Paying Managers Overtime

Carol L. Schroeder -- Gifts & Decorative Accessories, 4/1/2001

I read with great interest the Employee Practices section of Gifts & Dec's "Retailer Comparison Survey" in the November 2000 issue. I'd been wondering how our store compared with others in terms of compensation, benefits, etc., and I was relieved to see that we're close to the median. But I was surprised to see that, in nearly half the stores, the manager is paid an annual salary.and that more than half of the managers work more than 40 hours a week.

We're just at the point of promoting a full-time employee to be our first manager. Since she'll now be paid an annual salary, will we still need to pay her time-and-a-half for overtime hours?

A: I'm glad you asked that question, because there is a common misconception among small business owners that overtime rules don't apply if an employee is paid a salary rather than an hourly wage. In many instances, time-and-a-half is still required for any time worked beyond 40 hours during a seven-day period.

However, this doesn't mean that you need to pay overtime just because someone works more than eight hours in a single day, or works on a weekend or holiday. The United States Department of Labor (DOL) Wage and Hour Division defines a "workweek" as any seven consecutive 24-hour periods. So even if a worker puts in four ten-hour days, no overtime is due as long as she doesn't work at all on the other three days. Businesses with two-week pay periods often make the mistake of letting employees 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.

Salaried Managers

But what about a salaried manager? Must she be paid overtime? That depends on the size of your retail operation and the duties assigned to her. In interviewing job applicants who have worked in department stores 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, and opening the till in the morning, for example. The expectation in many large retail operations is that these salaried employees will work at least 50 to 60 hours a week, with no overtime.

Fair Labor Standards Act

However, as a small retailer, you should make sure that the job description of any employee who doesn't receive overtime meets the Fair Labor Standards Act criteria. A "salaried manager" must spend no more than 40 percent 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, where staff members wear many hats, it would be difficult to prove that a manager is spending 60 percent of his or her time on tasks unique to that position. The Fair Labor Standards Act also sets a minimum salary requirement that must be met.

For More Info

Additional information about overtime is available on the U.S. DOL Web site (www.dol.gov). You might also want to speak to someone at the nearest district office of the DOL Employment Standards Administration to be certain that you fully understand the regulations and how they apply to your store.

Carol L. Schroeder is the owner of Orange Tree Imports in Madison, Wisconsin. She is the author of Specialty Shop Retailing: How To Run Your Own Store (John Wiley & Sons, 352 pages), which you can obtain for $39.95 plus shipping by calling (888) 245-1860.

You can e-mail your staffing questions directly to Carol at info@orangetreeimports.com.