Calculating Overtime in the Residential Service-Provider Industries
“Aren’t my technicians exempt from overtime because they are outside sales people?”
This is one of the most common questions HRx® gets in response to any discussion about overtime. This is a commonly misunderstood and misused OT exemption that leaves small service-provider companies vulnerable to lawsuits and government fines. Very few employees within HVAC, Plumbing, Electrical, or Roofing companies qualify for the outside-sales exemption. No matter how an employer chooses to pay their employees, they most likely need to track hours properly (another common gap), and calculate appropriate overtime each pay period.
Myth: Salaried or 100% commission employees are exempt from overtime regulations.
Reality: Salaried or 100% commission employees are only exempt from overtime regulations if they qualify for exemption under a handful of specific situations. The most commonly misused exemption for residential service-providers is “outside sales.” This requires that over half of the employee’s pay is drawn from the sale of merchandise or services at locations away from the central office. However, it is almost universally the completion of these tasks that is what the technician is being paid for (often times with penalties for call backs on improperly installed systems or completed tasks). This distinction results in the need to maintain minimum wage and overtime calculations.
Myth: Salaried and commission-based employees do not need to track hours.
Reality: Salaried Employees – Unless they are qualified to be classified as exempt, paying someone a salary is simply agreeing to pay them a set amount each pay period based on the employee working UP TO 40 hours a week. If they work less than 40 hours in a week, they are still owed the full salary amount due to this agreement. If they work more than 40 hours, the employee is still due overtime pay.
Commission Employees – Non-exempt commission employees must track their hours to ensure that minimum wage and overtime requirements are met. While there are some slight variances in the state laws, “the clock” starts when they arrive at a work location in the morning and ends when they leave the work location at the end of the day, with one or more periods “off the clock” for meals and such in the middle. This is treated exactly the same for office staff as for traveling technicians.
Myth: If an employee has an hourly rate plus commission/piece-rate pay, they are paid overtime based on only the hourly rate.
Reality: The laws surrounding overtime, minimum wage, and other issues are written in terms of hourly pay. Any form of employee pay that is based on the set performance of their job must be averaged in with their hourly rate for any given work period. The only exception to this is if a bonus is given as a “surprise” to the employee. This normally includes holiday bonuses and company profit sharing.
Standard payroll companies and your average accountant will not often notice or mention if there may be a problem with their client’s pay system. They are not responsible for the legality of a company’s pay system, and they may honestly not be aware of a problem because they normally do not specialize in the variety of mixed pay systems that work best for residential service providers.
Now for the scary part: Any company who does not address this issue is increasingly vulnerable to a current or ex-employee contacting the Department of Labor or a lawyer and potential for a full investigation. Not only will back pay be calculated for all affected employees, but additional interest and damages may be assigned, along with the DOL regular fine of $1,000 per employee per violation (adds up quick).
For tips on Calculating Overtime with Unique Pay Systems and other HR or OSHA questions contact Ian Schotanus at 707-395-0357 or ians@yourhrx.com.