Is "guaranteed overtime" legal?

[ash01]

What is the name of your state (only U.S. law)? Los Angeles, California

To work around the new Federal law, the company has reclassified most of us as "non-exempt". We were salaried employees with an annual wage. What they did was give us a very low hourly wage, with X hours of "guaranteed overtime" each day, such that they have a buffer and our annual wage stays the same. Is this legal?

Extra info: it is not in the contract but we are supposed to get all the benefits of a typical full time employee such a sick time, vacation time, etc.

I'm asking more out of curiosity as I haven't heard of this being done before.

 

[Zigner]

What is the name of your state (only U.S. law)? Los Angeles, California

To work around the new Federal law, the company has reclassified most of us as "non-exempt". We were salaried employees with an annual wage. What they did was give us a very low hourly wage, with X hours of "guaranteed overtime" each day, such that they have a buffer and our annual wage stays the same. Is this legal?

Extra info: it is not in the contract but we are supposed to get all the benefits of a typical full time employee such a sick time, vacation time, etc.

I'm asking more out of curiosity as I haven't heard of this being done before.

What new federal law are you referring to?
So long as you are paid at least minimum wage for all hours worked, with time-and-a-half for hours worked over 8 hours per day and also for hours worked over 40 hours per week, then this would seem legal.

 

[cbg]

It is always legal to classify an employee as non-exempt.

It is always legal to pay an employee by the hour. It is not always legal to pay an employee on salary.

If they want to treat you as non-exempt, they can, even if you qualify as exempt. However, if they do so, they need to follow non-exempt rules. That means that you do not have to be paid for any time that you do not work, but you also have to be paid at the rate of time and a half for any hours over 40 in a week. That's hours WORKED in a week - not hours PAID in a week. Vacation, sick, holiday and other paid leave does NOT get applied to overtime.

If their new policy results in your being paid no less than minimum wage (the higher of state or Federal, if different) per hour AND overtime at the rate of time and a half for all hours worked over 40 in a week, then it's legal. If it doesn't, then it isn't.

FYI, the new laws do not go into effect until December. But the same applies after they do.

 

[Zigner]

If their new policy results in your being paid no less than minimum wage (the higher of state or Federal, if different) per hour AND overtime at the rate of time and a half for all hours worked over 40 in a week, then it's legal. If it doesn't, then it isn't.

Not a disagreement - just a point of clarification. This thread is about CA. O/T applies after >8 hours per day and after >40 hours per week. (I know you know this - this is for others )

For example. If you work 3 days at 9 hours per day and then you take the next two days off, then you are entitled to 24 hours of regular pay and 3 hours of overtime pay. If you work six days at 8 hours per day, then you are entitled to 40 regular hours and 8 overtime hours.

 

[cbg]

Good point. I overlooked the state. I was at work and in a hurry. Thanks for the catch.

But the main point still applies.

 

[tranquility]

Not a disagreement - just a point of clarification. This thread is about CA. O/T applies after >8 hours per day and after >40 hours per week. (I know you know this - this is for others )

For example. If you work 3 days at 9 hours per day and then you take the next two days off, then you are entitled to 24 hours of regular pay and 3 hours of overtime pay. If you work six days at 8 hours per day, then you are entitled to 40 regular hours and 8 overtime hours.

Unless, of course, you are an executive, administrative or professional employee. (Or, any of a number of exemptions.)

I suspect many previously "salaried" employees might qualify under that basic exemption.

 

[Stephen1]

The change to the Federal regulation (effective 1 Dec 2016) expands who has to receive overtime pay. As far as I know there is no federal or state regulation restricting how many hours an employer may work you (I've heard of a few exceptions such as truck drivers and some nurses). The only requirement is that the employer pay overtime for non-exempt employees working the longer hours.

So as I see it, your employer has figured out that under the new regulation that you will have to receive overtime pay. They don't want to pay you more total dollars than you currently make so they worked the calculations backwards, looking at the number of hours they have always expected you to work, to know how many hours (regular plus overtime) at what pay rate will result in the same bill for the employer. Now they want you to work the same number of hours and take home the same pay.

Nothing illegal here. Your choices are to work the same number of hours as before (only you now get paid for each and every one) or to find other employment.

 

[cbg]

But in this case, the employees are being reclassified as non-exempt. Which is legal. Always.

An exempt employee can always be classified as non-exempt; the reverse is not true. But, having chosen to do that, the employer needs to make sure that the employees receive the appropriate pay per non-exempt FLSA rules.

 

[ash01]

So as I see it, your employer has figured out that under the new regulation that you will have to receive overtime pay. They don't want to pay you more total dollars than you currently make so they worked the calculations backwards, looking at the number of hours they have always expected you to work, to know how many hours (regular plus overtime) at what pay rate will result in the same bill for the employer. Now they want you to work the same number of hours and take home the same pay.

You got it right, except I don't have to work overtime to get paid overtime.

Thank you everyone! I appreciate the help! I needed to be sure that it isn't something shady. I talked to HR and this seems to just be a procedural thing and doesn't impact anything else.

I basically get paid the same each month as when I was salaried. They reverse calculated/engineered the possible hours of work and "prepaid" for over time. If I work 40 hours or less, they will still pay me 40 hours + "guaranteed overtime". Extra overtime is highly unlikely since it requires me to be at work for more than 13/14 hours a day (I don't work in i-banking so my hours are decent!).

^^^ Prime example of how to have non-exempt employees that essentially function as exempt/salaried employees (to a certain extent). Of course the reason they can do this is because even after prepaying for daily overtime, the hourly wage is still above min wage.

 

[CdwJava]

Not a disagreement - just a point of clarification. This thread is about CA. O/T applies after >8 hours per day and after >40 hours per week. (I know you know this - this is for others )

For example. If you work 3 days at 9 hours per day and then you take the next two days off, then you are entitled to 24 hours of regular pay and 3 hours of overtime pay. If you work six days at 8 hours per day, then you are entitled to 40 regular hours and 8 overtime hours.

Well ... there are exceptions to this rule, too. (For instance, cops, nurses, others who work odd hours/schedules ...)

Here is some more info and links to exceptions and exemptions:

http://www.dir.ca.gov/dlse/faq_overtime.htm

 

[justalayman]

You got it right, except I don't have to work overtime to get paid overtime.

Thank you everyone! I appreciate the help! I needed to be sure that it isn't something shady. I talked to HR and this seems to just be a procedural thing and doesn't impact anything else.

I basically get paid the same each month as when I was salaried. They reverse calculated/engineered the possible hours of work and "prepaid" for over time. If I work 40 hours or less, they will still pay me 40 hours + "guaranteed overtime". Extra overtime is highly unlikely since it requires me to be at work for more than 13/14 hours a day (I don't work in i-banking so my hours are decent!).

^^^ Prime example of how to have non-exempt employees that essentially function as exempt/salaried employees (to a certain extent). Of course the reason they can do this is because even after prepaying for daily overtime, the hourly wage is still above min wage.

Unless you fall under an exception and I'm reading the California rules incorrectly I'm not sure you are correct. In California to calculate your hourly equivalent pay when salaried, you take the monthly salary X 12, divide by 52 and then divide by 40. That is your calculated hourly rate. If you work over 8 in a day or 40 in a week you must recieve 1 1/2 time your calculated hourly for those hours. They can't figure in a buffer since your Hourly is calculated on the 40 hour week using your salary. That means if they tried to figure in a buffer it would simply reset the calculation to a higher 40 hour week and if you worked over 8/40 they must pay you overtime for those hours worked.



That is under California law which exceeds the federal requirements. Among the specific issues where California's requirements exceed federal is that minimum wage has nothing to do with this other than your regular rate of pay must exceed minimum wage. California uses your regular rate of pay when calculating if you have received proper overtime compensation.

Now, if you never work more than 8 daily/ 40 week they can pay you a set rate (salary) for that but if you work more than 8 daily/ 40 weekly then there has to be additional compensation, no matter what they tried to add to your "base" salary as a buffer. California laws simply do not allow a simple salary to be beneficial for an employer. It's one situstion where salary benefits an employee since they never make less than a calculated 40 hour paycheck but also recieve overtime pay for anything over 8 daily/40 weekly.

 

[ash01]

Unless you fall under an exception and I'm reading the California rules incorrectly I'm not sure you are correct. In California to calculate your hourly equivalent pay when salaried, you take the monthly salary X 12, divide by 52 and then divide by 40. That is your calculated hourly rate. If you work over 8 in a day or 40 in a week you must recieve 1 1/2 time your calculated hourly for those hours. They can't figure in a buffer since your Hourly is calculated on the 40 hour week using your salary. That means if they tried to figure in a buffer it would simply reset the calculation to a higher 40 hour week and if you worked over 8/40 they must pay you overtime for those hours worked.

That is under California law which exceeds the federal requirements. Among the specific issues where California's requirements exceed federal is that minimum wage has nothing to do with this other than your regular rate of pay must exceed minimum wage. California uses your regular rate of pay when calculating if you have received proper overtime compensation.

Now, if you never work more than 8 daily/ 40 week they can pay you a set rate (salary) for that but if you work more than 8 daily/ 40 weekly then there has to be additional compensation, no matter what they tried to add to your "base" salary as a buffer. California laws simply do not allow a simple salary to be beneficial for an employer. It's one situstion where salary benefits an employee since they never make less than a calculated 40 hour paycheck but also recieve overtime pay for anything over 8 daily/40 weekly.

I guess the easiest way to show this is to use actual numbers. (all the numbers here are false) Assuming person ABC make a nice round figure of $100,000 a year before this, and the company wants to build in a "buffer" of 4 hours a day, 20 hours a week. 100,000/52 = $1,923. A week = 1x: 40 hours, 1.5x: 20 hours = 70 hours. $1,923/70 = $27.47/hr for 8hrs/day and $41.21/hr for the "guaranteed" overtime. Total: $27.47*40 + $41.21*20 = $1,923 (you'll never receive less than $1,923 since the overtime pay is guaranteed)

This way the person ABC still receives an hourly wage above min wage, stays within the law of 1.5x after 8/40. From your explanation above (thank you!), it probably means the company reduced the "base" to build in the "buffer".

 

[justalayman]

I guess the easiest way to show this is to use actual numbers. (all the numbers here are false) Assuming person ABC make a nice round figure of $100,000 a year before this, and the company wants to build in a "buffer" of 4 hours a day, 20 hours a week. 100,000/52 = $1,923. A week = 1x: 40 hours, 1.5x: 20 hours = 70 hours. $1,923/70 = $27.47/hr for 8hrs/day and $41.21/hr for the "guaranteed" overtime. Total: $27.47*40 + $41.21*20 = $1,923 (you'll never receive less than $1,923 since the overtime pay is guaranteed)

This way the person ABC still receives an hourly wage above min wage, stays within the law of 1.5x after 8/40. From your explanation above (thank you!), it probably means the company reduced the "base" to build in the "buffer".

But of course minimum wage has nothing to do with the issue. California calculates the hourly wage and the overtime must be paid at 1 1/2 times the calculated hourly wage. The fed is the one that is ok with as long as it exceeds minimum wage.


You take the annual salary and divide it by 2080. That is your calculated hourly wage. If you work nine hours you must be paid 9 1/2 times that for that day. That kills building in a buffer since every time you try to do that you raise the calculated hourly rate and you still have to be paid that calculated hourly rate for each hour worked and 1 1/2 times that calculated rate for each hour of overtime

 

[HC1432]

I am in agreement with justalayman.

If it looks like a duck, swims like a duck, and quacks like a duck, its probably a duck.

Just because they are calling the extra compensation you are receiving when you work 40 hours or less "guaranteed hours", doesn't mean that it is not part of your regularly expected salary/wage. If you are truly classified as non-exempt, you must be paid your regular hourly rate X 1.5 for all hours you work over 8/day or 40/wk. Even if they designate your hourly rate is around $20 per hour, but you are always paid at lease $30 per hour because of the "guaranteed hours", then the rate they need to pay you overtime on is the higher rate that is regularly paid. This all appears to be an attempt to avoid paying actual overtime on the base salary that they want to pay you. Its not even really that clever...

Now if they were to truly lower your wage to $20/hr, and that was what you were actually paid when you work 40 hours or less as a way to control overtime costs when you do exceed 8/40 hours, that is perfectly legal. You are only legally entitled to minimum wage and your salary can be raised or lowered at their discretion provided a contract does not expressly say otherwise.