Four Overtime Traps to Avoid

Don't become another lawsuit statistic! Follow these tips on sticking to overtime regulations.

By Chris Kelleher

Opinions expressed by Entrepreneur contributors are their own.

Overtime. It's been a law for almost 70 years. If you thought that after all that time every business would know how to follow it, you would be very, very wrong.

Alleging violations of the overtime law is a new "growth industry," with employees (and their lawyers) going after everyone from mom-and-pop businesses to industry giants. To keep your business from becoming yet another lawsuit statistic, here are four common overtime traps and how to avoid them:

Overtime Trap No. 1: "I don't have to pay overtime because she's paid a salary." Ouch! That's a very common trap, and it makes me cringe every time I hear an employer say it because "it just ain't so."

Paying an employee a salary is only one of several legal requirements that must be met before an employee can be exempt from overtime pay. For example, a salaried employee must also be classified as an executive, administrative or professional employee in order to be considered exempt from overtime pay.

These employee classifications have strict legal standards that must be met before an employee is legally exempt from overtime pay. See Overtime Trap No. 4 for more details.

Overtime Trap No. 2: "You need approval to work overtime before I have to pay overtime." Yikes. Here's another common trap employers fall into.

Many companies require employees to obtain approval from their supervisor before they can work overtime. The obvious reason for this rule is to keep a rein on a company's labor budget by tightly controlling the amount of overtime worked.

But what if the employee works overtime without first obtaining permission? The simple answer is that the overtime law overrules the company's policy. The law is clear that the employee must be paid overtime for all time worked regardless of whether or not "approval" was obtained.

To stay in control of overtime costs, you can legally establish a work rule that subjects an employee to discipline if the employee fails to get authorization for working overtime. In other words, the employer must pay for unauthorized overtime, but the employee could "pay" for working unauthorized overtime by incurring appropriate disciplinary action.

Overtime Trap No. 3: "On call can equal overtime." Many businesses today, such as heating and air conditioning companies or plumbing companies, offer 24/7 service typically through an emergency or after-hours phone number. Often, the company will tell one or a small group of employees that they are "on call" for a certain night or weekend and that they will be expected to respond to any after-hours or emergency calls for service.

The overtime trap in this situation is that an on-call employee may be eligible for overtime pay in two ways. First, the employee could be paid overtime for any hours that the employee actually worked during on an after-hours service call. Second, the on-call employee may also be eligible for overtime pay for each and every hour that the employee is on call, regardless of whether or not she is actually working. Talk about "making money while you sleep."

Of course, if the employee is already legally exempt from overtime pay, then this "on call equals overtime" equation is not applicable.

Overtime Trap No. 4: "The times they are a-changin'." If reading about the first three overtime traps has you confused, baffled and bewildered, don't worry. It's going to get worse before it gets better.

The first major changes to the overtime rules in almost 50 years are due to become final on August 23, 2004. Even if your business is currently squeaky clean when it comes to compliance with existing overtime law, you will need to reevaluate your policies in light of the new regulations, which in some cases are more employer-friendly than before.

Because the new overtime regulations are written by lawyers for lawyers (as opposed to being written by people for people), you may want to check with an employment law professional to see how your existing overtime policies and procedures will measure up after August 23.

For those who like do-it-yourself projects, the Department of Labor has extensive online information explaining the new overtime regulations, including a video seminar.

Note: The information in this column is provided by the author, not All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.

Chris Kelleher is an award-winning small-business advisor and attorney and the founder of The Law Firm For Businesses, a boutique law firm that helps entrepreneurs solve their business and legal problems. Contact Chris at

Chris Kelleher

Chris Kelleher is an award-winning small-business advisor and attorney. He's also a sought-after speaker and the founder and resident legal guru of The Law Firm For Businesses, a boutique law firm that helps business owners creatively solve their business and legal problems.

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