Salaries DON’T cover overtime wages!

Employers often pay their employees on a fixed weekly or monthly salary on the mistaken belief that it covers all overtime hours worked by their employees. However, starting in 2013, the law is clear that salaries do not cover overtime wages. And, all overtime wages will be calculated on the legal hourly rate based on the salary. So, what does all of this mean? Employers who pay their nonexempt employees fixed salaries are required by law to pay overtime wages on top of the salaries or face significant liability later.

For example, if a nonexempt employee who received a $700 weekly salary and worked 55 hours a week for four years, the unpaid overtime wages will be calculated as follows:

1. The legal hourly rate is caculated by dividing the weekly salary of $700 by 40 hours, which equals $17.50
2. Multiply the hourly rate by the number of weekly overtime hours (in excess of 40) and overtime rate (1.5), and then multiply that by the number of weeks and years.

$17.50 X 1.5 X 15 OT hours X 52 weeks X 4 years = $81,900.00

In addition to the above unpaid overtime wages, an employee can also seek to recover thousands of dollars in penalties as well as interest. The above is just a conversative simplified calculation of a sample unpaid overtime wage case. There may be cases where the employee worked double time hours and may be entitled to a significant amount of money from the employer. However, if the employee is exempt from the laws requiring overtime wages, then the above would not apply. To learn more about whether an employee is exempt or nonexempt, please review the IWC Wage Orders at the DLSE website, or contact Thomas M. Lee for a free consultation by phone.