Tuesday, June 15, 2010

OVERTIME - The Law Applies, Even with a Salary

from Breedlove & Associates

In the past three weeks, Breedlove & Associates have encountered more overtime disputes than they did in the previous three years. As they analyzed each case, they realized one thing in common: the families offered a salary. There is, of course, nothing wrong with offering a salary - the law provides latitude for families to pay on either a salary or an hourly basis. However, the term "salary" means different things to different people. In each of our recent overtime cases, these different definitions led to miscommunication between agency and family about overtime pay requirements for salaried employees. Given the costly nature of overtime mistakes and the fact that there is no statute of limitations for overtime disputes, it is extremely important for agencies, candidates and families to fully understand the law. The good news: these expensive legal problems are easy to prevent with a little knowledge and discipline.

The Mistake    
A family hired a nanny and offered to pay her a salary of $720 per week for a work-week that was expected to be 45 hours ($16/hour x 45 hours = $720). The employee was happy with this compensation arrangement and agreed to the salary. The nanny was paid at this rate for three and a half years.On occasion, the employer asked the employee to work some "extra hours" for babysitting and overnight stays. They agreed that these hours would be paid at the $16/hour rate.

The Law

According to the Fair Labor Standards Act, household employees are considered "non-exempt" workers - meaning they are protected by overtime law and must be paid at a rate that is 1.5 times the regular rate of pay for all hours worked over 40 in a week. (All includes "extra" duties such as overnight stays, babysitting on date night, etc.). The law applies regardless of compensation structure (salary or hourly).
Conversely, most families that hire nannies are employed in occupations that are considered "exempt" - meaning their occupation is not protected by overtime law because it is considered to be "highly compensated" and not prone to worker abuse. Exempt workers are typically paid the same salary regardless of how many hours they work.This apparent double-standard creates the common misperception that nannies do not have to be paid overtime if they are paid a salary. In fact, it's the occupation - not the pay structure - that determines overtime requirements.Therefore, the employment agreement in this case is illegal. Since the nanny and family had agreed to a salary of $720 for 45 hours/week, the legal way to structure this arrangement would be to delineate the regular and overtime rates of pay within the agreement.
For instance:"The compensation of $720/week is based on 40 hours at the regular rate of $15.16/hour    and 5 hours at the overtime rate of $22.74/hour. Any additional hours per week will be paid at the overtime rate of $22.74."
IMPORTANT NOTE: In order to stand up in the court of law, this agreement MUST be in writing and MUST be signed by the employee.

The Mess

Two years after she left the family for another job, the nanny lost her job and began collecting unemployment. During her unemployment, she read a nanny blog talking about overtime and realized her former employer had not paid her correctly. Feeling squeezed for money, the nanny filed a wage dispute seeking payment of $7,880, based on 985 hours of overtime during her employment (the overtime rate should have been $24/hour; since they only paid $16/hour, she was underpaid by $8 for every hour of overtime - $8 x 985 = $7,880). The family defended the compensation by reminding the nanny that she had agreed to a flat salary of $720 per week and $16/hour for extra hours. They even emailed a copy of the employment agreement showing the nanny that they had lived up to their end of the agreement. In the email, the family made it clear that they were being generous to pay her anything for the occasional "extra hours" since they themselves worked extra hours at their jobs without any additional compensation.The nanny responded by saying that a lawyer told her the employment agreement was illegal, and therefore, she was entitled to the compensation.

The Outcome

After some research and legal counsel, the family realized the nanny was indeed entitled to the overtime pay. They paid her $7,880.The family joined Breedlove & Associates to make sure that their new nanny was being paid properly. They divulged that they had found their former nanny using an online agency. Although they did not talk to anyone about overtime, the online agency had provided some information on several legal topics - including overtime - but they had dismissed it because "we offered a salary and so it didn't seem relevant to us."

How the Whole Thing Could Have Been Avoided
This case illustrates just one of the many nuances associated with the household employment industry and how easy it is for simple misperceptions to evolve into expensive, frustrating legal problems. It also underscores the value and importance of personal guidance. A diligent placement counselor would have walked the family through the overtime law - and other danger areas - to prevent this kind of mistake and ultimately save thousands of dollars.Breedlove & Associates team of tax and labor law experts is available free of charge.

For more information please call 888-BREEDLOVE (273-3356) or visit http://www.breedlove-online.com/  

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