Posted in Blog | Compliance

Unauthorized Overtime: Preventing Unseen Labor Costs

Unauthorized overtime is a problem many organizations face that needlessly inflates labor costs if not addressed. Employers attempting to reel in these runaway costs may decide not to pay overtime unless it’s pre-authorized by management. They may create and implement a policy stating that unauthorized overtime won’t be paid, assuming that with a policy in place all is well and good.

Unfortunately, the matter isn’t that simple. The Federal Wage and Hour law requires the payment of ALL worked hours, and in the eyes of the law there’s no difference between approved and unapproved hours. The Department of Labor only cares that the hours were worked, and management is ultimately responsible for ensuring that employees don’t perform any “unauthorized” work.

Ignoring this issue can have a negative impact on organizations, both financially and legally. Here are a few impact areas to consider how relevant this is to your organization.

Financial Impact

Because unauthorized overtime is unplanned, it can wreak havoc on budgets. As projects and jobs go over budget and labor costs continually drift higher, profits take a hit. Because the hours have already been worked, the only recourse the organization has is to pay them.

Legal Impact

The employer choosing not to pay for unauthorized hours is potentially creating a significant legal issue. Employees inadequately for their worked hours can file a lawsuit in court or submit a claim with the Department of Labor. Employers may find themselves on the hook for back wages, legal fees, fines and penalties.

Additionally, they can be forced to pay damages, not only for the employee who filed the complaint, but any other employees found to have been underpaid. Simply, paying for the “unauthorized” overtime costs upfront is likely to save the organization both time and money in the long run.

Performance Impact

Failing to properly address unauthorized work can also impact employee morale and performance. Employees who aren’t paid for their overtime may feel taken advantage of, and those who work unauthorized hours without disciplinary action can cause frustration for employees playing by the rules.

That’s not to suggest that all employees working unauthorized hours are trying to scam the company or get away with something. In fact, many of them probably have good intentions. They may be trying to get the project completed or simply going the extra mile for the company. But regardless of motive, the resulting cost of overtime is the same.

A Better Response to Managing Unauthorized Overtime

A better approach begins by creating and consistently enforcing policies so that employees know exactly what’s expected of them. Policies should be clear about hours the employee is expected to work, how those hours will be tracked, and what the procedure is for employees working outside of those expected hours. These policies should be in writing and regularly reviewed between employees and managers.

Train all supervisors and managers on how to communicate expectations with employees and how to address overtime issues with employees who step outside of the written policies. For example, employees should know if they are not permitted to punch in more than 5 minutes before and after their scheduled start time, and exactly what will happen if they punch outside of that window.

The violation of these policies must be addressed every time with every rule-breaking employee. The consistent application of policies and corrective actions for violations are key to defending any wage and hour action brought against your organization. If you turn a blind eye when employees don’t follow the rules, or apply the rules inconsistently, it could come back to bite you later.

All of this requires accurate, precise time tracking. A labor management system that will inform the manager when employees are approaching overtime and track provide insight into patterns of behavior, such as punching in early or late, will help you control this critical and expensive aspect of your business.  

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for legal advice. If you have any legal questions regarding this content or related issues, then you should consult with a labor attorney for advice.  

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