Our Chicago-area/Illinois overtime lawyers are often asked whether employees are entitled to overtime. Overtime pay typically arises when an eligible employee works over 40 hours per week. If you have overtime questions, we hope this will help:
I am on a salary, should I get overtime pay? One frequent overtime myth is that just because someone gets a salary, they don’t get overtime. That is not always the case. Overtime pay is partially governed by the rules set forth in the Fair Labor Standards Act (“FLSA”). Whether an employee is eligible for overtime pay depends on whether the employee is classified as an “Exempt Employee” or a “Non-Exempt Employee” under the FLSA. Just because your employer says you are exempt does not mean that you in fact exempt. Generally, employees deemed exempt by the FLSA are those employees who are salaried and occupy a managerial position. For these employees, the job title the employee holds is not determinative of whether they are to be paid overtime under the FLSA. Rather, exempt employees often manage or direct employees and require advanced education. Thus, what determines whether an employee is exempt is the actual responsibilities the employee performs. For simplification purposes, exempt employees are typically classified as the following: executives, administrative, and professionals.
Are independent contracts entitled to overtime? Many independent contractors are misclassified to avoid paying them overtime. Under the law, even if your employer says you are an independent contractor, you may still be entitled to overtime pay if you work over 40 hours per week.
Non-exempt employees are those individuals who work hourly and salary and are not specifically exempt from being paid overtime. That is, non-exempt employees often do not have managerial responsibilities. To qualify for overtime pay, non-exempt employees must work in excess of 40 hours in a 7-day workweek. For purposes of calculating the 40 hours worked, only hours actually worked may be included. That is, holiday pay or sick pay does not count towards the 40 hours. Furthermore, because a workweek is defined as a period of seven consecutive days, hours worked in excess of 8 hours on any single day may not require overtime pay if the employee has not worked 40 hours during the workweek.
In determining the amount due for overtime, the typical method of calculation is generally based on an employee’s regular pay rate. Each hour worked in excess of 40 hours must be paid at one and one-half rate of pay. For employees whose regular pay rate is less than the minimum wage, the legal minimum wage rate is substituted as the employee’s regular rate of pay.
Our Illinois employment law firm litigates wage, overtime, and compensation disputes for employers and employees. Call today for a free consultation.
Top 10 Wage Violations in Illinois
By David J. Fish (originally published in the ISBA Labor and Employment Newsletter)
This article will help Illinois lawyers, particularly those who learn how their clients are being paid (i.e., injury, divorce, and employment lawyers), better serve their clients by identifying frequently overlooked wage claims. For example, workers who consult with us about whether they were wrongfully terminated often learn that their firing was only unfair but not illegal because of the “employment at will” rule in Illinois. Yet, it is not at all unusual that we learn that this same lawfully fired employee was paid wrong for years while still working. A wage claim can prove there is more than “one way to skin the cat” (get a financial recovery from their unfair employer) even when a wrongful termination claim fails.
Wage theft is costing workers hundreds of millions of dollars per year,1 and many of Illinois’ poorest people are the most vulnerable victims. These pay-cheated workers often do not know their rights because wage theft is so common that employees assume it is appropriate. For those few workers who do know they are being victimized by their employer, many are willing to put up with the misconduct because they are just happy to have a job; many others are undocumented and, therefore, are afraid to complain – particularly with the new presidential administration.2
Wage claims can result in substantial payments to clients and the recovery of lawyer fees under fee-shifting statutes because low-wage workers cannot afford to pay legal fees. Wage claims also benefit society as a whole when pursued on a class-wide basis because: (a) money that was stolen from low-wage workers is properly returned to them, and (b) employers will stop stealing wages to avoid class-wide litigation exposure.
Likewise, business lawyers should counsel their clients about properly paying their employees. In particular, with the recently-enacted City of Chicago and Cook County minimum wage laws (discussed below), business lawyers must explain the potential exposure to their employer-clients of not complying with wage laws.
To help other lawyers spot wage violations, this article identifies the top 10 wage violations that we see in our office.
1. Unpaid Overtime
Under Illinois and federal law, many workers are entitled to 150% of their regular rate of pay for time worked in excess of 40 hours in a work week.3 Despite this, many employers pay “straight time” for all hours worked, including those over 40 hours (e.g., paying $10 per hour for 50 hours of work rather than $10 per hour for 40 hours of work and $15 per hour for the other 10 hours of work).
Other employers try to avoid overtime by paying an employee a “salary.” While this is sometimes allowed (e.g., for certain for administrative, executive, and professional employees)4, so called “salaried” employees are frequently misclassified as “exempt” to avoid paying overtime. For example, putting a low-level office worker on a “salary” and classifying him or her as exempt is not lawful to avoid paying overtime.
The Illinois Wage Payment and Collection Act, 820 ILCS 115/9 (“IWPCA”), prohibits employers from making deductions from employees’ wages without express written consent freely given at the time of the deduction with limited exceptions. Despite this restriction, some employers institute policies that allow for deductions. For example, I worked as a dishwasher at a restaurant, and we had to pay (i.e., have money taken out of our check) when we broke dishes – a particularly expensive proposition for someone clumsy like me. Other common examples include retail workers being forced to reimburse for cash register shortages, restaurants charging servers for “dine and dash” customers (i.e., customers who eat meals and leave without paying), and gas stations charging workers when people fill up and leave without paying.
These deductions are illegal because it results in businesses passing the overhead cost of operating a business onto low-wage employees. While employers will justify these deductions as a way to teach their employees a lesson (like don’t drop dishes), the IWPCA allows employees to recover interest at 2% per month (plus attorney’s fees) for the wrongful deductions in addition to the amounts deducted. This can result in liability being much more than the deduction itself.
Employers who take illegal deductions from “salaried” employees’ pay also run the risk of losing the right to claim those employees are exempt from overtime pay.5 For example, we had a case where an employer deducted extremely small amounts of money from its managers’ paychecks for cash register shortages. Although the deductions themselves were minuscule, it resulted in the managers being entitled to a very large amount of overtime pay because those managers were no longer on a true “salary” since their pay was reduced as a result of the deductions. The victimized employees ended up getting paid for overtime pay to which they otherwise would not have been entitled. In summary, taking unlawful deductions is penny wise and pound foolish.
3. Miscalculations of the Overtime Rate
Employers often miscalculate the rate at which overtime must be paid when employees are paid extra compensation. For example, many employers will incentivize their workers to work harder or to work unpopular shifts. It is common to see a “shift differential,” where an employee gets an extra amount of dollars per hour for working the night shift versus daytime shifts. Warehouse workers also are often paid extra if they achieve a certain level of production.
In many scenarios, this extra compensation must be factored in when determining the “regular rate” upon which the overtime wage is computed.6 Here’s an example: If a warehouse worker gets paid $10 per hour as her rate but at the end of the month is given a $2 per hour bonus for achieving a productivity goal, her regular rate of pay is $12 per hour and her overtime rate is $18 per hour. Employers frequently fail to include the extra pay in determining the proper overtime rate.
4. Tip Pool Violations
Wage violations at restaurants are as common as carbon paper at the Daley Center. One common violation involves abuse of the “tip credit” rules. Under Illinois law, the minimum wage is usually $8.25, but certain tipped employees (e.g., servers) can be paid a reduced minimum wage of $4.95 per hour.7 In other words, there is a “tip credit” allowed that permits the payment of a lower minimum hourly wage.
There are strict requirements for employers to take the tip credit. If these mandates are not met, the employer must pay the employees the full minimum wage (i.e., an extra $3.30 per hour, plus additional penalties). One of the most frequent reasons that a restaurant would lose the tip credit is by forcing servers to share their tips with others, including management or non-tipped employees such as cooks, dishwashers, and other non-service positions.8
5. Time Stealing/Shaving
Some employers reduce the number of hours that are worked “on the clock” (i.e., while an employee is punched in) by manually adjusting time to short workers’ pay. Usually this goes unnoticed because most employees do not independently monitor their hours and a reduction in a few hours per week is hard to detect.
Another common problem involves rounding time. While rounding is appropriate under certain circumstances, it cannot always be in the employer’s favor.9 For example, it would be wrong for an employer to round a clock-in time from 8:50 a.m. to a paid start time of 9:00 am and then round a clock-out time of 5:10 pm to 5:00 p.m. Another frequent time-stealing scenario involves automatically deducting time for a lunch break each day regardless of whether a lunch is taken.
6. Independent Contractor Misclassification
Many companies classify workers as “independent contractors” to avoid paying taxes, unemployment, workers compensation insurance premiums, overtime, and other benefits. Under both Illinois and federal law, the definition of an employee is very broad. This makes showing independent contractor status difficult. While most businesses think that having workers sign an “independent contractor” agreement will insulate them from liability, the Department of Labor has found that this simply “is not relevant to the analysis of the worker’s status.”10 If workers can demonstrate misclassification, they are entitled to the benefits afforded to employees including the ability to sue for overtime and other employee rights. Employers can also face significant governmental liability for not paying taxes, workers compensation insurance premiums, unemployment insurance premiums, etc. The Employee Classification Act also allows certain misclassified workers to seek actual and statutory damages plus attorney’s fees.11
7. Vacation Time.
Illinois law requires that the monetary equivalent of accrued but unused vacation time be paid out upon termination, regardless of whether the employee quit or was terminated. As this is not the law in all states, some out-of-state employers with Illinois-based operations are unaware of this law. Notably, even if the employee is fired for cause, fails to give notice, or is simply a no-goodnik, the employee still must be paid for accrued but unused vacation upon termination.12
8. Off-the-Clock Work
Employees frequently work when they are not “punched in.” This is sometimes the result of managers facing pressure to reduce labor costs. In response to management pressure, employees sometimes voluntarily work off the clock to appear more efficient for fear of losing their jobs. Likewise, with the advent of virtual offices where an employee can access the entire office from her smartphone or tablet, off-the-clock work is becoming more common. For non-exempt workers, these off-the-clock hours can be compensable.
9. Municipal Ordinances
The City of Chicago and Cook County have passed minimum wage ordinances. Effective, July 1, 2017, Cook County’s minimum wage is $10 per hour and will be followed by a $1 increase per year until 2020. The City of Chicago has a similar increase, except that it is $1 per hour higher (it will be $11 per hour on July 1, 2017, with stepped up increases thereafter). It is expected that many employers will look for ways to avoid following these new laws. With limited governmental funding available for enforcement, employee-side lawyers will play an important role in making sure these new laws are enforced.
Most employment laws prohibit retaliation for employees exercising their rights.13 For example, if an employee complains he is being paid wrong and is fired or has hours reduced, he now has a claim for retaliation. Notably, even if the employee was wrong (e.g., she was actually being paid correctly), retaliation is still prohibited. Also, when employees speak up as a group about their wages, they may have protection under the National Labor Relations Act’s right to engage in concerted activity even when no union is involved.14
The wage laws can work to benefit their clients’ positions. Lawyers should be sure to make sure they are not leaving “money on the table” when evaluating the merits of their clients’ cases.
Notes: From Wage Violation Article:
1. Bradley Meixell, An Epidemic of Wage Theft is Costing Workers Hundreds of Millions of Dollars Per Year, Economic Policy Institute (2014).
2. The federal courts are protective of undocumented worker retaliation and, therefore, will bar an employer from engaging in discovery about immigration status for unpaid wage claims. See, Nieves v. OPA, Inc., 948 F. Supp. 2d 887, 892 (N.D. Ill. 2013) (“[A]llowing this discovery [into immigration status] could have a pronounced chilling effect with respect to parties filing FLSA claims because aggrieved parties would not file otherwise valid claims due to the fear of potential deportation. .”).
3. The Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., and the Illinois Minimum Wage Law (“IMWL”) 820 ILCS § 105/1 et seq., each require the payment of overtime wages. The penalties for FLSA and IMWL violations can be stacked on top of each other.
4. 29 U.S.C. § 213(a)(1).
5. 29 C.F.R. § 541.602(a) provides that an employee will be considered paid on a salary basis if their compensation “is not subject to reduction because of variations in the quality or quantity of work performed.”
6. The FLSA defines the regular rate to “include all remuneration for employment paid to, or on behalf of, the employee” with certain statutory exceptions. 29 U.S.C. § 207(e).
7. This amount can vary depending on the location of the work. For example, the rate is higher under the Chicago Minimum Wage Ordinance. Chicago’s rules are available at: <www.cityofchicago.org/content/dam/city/depts/bacp/Rules/minimumwagerules20150817.pdf>.
8. 29 U.S.C. § 203(m) provides that an employer may not take a tip credit with regard to an employee’s wages unless (1) “such employee has been informed by the employer of the provisions of this subsection” and (2) “all tips received by such employee have been retained by the employee, except that the subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.”
9. 29 C.F.R. §785.48(b) (rounding is allowed “provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.”).
10. DOL Administrators’ Interpretive Bulletin No 2015-1 (July 15, 2015) available at: <www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm>.
11. 820 ILCS §185/60(a)(2).
12. 820 ILCS 115/5 states that “whenever a contract of employment or employment policy provides for paid vacations, and an employee resigns or is terminated without having taken all vacation time earned in accordance with such contract of employment or employment policy, the monetary equivalent of all earned vacation shall be paid to him or her as part of his or her final compensation at his or her final rate of pay and no employment contract or employment policy shall provide for forfeiture of earned vacation time upon separation.”
13. For example, Section 15(a)(3) of the FLSA states that it is a violation for any person to “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this Act.”
14. Section 7 of the National Labor Relations Act provides employees with “the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purposes of collective bargaining or other mutual aid or protection . . . .” 29 U.S.C. § 157. Section 7 protects “other concerted activity for mutual aid and protection.”