Are Temporary or Contract Workers Eligible for Overtime Pay?

Are Temporary or Contract Workers Eligible for Overtime Pay?

by Jeanne Knutzen | June 1, 2020

12 Agency Pricing Practices, Author-Jeanne, Blog, Flexible Staffing Strategies, INFO AND RESOURCES FOR EMPLOYERS, Legal Issues - Staffing, Management.Supervision, STAFFING AGENCIES - HOW TO SELECT AND MANAGE get connected

Hands Up

 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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12 thoughts on “Are Temporary or Contract Workers Eligible for Overtime Pay?”

3 years ago wht the hell

Leah Balsly

Can you please clarify what is considered “computer professionals”. How is a project manager, managing technology projects, who makes over the hour rate stated above, classified?

3 years ago wht the hell

Saam Phelps

If he were our employee we would probably categorize him as a computer professional. Here’s the detail…

Section 13(a)(1) and Section 13(a)(17) of the FLSA provide an exemption from both minimum wage and overtime pay for computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field who meet certain tests regarding their job duties and who are paid at least $455 per week on a salary basis or paid on an hourly basis, at a rate not less than $27.63 an hour.

Job titles do not determine exempt status. In order for this exemption to apply, an employee’s specific job duties and compensation must meet all the requirements of the Department’s regulations.
The specific requirements for the computer employee exemption are summarized below.

Computer Employee Exemption
To qualify for the computer employee exemption, the following tests must be met:
The employee must be compensated either on a salary or fee basis at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour; The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below; The employee’s primary duty must consist of:
The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or A combination of the aforementioned duties, the performance of which requires the same level of skills.

The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test described above, are also not exempt under the computer employee exemption.

Primary Duty
“Primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

Where to Obtain Additional Information:
For additional information, visit our Wage and Hour Division Website: http://www.wagehour.dol.gov and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243).
When the state laws differ from the federal FLSA, an employer must comply with the standard most protective to employees. Links to your state labor department can be found at http://www.dol.gov/contacts/state_of.htm.
This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.

3 years ago wht the hell

Felipe Valencia

I started for a agency today and I was with my girlfriend but she had a fever and tried to work still so at 11 we signed out…the office guy said that we need the ticket to get paid but since there was alot off people he put everything on one giant ticket so now the both of us are having to wait 3+ hrs to get paid and he said since I left(which I left because I was the one who drove) he can drop our pay from $12 to minimum wage? Is that true? He never said if you leave get the on-site boss to call me so we can pay.

3 years ago wht the hell

Saam Phelps

Hi Felipe,

There is nothing illegal about what is being done. I would encourage you to request a list of your agencies work policies so that you are not caught off guard.

Best of luck to you.
PACE Team

2 years ago wht the hell

Deborah Smith

I work as a flagger for a temp agency, they have one utility contractor that they dispatch us out to work for, same company, different foremen. They claim that since our job sites change they do not have to pay over time for any work performed between the hours of 6am – 6pm. Monday- Friday. Is this correct?

2 years ago wht the hell

Saam Phelps

Hi Deborah,

Thanks for reaching out to us. Can you please give me more details? I’m not sure I understand your situation. For example, what hours do you work?

2 years ago wht the hell

Anival A Ortiz

Hi my name is anival i have a question i work for a warehouse loading trucks we get paid 10.00 an hour from 3 pm till we are finished most nights we get out at 2am or 3am we pull about 50 to 60 hours weekly and we get paid weekly but they don’t pay us anything extra for overtime it stays at 10 and sorry i got hired by the temp agency to work at the warehouse is that illegal

2 years ago wht the hell

Saam Phelps

Hi Anival,
Thanks for taking to to ask your question. It may be illegal. If you are paid by the hour you are considered a non-exempt employee and entitled to overtime. I’m not in a position where I can comment further on your legal status but I would inquire of your employer who is the temporary agency who pays you.

2 years ago wht the hell

Kim

Hi Swam,
My name is Kim, I am currently working on a working holiday visa.
At the moment a recruitment agency finds me 2 different jobs, with 2 different companies.
One, monday to Friday, paid $28 an hour, and the second, only the week end paid $27 on Saturday and $40 on Sunday. I worked 37h30 for the first job and 15 for the second.
I send my time sheets at the end of the week to my recruitment agency, and this is this agency who pays me at the end of the week, not the companies I am working for. I am paid approximately $1320 a week.
If I am not mistaken, I am not paid any overtime but I am wondering if I am actually entitled to it.

Thank you in advance for your answer. I hope my message would make sense as English is not my first language.

Warm regards,
Kim

2 years ago wht the hell

Saam Phelps

Hi Kim,
thanks for reaching out to us. If you are categorized as a non-exempt employee, you should be paid overtime for any hours worked over 40 regardless of where you work them or for which client. I hope this information is helpful.

2 years ago wht the hell

Tedra

I’m a truck driver working through temp agency that pays hourly. I’ve switched contract within the temp agency in the middle of the pay week. I’ve now worked 60 hours in this same pay week but 30hrs each contract. They are saying they won’t pay me overtime. Is this legal. One contract was $18 and hour the new one is $29.

2 years ago wht the hell

Saam Phelps

Hi Tedra,
If you initiated that switch you are being paid fairly….as two different employers were involved. And I assume this pattern won’t be repeated.
If your employer’s client initiated that change, it would be considered suspect and you could report it to your State Labor office to see if you have been inappropriately denied overtime. I hope this helps. Best of luck to you!

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