Avoiding Costly Overtime Mistakes

Failing to pay overtime where it is required by law can be a costly mistake for employers, even when they are acting in good faith.

Under the Illinois Minimum Wage Law (IMWL) and federal Fair Labor Standards Act (FLSA), eligible employees are entitled to overtime pay equal to 1.5 times their regular hourly wage if they work over 40 hours in any week unless the employee is exempt, even when the employee agrees to accept a fixed salary.  A work week is from Sunday through Saturday. Because the work week is a set 7-day period, using flex time arrangements or averaging hours worked over multiple weeks, is not permitted.

In addition to the pay requirements, employers are required to create and maintain complete time and payroll records going back at least three years. Where an employer fails to do so, courts hearing overtime claims will rely on lower quality evidence to determine the hours worked by an employee, possibly even just the employee’s recollections.

Exemptions to the Payment of Overtime

When considering whether an employee should be paid overtime, an employer should start with the assumption that an employee should be paid overtime, and only not pay overtime if after reviewing the matter with an attorney, the employee falls within one of the specified exemptions.  Illinois and federal law have exemptions that are largely similar, which include certain salespersons or mechanics; bona fide executive, administrative, or professional employees; agricultural workers; certain commission employees; and certain government employees.

  • Executives: The employee’s primary duties must include management of the enterprise, department or subdivision; customarily and regularly directs the work of two or more employees, and who has the authority or influence to hire, fire, promote, or otherwise change the status of other employees.
  • Administrative: The employee’s primary duties must include performance of office or non-manual work directly related to the management or general business operations of the employer and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
  • Professional: The employee must perform work that requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or the work requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

In addition to the above requirements, executive, administrative, and professional employees must also receive salary of not less than $455 per week in order to be exempt for overtime wages.

  • Salespersons: The employee’s primary duties must be to (1) make sales or (2) obtain orders or contracts for services or for the use of facilities. The salesperson must also be customarily and regularly engaged away from the employer’s place or places of business in performing such duties. Illinois’ exemption for salespersons is limited to those who sell automobiles, trailers, boats, or aircraft.
  • Agricultural Employees: This exemption applies to the immediate family members of the employer, certain hand harvest laborers paid on a piece rate basis, employees principally engaged in the range production of livestock, or any employees employed in agriculture whose employer did not use more than five hundred man-days of agricultural labor in any quarter during the preceding calendar year.

Illinois Penalties

Under Illinois law, an employee may file a civil action which may result in statutory damages of full payment of unpaid overtime wages along with a 2% penalty for each month following the date the overtime payments were due, in addition to court costs and attorneys’ fees incurred to collect the underpaid wages.   There is a three-year statute of limitations under the IMWL.

In some circumstances the failure to pay overtime or keep proper records may also be prosecuted by the state as a misdemeanor.

Federal Penalties

The FLSA provides, in addition to payment of the unpaid overtime, for the award of the same amount as additional liquidated damages where the violation of the act is found to be willful, often resulting in an employee recovering double the unpaid overtime.  The standard for what constitutes a willful violation of the FLSA is low, resulting in most violations that are tried in court being found to be willful.   The FLSA also awards attorney’s fees to employees with successful claims.  The FLSA has a two-year statute of limitations, which is extended to three years where the violation is willful.

In some circumstances, the federal government may also prosecute unpaid overtime as a criminal matter or impose additional civil penalties.

Failing to pay overtime can be a costly mistake.  The attorneys at Plager, Krug, Bauer & Rudolph, Ltd. can assist you in avoiding such a mistake with their experience in employment law matters.