Agreement to Work Without Overtime Pay Is Unfair and Not Enforceable
- Paying a Set “Salary”. While it is not illegal to pay non-exempt employees using a weekly salary, it does not relieve them from the obligation to pay overtime, even if this was the agreement. This fact is commonly misunderstood. Workers who are paid a salary are still required to be paid an overtime premium, but that premium can vary and must be calculated based on the actual number of hours worked during each workweek. The method used to calculate overtime for salaried non-exempt employees is called the fluctuating workweek method (a/k/a Chinese Overtime) and results in workers being paid an additional “half-time” amount for each hour of overtime in addition to their base salary. Note that under the overtime labor laws in some states, such as Pennsylvania, employers are not permitted to use the fluctuating workweek method of calculating overtime pay.
- Paying Straight Time. This is the most blatant of all overtime pay violations, yet is still seen in numerous offer letters and employment contracts. Offering to pay non-exempt employees the same hourly rate for all hours worked, including those over forty per week, is never legal but usually occurs when a relatively high hourly rate is offered (eg. $25, $30 or $40+). The thinking is that this amount is enough to keep the employee from asking questions and content, while making the payroll calculation easy and saving the employer a lot of money. This pay plan is also used by many staffing companies and temp agencies to whom large companies turn for a variety of highly skilled workers, including shipyard workers, petrochemical workers, CAD designers and many others. While there is an exemption for certain workers who earn over $100,000 per year, it does not apply to workers who are paid hourly with no guaranteed base salary. Even highly compensated hourly workers have a legal right to receive overtime pay.
- Paying a Day Rate. Particularly common among oilfield related employers of all sizes, is the use of a daily rate pay scheme under which workers are paid a fixed amount for each day they work, no matter how many hours they spend working during the day. As with a salary, use of a day rate pay system is not in and of itself unlawful, but it does not allow an employer to escape liability for payment of overtime. Overtime must still be paid when employees exceed 40 hours per week (or in certain states such as California, 8 hours per day), but is calculated using a different process that reduces the total compensation paid, including most bonuses, for all days worked during each workweek to an hourly rate upon which overtime must be paid. The result is that the employee gets paid the agreed upon day rate plus an additional amount for the overtime hours worked during each week.