Think You Don't Need to Track Hours and Pay Overtime? Here's Why You're Wrong

REMEMBER: Techs and Installers must track hours and be paid overtime premiums on ANY wages they earn including Commission, Task Pay, Spiffs, and even most individual KPI bonuses.

Now that I've made that clear, let's get to some frequently asked questions (and frequently used excuses!) about paying overtime.

"Why do I have to pay commission techs OT? They are not paid by the hour..."

Simply put, because the law does not care!

"But they make way more than minimum wage..." "They make over $100k a year..."

Again, these points do not matter to the law. Even if they hit the $160k threshold to qualify as "highly compensated," they still need to meet other qualifications that techs/installers do not meet.

"But they just won't track their hours, even when I ask..."

You had better get on that or when a lawyer or the DOL looks at the data, you will be 100% at the employee's mercy and what hours they CLAIM they regularly worked.

"But... but... but... 7(i) exemption (commissioned employees of a retail/service establishment)..."

Unfortunately, 7(i) does not apply for 99.99% of companies in the trades. For various reasons, you are classified as construction, NOT retail/service, no matter how you refer to yourself. The easiest qualifier to start with: If more than 25% of your company revenue comes from equipment install projects, the COMPANY does not qualify, let alone your techs.

"Salespeople are exempt, aren't they? My tech team is all "selling techs"..."

Yes, Comfort Advisors (or whatever you are calling them) are exempt if they are acting PURELY as a salesperson. More likely, you have techs who happen to sell. BIG difference. Are you paying work comp premiums as technicians, or 8742 sales? Unless you can clearly demonstrate that the majority of their job duties and time spent are "outside sales" as opposed to technical work, they will be seen as non-exempt technicians. If you cannot convince Workers Comp that they are salespeople and not technicians, you will NEVER convince Wage & Hour.

"But XYZ other company doesn't pay OT..."

I don't doubt it... They and about 95% of companies using performance pay are not overtime compliant (and it may be as high as 99% of companies in the trades in California!).

"Okay, what's the worst that could happen?"

2-5 years of calculated back wages, liquidated damages to the impacted employees (2X back wages), various civil fines, attorney costs, "pain and suffering" lawsuit damages... Oh yeah, and permanent residence on the Dept of Labor radar!!!

"Yikes. How do I fix it?"

First, figure out your current liability. Start tracking hours and/or conduct a payroll analysis using existing data. Immediately acknowledging and starting to work on a solution helps reduce the worst-case scenario in fines and fees.

The Base Equation to get to the "OT Premium Rate" is: Total Wages ÷ Total Hours ÷ 2

What you do with this number depends on what your pay structure is and how flexible your payroll software is.

Second, determine if your labor budget can absorb just fixing the issue immediately within your current pay structure. Hint: 10 OT hours/week average results in an increase in labor cost by 10% (that is, 20% effectively becomes 22%).

Third, implement the desired fix; either update your pay structure or implement the calculations internally.

"If I fix OT compliance, do I have to pay employees back wages?"

YOU DO NOT HAVE TO TELL EMPLOYEES WHY YOU ARE MAKING A CHANGE. The longer you go after you have fixed the OT issue without anyone making a complaint, the lower your liability is in a worst-case scenario. After two years, you are in the clear.

If someone DOES complain internally, you may want to settle things with them to prevent it going to a higher authority. After all, these types of OT miscalculations are almost always accidental oversights, not intentional wage theft. There are a number of ways to correct overtime issues without bringing it to anyone's attention, so you can make your payroll compliant and move on with business.

Even after 16 years of trying to help contractors on this, I'm surprised to find that rather than fix a known issue, business owners prefer to stick their heads in the sand and hopes they never get caught and sued. You can argue with me all you want about this, or even ignore me because you got ChatGPT to agree with your theories on the topic, but I have worked through too many investigations, lawsuits, and audits to have any doubt: Techs and Installers must track hours and be paid overtime premiums on ANY wages they earn including Commission, Task Pay, Spiffs, and even most individual KPI bonuses.