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The Cost Companies Pay When Not Paying Workers for Overtime

Five to thirteen hours

Employee wages have been a hot-button issue in the news recently, with many pushing to raise the federal minimum wage and others fighting for fair overtime pay. The latter is an issue that the United States Department of Labor (DOL) recently addressed in its proposed rules amending the overtime exemptions of the Fair Labor Standards Act (FLSA).   Specifically, the proposed rules would increase the minimum salary threshold required to be earned by an employee in order to be exempt from overtime requirements of the FLSA thereby making more full-time, salaried employees eligible to receive overtime pay.

According to the Economic Policy Institute (EPI), only 11 percent of salaried workers in the United States were eligible to receive overtime in 2013, compared to 65 percent of salaried workers in 1975, when the salary threshold was initially implemented FLSA. This threshold has only been updated two times in its 40 years, which is why many have argued that the overtime standards that are currently in place have not kept up with inflation throughout the country.

The new rules proposed by the DOL intend to represent a standard similar to what was in effect back in 1975, which the Obama administration has the authority to implement without congressional approval. This means that salaried employees earning less than $50,440 annually will qualify for overtime pay when working over 40 hours in a work week, as opposed to the current salary level of $23,660 annually.  The proposed rules did not include changes to the requirements of administrative, executive, or professional employees that must also be met for such employees to be exempt from the FLSA overtime pay requirements, according to the DOL. This rule is expected to go into effect as early as 2016.

For certain employers, not paying for an employee’s overtime is an intentional oversight. The EPI estimates this kind of wage theft (which also includes things like not paying for an employee’s work-related expenses) amounts to approximately $50 billion per year. But for some, businesses are either too understaffed to handle the meticulous payroll details or are overwhelmed by the amount of data they need to manage. These organizations that are not equipped to stay compliant with the current overtime standards could be in even more trouble if the DOL’s proposed rules amending the standards to make more employees eligible for overtime pay are finalized. These businesses could be at risk for penalties or even, in some cases, a class-action lawsuit.

As a recent TechCrunch article points out, there have been various lawsuits in recent years based on employers allegedly not properly compensating employees for hours they have worked, including one instance where a company ended up paying out $38 million for misclassifying workers as exempt from overtime pay over the course of 12 years.

On top of that, if your business is having trouble keeping track of employee hours and overtime pay, chances are this problem could spill over into employment tax filings. If you have employees working across multiple states, this becomes even more complex and increases your risk of noncompliance even further. By investing in a compliance platform that can help simplify the employment tax reporting process, companies are one step closer to streamlining reporting processes overall.

Click here to learn how ADP SmartCompliance® can integrate with your payroll and HR systems to help you comply with employment tax requirements as rules on salaries and employee compensation evolve.

Learn More About ADP SmartCompliance®


The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice.  The information and services ADP provides should not be deemed a substitute for the advice of any such professional.  Such information is by nature subject to revision and may not be the most current information available.


One comment on “The Cost Companies Pay When Not Paying Workers for Overtime”

  1. Magnificent website. Lots of useful info here.
    I’m sending it to several friends ans also sharing in delicious.
    And of course, thanks for your sweat!

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