I just learned that my staffing agency has not been paying their employees overtime pay rates  even though they often work more than 40 hours in a week.  Is my company at risk to pay this employee for overtime if our agency doesn’t?

Great question!

Even though in most third party staffing arrangements, your staffing agency is the common law employer and therefore responsible to pay their employee in accordance with DOL/FLSA standards, for most elements of your relationship  you and your staffing agency are consider co-employers.    This means it is important for you to know if your staffing agency is complying with these fidiciary requirements of their employer-employee responsibility. If you become aware that they are not paying overtime to employees who are entitled to that rate of pay, there are situations where you might be found legally liable.

For example, if you or someone in your company was aware that one of their “temps” worked additional hours worked over 40 and inadvertently put pressure on those employees to report less than the full number of hours worked, (or knowingly approved incorrect hours of work), you may be subject to legal action for your role in a process that resulted in a failure to pay overtime pay rates.

Becoming aware  that a temporary employee worked more than 40 hours in a week and was not paid an overtime rate for those overtime hours, is not where you want to be.  

FLSA Standards Applied to Temporary and Contract Workers

While many temporary and contract staff are assigned to do work that would otherwise allow them to be classified as exempt, most  are paid on an hourly basis and are, therefore,  not eligible for the exempt status.  This means they must be paid time and a half for all hours over 40 worked in any calendar week even if they earn over the $455 minimum pay requirement, even if they are doing work that otherwise meets one of the executive, administrative, or professional FLSA standards for exemption.

The only exceptions are temporary workers in certain professional roles that are otherwise exempt from FLSA overtime pay requirements – doctors, lawyers, teachers, outside sales people, or computer professionals earning more than $27.63/hr.  Accountants, for example, must be paid overtime rates. 

The big take away – do not assume that a temporary or contract employee doing work similar to a core employee you have classified as exempt, are also exempt.  Most are not.  High level temporary employees working in engineering, accounting or finance roles are often mistakenly assumed to also be exempt, when in fact they are subject to all overtime provisions in the same way as other hourlie employees. 

Internal Policies Prohibiting Unauthorized Overtime

In an attempt to work around FLSA requirements,  some temporary staffing companies have developed  policies that prohibit their temporary or contract staff from working  more than 40 hours a week without pre-approval from their on site supervisor (the client) – or in some cases one of their own, off-site supervisors.  While these policies require that an employee go through an approval process before working hours over 40, they do not mitigate the staffing agency’s requirement to pay overtime rates if the employees works hours over 40 even if the employee did not follow policy and worked without the necessary approvals. 

The DOL rules are not friendly –  If an employer knows, should know, or has reason to suspect that the employee is working more than 40 hours in a week, the extra hours must be compensated at the required 1.5 times pay rate.  While the burden would be on the employee to prove their employer had this knowledge in a court of law, in most FLSA scenarios, it is not hard to do.

Recommendations to Manage Your Risk of Unforeseen Overtime Costs?

• Make sure your staffing agency is in compliance with all FLSA standards.   Ask them how they administer the overtime pay requirement and how they manage when and how their temporary employees are asked to work more than 40 hours in a week.

• Make sure your staffing agency contract details their responsibility to abide by FLSA pay standards and states clearly that it is their exclusive role, not yours, to manage to the requirements to all payroll related statutory requirements, including FLSA mandates.

• In a contract or written pricing agreement, make sure your staffing agency specifies both a regular bill rate and an overtime bill rate. Why?  If you require your staffing agency to absorb all the costs of the overtime pay requirement, under court test it may look like you’re coercing your staffing agency into avoiding FLSA overtime pay requirement

If you want to avoid overtime for an employee who is otherwise exempt, you must agree to pay them weekly, regardless of how many hours they work.  Your staffing agency must agree to provide you with an invoice that references only the week worked, not the hours worked in that week. 

Negotiating With Your Staffing Agency Re: Bill Rates for Overtime Hours

Keep in mind that even though you can’t change FLSA standards regarding overtime pay, you can negotiate with your staffing agency on how much you should pay for hours worked over 40.  While staffing agencies need to cover the increase in their direct costs due to the employee’s increase in pay rate, most are willing to lower their mark up or bill rates for all hours worked over 40.  For example if your basic pricing agreement allows for your staffing agency to charge a bill rate equivalent to 150% of the employee’s regular pay rate, you can ask them to reduce that mark up to 135% for hours worked and paid at overtime rates.

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PACE Staffing Network is one of the Puget Sound’s premier staffing /recruiting agencies and has been helping Northwest employers find and hire employees based on the “right fit” for over 40 years.

A  4 time winner of the coveted “Best in Staffing” designation , PACE is ranked in the top 2% of staffing agencies nationwide based on annual surveys of customer satisfaction.

PACE services include temporary and contract staffing, temp to hire auditions, direct hire professional recruiting services, Employer of Record (payroll) services, and a large menu of candidate assessment services our clients can purchase a la carte.

To learn more about how partnering with PACE will make a difference to how you find and hire employees,  contact our Partner Services and Solutions team at 425-637-3312, e mail us at partnerservices@pacestaffing.com or visit our website at www. pacestaffing.com/employers.

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