Managing Liability Exposure for Unpaid Overtime

Since the recent recession began, just before 2008, the dental employment market has changed dramatically.  Dental practices have been forced to maintain or increase production levels, while lowering costs.  Often, they have accomplished this task by decreasing the workforce while increasing the work load that each employee must bear.  To increase productivity, many dental practices have provided employees with computers, iphones, ipads, or other mobile devices that allow them to handle practice matters while away from the office.

While employees tolerated the increased work load and working hours for some time, they have begun to fight back in the court room.  Recently, many companies, and even some municipal governments, have faced lawsuits from current and former employees, alleging that they have been unpaid for overtime hours spent working from home on their employer-provided devices.  Several of these cases have resulted in settlements costing companies many millions of dollars.

While it may be tempting for practice owners small and large to increase production by relying on employees to respond to email and manage other tasks from home, practice owners that allow their employees to do so should be sure to have a plan for dealing with the time that those employees spend handling practice business.

Employee overtime pay is regulated by the federal government under the Fair Labor Standards Act of 1938 (the “FLSA”).  Under this Act, many employees are eligible for overtime pay.  While all workers paid on an hourly basis are eligible for overtime pay, some salaried employees qualify for overtime pay as well.  Distinguishing between those salaried employees who qualify for overtime pay and those who do not is a particularly challenging area for employers.

 In order to be exempted from qualification for overtime pay, a salaried employee must earn at least $455 per week, and, generally, the employee must be a key decision–maker.  Salaried employees such as office managers who manage, hire, and fire other employees; administrators who have decision-making authority; professionals with advanced degrees; and certain information technology workers, among others, are exempted from laws requiring the practice owner to provide overtime pay.  Because distinguishing between these groups of salaried employees is a tedious, fact-based assessment, dental practice owners should consult an attorney to ensure they are in compliance with federal and state law.

After determining which employees qualify for overtime pay, practice owners should determine the appropriate amount of pay.  Under the FLSA, overtime-eligible employees qualify for a pay rate of 150% of their regular pay for all time spent working in excess of forty hours per week.  These employees should be compensated for all actual time spent working in excess of forty hours per week.  This means that if the employee is deemed “on call” to respond to work-related matters, they likely qualify for overtime pay for the entire “on call” period.  However, if the employee is generally free to respond to work-related matters at will, they should only be compensated for the actual time spent working.

 Practice owners should remember that, under the FLSA, they are required to compensate employees for overtime if the practice “suffers or permits” the employee to work.  This means that if an employer requires or allows the employee to work, the employee’s time must be compensated.  Courts may find that a practice owner has implicitly required an employee to work by providing them with access to practice systems through a laptop, mobile device, or even computer programs linking their office computer and personally owned home computer (or cell phone, iphone, etc.).

In order to properly manage risk exposure, practice owners should implement one of several options for controlling employees’ work from home.  First, a practice owner may prohibit employees from working from home altogether.  This risk management method avoids the problem of unpaid overtime hours by eliminating the source. 

Another method for controlling the unpaid overtime risk, which has been implemented with some success, is reclassifying salaried employees who qualify for overtime pay as hourly employees.  Under this method, a practice owner may be able to attain the same overall rate of pay that the employees enjoyed while they received a salary.  However, the practice owner will need to pay those employees at an hourly rate that factors in expected weekly overtime utilized to complete assigned tasks.

This risk management method is convenient because of the maintained overhead-to-production ratio.  However, it may result in decreased employee morale, as many employees gain self-fulfillment from their attainment of a salary.  Some previously salaried employees may feel that the owner of the practice does not value their work as highly when they begin to receive an hourly wage.

 In any situation where an employee may work from home, the owner of the practice must have a system in place to accurately record the time that the employee spends on practice business.  A third method of risk management is implementation of computer software requiring the employee to clock in before accessing company computer systems or email.  This allows the practice owner to have accurate records when the practice owner is compensating the employee for overtime pay.  This overtime management system may, however, be cost prohibitive for small practice owners.

Finally, for practice owners who have a good and honest working relationship with their staff members, the most cost-effective manner of controlling over-time pay may be to rely on employee self-reporting.  Obviously, this poses the risk of employees over-reporting time worked from home; however, in a small practice environment, management staff should be in a position to adequately evaluate all reported overtime hours, and expected workload to ensure that employees are properly reporting hours worked.

By implementing a process for managing the hours that employees spend working away from the office, a practice owner can effectively manage his or her exposure to claims for unpaid employee overtime.