Companies Are Using This Sneaky Strategy To Avoid Paying Overtime

• Overtime laws are meant to compensate employees that go above and beyond and to prevent employers from taking unfair advantage of their workers.
• Not only are firms regularly using phony job titles to circumvent overtime payments, this practice is more common in companies where the employees have little to no bargaining power.
• Open-ended exemption tests for employees dictate that individuals working for salaries hardly above the national poverty line can be exempt from overtime payments so long as their employer can create responsibilities that sound administrative.

In many ways, overtime laws are the pinnacle of American industry. They’re meant to compensate employees that go above and beyond and to prevent employers from taking unfair advantage of their workers.

Unfortunately, modern employees aren’t always guaranteed these protections.

Before the Second New Deal and its associated Fair Labor Standards Act of 1938 (FLSA), workers had virtually no protections.

A minimum wage didn’t exist, child labor was atrocious with children working in horrible conditions with terrible pay, hours were long and grueling, employers had no maximum amount of time to force workers to work, and overtime didn’t exist.

The FLSA changed this. It instituted a minimum wage (of $0.25 at the time), created the 8-hour workday, and prevented children from working in dangerous positions.

Additionally, the FLSA introduced the concept of overtime.

With the introduction of overtime, any workers that exceeded 40 hours per week were to be paid time and a half, or their typical hourly rate plus 50% of that hourly rate.

This changed the working experience for employees everywhere because it made employers think before forcing workers to work an extra couple of days over the weekend.

There was one minor exception in the FLSA.

Give what should be hourly employees a more senior title to “promote” them to “management” roles, and suddenly overtime payments are entirely negated.

The act dealt specifically with hourly-rate employees, so administrators, executives, and higher-ranking officials weren’t given the same guarantees. At the time this wasn’t a problem, but as employers evolved and found more opportunities to extract value, a new method of circumventing overtime laws came to fruition.

This method was simple. Give what should be hourly employees a more senior title to “promote” them to “management” roles, and suddenly overtime payments are entirely negated.

Difficult to identify, harder to quantify

Although experts have thought that companies use phony job titles to circumvent overtime payments for years, in January of 2023, the National Bureau of Economic Research, or NBER, released a research paper on employers using titles to avoid overtime payments that quantified these assumptions.

It’s estimated that each fake managerial position saves companies almost 14% in overtime expenses.

NBER’s research produced surprising data. Not only are firms regularly using phony job titles to circumvent overtime payments, but this practice is most common in workplaces where the bargaining power is skewed heavily in the employers’ favor.

Companies that exist in locations with few outside employment opportunities, companies that are struggling with financials, and companies that employ low-wage workers are more likely to commit overtime violations. Additionally, it’s estimated that each fake managerial position saves companies almost 14% in overtime expenses.

Even today, wage-theft violations are some of the most regularly occurring corporate violations, outside of workplace safety violations, wage-theft regulatory problems happen more than employment discrimination and environmental violations combined.

Understanding the FLSA threshold

In 2008, Family Dollar was on the opposing end of a multi-million dollar class action lawsuit related to their liberal use of the “Store Manager” title for hourly employees.

While each Store Manager had a small amount of managerial duty, the position was more accurately an excuse to keep each worker working 60-90 hours a week performing standard hourly tasks with no overtime pay.

According to court documents, the plaintiffs claimed that each store manager spent a mere 5 to 10 hours of their pay period on managerial tasks. The court wound up ruling against Family Dollar, deciding that the employees’ job titles didn’t accurately reflect their positions.

This kind of lawsuit isn’t uncommon and despite rulings like this, employers continue trying to use fake job titles.

By picking and choosing locations where employees have little bargaining power, employers can create exempt employees that work considerably more hours for the same amount of money they’d be earning otherwise.

Unfortunately, finding exempt employees isn’t very difficult. Now, to determine whether an employee is exempt or not, employers must apply three tests, and if that employee passes these three tests, that individual is an exempt employee.

The first test is the salary basis test which states that the employee is paid a fixed salary on a weekly or less frequent schedule, regardless of the amount of work completed or the number of hours worked.

The second test is the salary test, which states that an employee must meet a salary threshold. 

In January, the Biden-Harris Administration finalized a rule to increase overtime protections for millions of lower-paid salaried workers by “increasing the salary thresholds required to exempt a salaried bonafide executive, administrative or professional employee from federal overtime pay requirements.” 

The new overtime rule increases the overtime pay threshold to $43,888 on July 1, and to $58,656 on Jan. 1, 2025. This increase, however, has led to several business groups including the National Federation of Independent Business, the International Franchise Association, and the National Retail Federation to file a lawsuit. 

The groups argue that the costs of complying with the new rule will disproportionately affect smaller employers and non-profits operating on fixed budgets, potentially leading to cuts in staffing and other business-related operations.

This legal battle reflects the ongoing tension between government efforts to protect workers’ rights and business concerns about regulatory overreach.

The third and final test is the duties test, which states that an employee’s work is primarily composed of executive, administrative, or professional duties.The Biden administration’s updated rule also defines and delimits who is a bona-fide executive, administrative and professional employee exempt from the Fair Labor Standards act. 

Outside of the open-ended nature of the third test, the previous two tests dictate that employees working for salaries hardly above the national poverty line can become exempt from overtime payments so long as their employer can create responsibilities that sound administrative.

As the court case progresses, it will be closely watched by both labor advocates and business leaders, given its potential to influence the American labor laws. 

Avoiding phony job titles

Although phony job titles are ubiquitous in the modern labor market, you can avoid being given a phony job title by ensuring that you’re working with employee-centric companies.

If you’re being asked to do several more hours per week of work but your compensation isn’t changing, there’s something wrong.

If a firm has a history of mistreating its employees, there’s a good chance they’re still using nefarious practices to preserve capital when possible.

Remember, a new job title isn’t necessarily a promotion. If you’re being asked to do several more hours per week of work but your compensation isn’t changing, there’s something wrong.

If you feel like you’ve been given a fake job title in an attempt to circumvent overtime payments, you can file a complaint with the U.S. Department of Labor.