Cracking The Overtime Code

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If there is one law that gives employers fits—especially heating and air conditioning contractors—it is the Fair Labor Standards Act, the federal minimum wage and overtime law. The FLSA, as it is commonly known, was passed in the 1930s so it has been around for a long time. In actuality, the law itself is fairly simple: with some exceptions, all workers must be paid at least minimum wage (currently $7.25 an hour) and—with many exceptions—workers must be paid one and one half times their regular hourly rate when they work more than 40 hours in a week. As the expression goes, the devil is in the details—and it is the details of the FLSA that make it a tough code to crack.

Most employers who sell, install, or service HVAC equipment are subject to the FLSA. To be covered under FLSA an employer must:

• Have at least two employees
• Have at least $500,000 in revenue
• Engage in “interstate commerce” – and yes, if you buy parts or equipment that originated out of your state, you are engaged in interstate commerce

Assuming the company is subject to the FLSA, then the next step is to determine which employees are subject to the law, and more particularly which ones are subject to the overtime requirement. (In today’s environment, very few HVAC workers are paid at or near minimum wage so minimum wage is rarely an issue.) And here is where the details get tricky. For an employee to be exempt from overtime, the employee’s duties must satisfy one of the FLSA’s overtime exemptions and the employee must receive a guaranteed weekly salary of no less than $455. The salary amount is not usually a problem—it is the nature of the employee’s duties where the focus usually lies. There are a variety of exemptions under the law but the ones most likely to apply to an HVAC employer are the executive, outside sales, and administrative exemptions. (Other exemptions include occupations such as engineers, certain computer-related professionals, lawyers, doctors, CPAs, and employees involved in artistic endeavors.)

The “executive” exemption applies to managerial employees whose duties include the power to hire and fire employees, or make effective recommendations about hiring and firing, and who regularly direct the work of two or more other employees. Other criteria for the executive exemption include the ability to promote or demote, or resolve employee grievances, or again to effectively make recommendations about such decisions. Also, any employee who earns more than $100,000 a year and who performs non-manual work is presumed to be exempt.

A cautionary note: Some employees perform a combination of managerial and non-managerial duties—a working supervisor, for example. To qualify for the exemption, the employee’s primary duties must be managerial as opposed to duties essentially the same as those supervised.

“Outside sales employees” are also exempt but they must truly sell outside of the work premises. For example, sales people who make phone solicitations would not be exempt from overtime. The exemption from overtime may also apply to sales employees who earn more than half of their income from commissions. Bear in mind that the sales exemption applies to employees whose regular duties are to sell, not to techs and others who may occasionally sell.

The “administrative” exemption applies to employees who would be deemed managers or executives but they do not supervise other employees or do not usually hire and fire. However, their primary duties are nonetheless so vital to the management of the business that their exercise of independent judgment and discretion qualify them for an exemption. Common examples of the administrative exemption are human resources directors and purchasing agents. The key is the exercise of independent judgment and discretion—typically not satisfying the administrative exemption are payroll supervisors or accounts receivables employees; most clerical employees are not exempt from overtime. The employee must do more than simply apply policies or procedures to be exempt. In an HVAC company, a sales manager might not qualify for the executive exemption because the job does not involve hiring and firing but might qualify for the administrative exemption if the position permits exercising independent judgment and discretion in setting prices, negotiating sales, and the like.

HVAC techs are not exempt from overtime. Remember, an employee’s duties must satisfy the criteria for an exemption. Even though highly-skilled, well-paid techs are expected to exercise creativity and problem-solving skills in responding to customers’ needs, their discretion and judgment are limited by their company’s or the industry’s accepted methods for installing and servicing equipment.

Also important to remember is that employees cannot waive their right to overtime. Employees will occasionally prefer to receive a salary and not “punch a clock” but unfortunately the FLSA does not permit an employer and an employee to agree to forgo overtime if the employee is otherwise entitled to overtime. The concern is that some employers might pressure employees into “volunteering” to work extra hours at straight time just to avoid the premium overtime rate.

So, what sorts of challenges does the overtime “code” present to employers? Here are some of the common questions and issues.

When is overtime owed? After 40 hours of actual work in a week. Meal breaks, vacation, sick leave, holidays paid, but not worked, are not included.

What is the overtime rate? One and one half times the employee’s regular rate (“time and a half”). Caution: the regular rate may need to be adjusted to account for commissions and bonuses. And state laws may exceed the federal law! Check with local counsel.

Can I give my employees time off in lieu of paying overtime? No.

What about travel time? Employees need not be paid for commuting to work, even if they are in a company vehicle unless they are working (receiving assignments, checking emails).

How is overtime computed for techs who are paid by the job instead of by the hour? Divide the total weekly earnings by the total number of hours worked in the same week to derive a regular rate. The employee is entitled to an additional one and a half times the regular rate for each hour over 40.

Can an employee waive overtime? No.

Who enforces this stuff? The Department of Labor (DOL) enforces the federal overtime rules. Claims can be brought for unpaid overtime as far back as three years, and an employer can be liable for penalties and attorney’s fees as well.

What about re-do’s where the tech made a mistake and the customer is not being charged? Do they count toward hours worked? In a word, yes.

Do hours spent in training count as hours worked? Generally, yes. Training is usually for the benefit of the employer, is considered work time, and is thus compensable. Training that is purely and completely voluntary is arguably not required to be compensable but an employer risks enforcement action nonetheless when the training benefits the company if the time spent is not compensated.

How about time waiting to go to work—does that count toward the 40 hours? If a tech arrives at a job, ready to work, but for some reason beyond the tech’s control, he must wait to start, the time spent waiting is compensable (assuming of course the employer does not instead instruct the employee to go home).

Is the value of fringe benefits included in the base hourly rate (the regular rate) for purposes of computing overtime? Fringes are not considered part of an employee’s regular straight-time rate and therefore do not figure into overtime computations.

How do I account for “spiffs”? Any bonus which has been promised must be included in the regular rate of pay. Spiffs are promised in that the employer agrees to pay a commission for selling. Since spiffs are usually paid irregularly, the spiff payment must then be apportioned back over the week in which the employee earned the spiff (not when the spiff is paid but when the sale occurred to earn the spiff). If more than 40 hours were worked, then the spiff must be divided by the total number of hours worked in that week, and then that amount is added to the usual rate of pay so as to obtain a new regular rate of pay.

Is overtime ever owed after eight hours in a day instead of after 40 hours in a week? California is an example of a state with a more generous overtime requirement than federal law, and because it is more and not less generous, state law will apply. In the case of California, overtime is owed after eight hours in a day as well as after 40 hours in a week. Companies should always make sure they are aware of any exceptions their state laws may impose.

Is on-call time included in computing 40 hours? On-call time is not generally compensable and therefore not included in computing the 40 hours unless of course the employee is actually called out and must perform work, or the employee is required to remain at the company’s premises, or so close by that his time is not his own.

What records must be kept of time worked? The burden is on the employer to maintain accurate records of hours worked and wages paid. Of course, a time clock or time sheets are easy methods for keeping track of hours worked.

To avoid paying overtime, employers sometimes label workers “independent contractors” instead of employees. But the DOL and IRS have been cracking down on this sort of thing. Consider whether the individual provides his own tools, whether the company tells the individual how to do the job and controls how the work is performed, and whether the individual is performing services that the company’s employees also normally provide.

Most importantly, does the so-called contractor appear to be in business for himself, and does he have an opportunity for profit or loss?

To be sure, overtime rules and regulations are full of traps for the unwary. Many employers find it beneficial to have a periodic “check-up” with an experienced attorney to determine whether their pay practices are in line with the latest developments in the law, both federal and state. ACCA members can submit questions about overtime and other workplace law questions to “Legal Tools” at the ACCA website, www.acca.org. Of course, the best time to find out about an employer’s obligations is before there’s a claim or a dispute.

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Online Extras

[raw][tabs names=”Downloads,Webinars,Ask the Experts”]
[t]ACCA’s e-book The Official Contractor’s Guide to Technician Compensation & Overtime is available for free download — but only for ACCA members![/t]
[t][icon image=”computer” align=”left”] Brooke Duncan led a webinar on technician compensation that’s available here for ComfortU subscribers. Not a ComfortU subscriber? Learn more and sign up.[/t]
[t][icon image=”questionmark” align=”left”] ACCA members can read answers to frequently asked questions about labor issues, including overtime, at the ACCA website here. You can also submit your own general questions for our experts to answer!

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Posted In: ACCA Now, Legal