I am often asked by clients if paying non-exempt employees on a day rate or via some other form of compensation, rather than an hourly rate, somehow “frees” an employer of its obligation to pay overtime after forty hours of work.  The answer is, regretfully, no, as a recent case has highlighted.  In this case, a Houston, Texas-based foundation repair company (Allied Foundation Specialists, Inc.) has agreed to pay $682,000 in back wages as a settlement following a U.S. Department of Labor audit into the practice of paying a day rate instead of paying per hour worked and not paying overtime.

Construction workers
Copyright: sondem / 123RF Stock Photo

The Company is paying back 161 workers because it paid those workers a flat day rate and no overtime, regardless of how many hours they had worked.  The Regional Administrator for the agency issued a statement that this large settlement should put other employers on notice that they must pay workers what they have earned during the week instead of per diem or day rates.

She said that “construction workers know the value of hard-earned wages for long, tough days especially under a hot Texas sun.  This is not the first time we’ve seen construction industry employers illegally paying flat day rates with no overtime pay.”

The Company employs about 200 workers who perform foundation repair, house leveling, barrier root systems and sewer pipe replacements.  The agency investigation found that the workers averaged forty-five (45) hours for a five-day work week and fifty-three (53) hours for a six day week.  The Company tracked days worked, rather than hours worked, which is the key to overtime payment and compliance.

This investigation is part of a broader regional enforcement initiative targeting the construction industry in the State.  In 2015, the DOL secured more than $460,000 for more than 510 construction industry workers in Texas.

The Takeaway

Overtime runs off hours worked; the mode of payment is immaterial.  Paying on a day rate or a piece rate does not alter the employer’s obligation to pay overtime.  It may, actually, complicate it.  This is because the onus always remains on the employer to track hours.

If more than forty hours are worked, then, for employees paid on a day rate, the half-time method of calculating overtime is utilized.  The regular rate, for that particular week, is derived and then half-time overtime is paid.  The next week, if more than forty hours is worked, but the total is more/less than the previous week, another calculation, which will produce a different regular rate for that discrete week is used.  Some people call this “Chinese overtime.”

It may be “Greek” to some people as well, but the prudent employer will understand that compliance with the FLSA is a never-ending task that is often tedious and where the devil is in the details.