At a time when employers are rightfully striving to save costs and cut back in order to keep their doors open, both employers and employees have been more frequently lighting up my office telephone, seeking answers to hot-button labor law issues.

One such issue is the relationship between wage/hour laws and employee overtime.

Told to "be thankful they have a job," employees are working increasingly longer hours, in order to help keep the employer's doors open in these tough times. In so doing, both employees and employers are falling prey to a current misconception concerning the distinction between "exempt" and "non-exempt" (from federal law) workers and how the difference between the two impacts wages.

By law, an employer is not required to pay an "exempt" employee overtime pay for time beyond forty (40) hours a week. However, a "non-exempt" employee must be paid 1.5 times his calculable hourly wage for all hours over forty (40) per week.

Most employers make the mistake of incorrectly classifying an employee as "exempt" in violation of both Maryland and federal law. Many think that paying someone a "salary" rather than an "hourly" wage makes the individual "exempt." Such is far from the case and any employer practice that incorporates that reasoning could very likely end up paying an employee both all back-due overtime plus attorneys fees, not to mention potential massive federal and/or state fines.

The Fair Labor Standards Act (FLSA 29 U.S.C. 201, et seq.) and its Maryland protégé, the Maryland Wage and Hour Law, Labor and Employment Article §3-415, 420, both specifically lay out which employee's are permitted to be called "exempt." They happen to be very few.

Under federal law, an employee is "exempt" from being paid overtime only if he is: 1) an executive; 2) a professional; or 3) an administrative officer. Each class has highly specific legal tests and each business must seek competent legal counsel to ensure they are in compliance with these tests, particularly if they choose to classify an employee as "exempt" from federal overtime law.

For instance, according to the Maryland federal case Koelker v. Mayor and City Council of Cumberland, the Fair Labor Standards Act is "clearly structured to provide workers with specific minimum protections against excessive work hours."1 That case involved firefighters underpaid by the City for both their straight time and overtime. The Court held the City liable to pay the firefighters for all hours worked on straight time up to the federal limitations, and to pay them a time and a half for all overtime.

According to the Court, federal law requires employers to do two things: 1) pay the minimum wage required within the time minimum of 204 hours per each 27 days worked; and 2) pay a time and a half of the employee's wage for all time worked over that federal minimum. Furthermore, the temptation for an employer to reduce stated work hours while keeping the pay the same is not a "raise" if the employee works one hour over the new "reduced" time.

Federal judge Motz wrote in Koelker v. Mayor and City Council of Cumberland, 599 F.Supp.2d 624 (D.Md. 2009):

If his workweek is later reduced to a fixed workweek of 35 hours while his salary remains the same, it is the fact that it now takes him only 35 hours to earn $200, so that he earns his salary at the average rate of $5.71 per hour. His regular rate thus becomes $ 5.71 per hour; it is no longer $5 an hour. Overtime pay is due under the Act only for hours worked in excess of 40, not 35, but if the understanding of the parties is that the salary of $200 now covers 35 hours of work and no more, the employee would be owed $5.71 per hour under his employment *634 contract for each hour worked between 35 and 40. He would be owed not less than one and one half times $5.71 ($8.57) per hour, under the statute, for each hour worked in excess of 40 in the workweek. 599 F.Supp.2d at 634.

Employers may not classify employees as "contractors" in order to avoid minimum wage and overtime law. Contractors generally must be professionals with absolute independence in judgment and contracting. Furthermore, employees are automatically classified as "non-exempt" unless they meet highly legal and fact-specific standards as either an executive, professional or administrative officer. All factors must be met.

In order to be considered an "executive," an employee must generally be endowed with some level of substantial company influence and power in that he: 1) earns at least $455 per week on a salary basis; 2) has the primary duty of management of the company's enterprise or a recognized department; 3) regularly directs the work of two or more other employees; and 4) has authority to hire and fire employees or has particular weight given to determinations related to hiring, firing, advancement promotion or other employee determinations.

To be classified as a "professional," an employee must 1) earn at least $455/week on a salary or fee basis;2) have an advanced degree or customarily prolonged specialized intellectual instruction, and 3) work in the field of science or learning. Doctors, attorneys and accountants are those who fulfill this status of exemption.

An administrative employee must 1) earn at least $455/week on a salary basis; 2) do office work that is non-manual labor intensive related to management or business operations of the employer; and 3) exercise independent discretion and judgment with respect to all matters of significance.

To determine if the above and further fact-specific tests are met, legal advice should be obtained by any employer who desires to classify employees as "exempt". Employees who are paid a salary but do not easily meet the above tests, and do not receive overtime, should contact an attorney to determine whether or not they are being defrauded in violation of the law.

Since the beginning of time, the principle has stood firm that honest labor should be met with honest wages. Western civil and English common law have advanced this concept, which is based  upon the Biblical precept that "the laborer is worthy of his hire" (Luke 10:7). The United States has enshrined this concept in the Thirteenth Amendment, which forbids involuntary servitude.