Are Temporary or Contract Workers Eligible for Overtime Pay?

Are Temporary or Contract Workers Eligible for Overtime Pay?

by Jeanne Knutzen | April 18, 2016

10 Author-Jeanne, Blog, Flexible Staffing Strategies, INFO AND RESOURCES FOR EMPLOYERS, Legal Issues - Staffing, Management.Supervision get connected

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Question:  I just learned that our staffing agency is not paying their employees an overtime pay rate even though they often work more than 40 hours in any one work week.  Are temporary employees exempt from overtime pay requirements?  Is my company at risk to pay this employee for overtime if our agency doesn’t?

– Submitted by a Worried HR Manager.  Redmond, Washington

A:   You bring up a really good point!  Even though in most staffing arrangements, your staffing agency is the common law employer, responsible to pay their employee in accordance with DOL/FLSA standards, there are situations where both you and your staffing agency are considered “co-employers” exposing your company to back wages and penalties if your staffing agency isn’t operating in full compliance with FLSA requirements.

Because FLSA regulations, administered by the DOL, have been interpreted by some courts to allow for personal as well as corporate liability in the face of overtime violations, the case has been made that anyone who exercises control over the terms and conditions of an employee’s pay (i.e. considered the employer) may be liable for unpaid wages rightfully due.  This includes any person in your company asked to approve an employee’s hours of work.  

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.

While the outcome of these court tests have been mixed, not paying attention to how your temporary employees are being paid for the hours they work, can have consequences most managers may not have considered.  Knowing that a temporary employee worked more than 40 hours in a week and was not paid an overtime rate for those 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.

Exceptions are temporary workers paid hourly 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.  This is a finite pool of employees, and for all other temporary employees, if your temporary staffing agency is not paying them 1.5 times their regular rate of pay for all hours worked over 40, your agency may be subjecting themselves (and ultimately you) to unforeseen costs that would include not just back wages, but fines and penalties for an FLSA violation.

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 exempt from overtime pay requirements.  High level roles in engineering, accounting or finance are often mistakenly assumed to be exempt, when in fact they are subject to all overtime provisions because they are paid hourlie.

What are the Potential Costs of an FLSA Violation? 

An employee who believes they have not been paid for overtime in the way the law requires, may file a private suit for the previous 2 years of back pay plus an amount equal to that back pay in liquidated damages.  They also may claim attorney and court fees and punitive damages if the violation was considered willful, extending the time of back pay entitlement to 3 years.

If the courts were to find that supervisors knew and put pressure on an employee not to report hours of work accurately, the Department of Justice can get involved with penalties up to $10,000 per violation and imprisonment.

Bottomline, knowingly violating FLSA standards is no small matter.  Knowing that your staffing agency is violating FLSA standards, and not doing something about it, is not where you want to be.

Internal Policies Prohibiting Unauthorized Overtime

In an attempt to work around FLSA requirements,  many 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 all encompassing:  If the 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.

What can you do to manage your risk/avoid unforeseen overtime costs?   

  • Make sure your staffing agency is familiar with and 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 contract negotiations, allow your staffing agency to specify 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 requirements.  
    • The job the employee is doing can legitimately be classified as exempt under FLSA guidelines.
    • You have agreed to a weekly or monthly bill rate that will be paid regardless of how many hours the employee works   
    • Your invoice is formatted to show a weekly, rather than hourly, bill rate.
    • You no longer are required to review and approve the employees hours of workIf your staffing firm intends to pay an employee a weekly or monthly salary to avoid overtime pay requirements, make sure…

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NOTE to PURCHASERS OF STAFFING SERVICES:  Keep in mind that even though you can’t change FLSA standards regarding overtime pay, you can negotiate the rate you are willing to pay your staffing agency for hours worked over 40.  While staffing agencies need to cover the increase in their direct costs for hours over 40, most are willing to lower their mark up for hours paid at overtime rates. 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 their mark up for all hours worked and paid at overtime rates.

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We’d Love Your Comments on this Blog…

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

2 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?

2 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.

1 year 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.

1 year 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

9 months 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?

8 months 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?

8 months 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

8 months 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.

8 months 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

8 months 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.

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