauthorized overtime should be stated in your written policy on unauthorized overtime. Progressive disciplinary actions may consist of written warnings, suspension without pay, and then termination. Depending on the circumstance, immediate termination may be warranted.

Employers are liable for paying unauthorized overtime, no matter the reason it was worked. To avoid legal liability, it’s crucial that you not only establish a written policy but also enforce it in a consistent manner. As the FLSA states, “management has the power to enforce the rule and must make every effort to do so.” Managers and supervisors, therefore, should receive the necessary training explaining how to appropriately enforce the policy.

Contact us today for more guidance on establishing and enforcing your company’s written policy on unauthorized overtime as it pertains to calculating payroll.

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