There is a common misconception among small business owners that if an employee is paid a salary rather than an hourly wage, overtime rules don’t apply.  But in many instances, time and a half is still required for any time worked beyond 40 hours in a seven day period. We found out about this the hard way when we were audited — and had to go back through two years worth of pay slips.

This regulation does not mean that you need to pay overtime just because someone works over 8 hours in a single day, or works on a weekend or holiday.  The Department of Labor’s Wage and Hour Division defines a work week as any 7 consecutive 24 hour periods.  So even if a worker puts in four ten hour days, there is no overtime due as long as they don’t work at all on the other three days.  One common error, however, is for businesses with a two week pay period to allow an employee to work 38 hours one week and 42 the next.  According to DOL regulations, time and a half compensation must still be paid for the two extra hours worked the second week. 

But what about a salaried manager?  That depends on the size of your retail operation, and the duties assigned to the manager.  In interviewing job applicants who have worked in department and other chain stores, I have learned that it is common practice for many employees of these bigger retailers to be considered "managers" and paid a flat salary no matter how many hours a week they work.   Their duties often consist primarily of sales work, plus some of the tasks your full-time employees probably already assist with: training new staff, scheduling breaks, opening up the till in the morning.   The expectation in many large retail operations is that these salaried employees will work at least fifty to sixty hours a week, with no overtime.

As a small retailer, however, you should be careful that the job description of anyone you do not pay overtime to meets the Fair Labor Standards Act criteria.  A salaried manager must, for example, spend no more than 40% of his or her time on customer service, or any other type of work that is performed by the employees he or she is supervising.  In most small shops, with staff members wearing many hats, it would be difficult to prove that a manager is spending 60% of his or her time on tasks unique to that position.   There is also a minimum salary requirement that must be met.

Some additional information about overtime is available on the U.S. Dept. of Labor web site (www.dol.gov), but you might also want to speak to someone at the nearest district office of the DOL’s Employment Standards Administration to be certain you fully understand the regulations, and how they apply to your store.

Happy Retailing,

Carol “Orange” Schroeder