The $100,000 Overtime Mistake, a real story
A friend of ours owns a growing home services company. A couple of years ago, they brought on a full time bookkeeper and paid a fixed salary.
The owner innocently assumed “salary means exempt,” so they didn't do time sheets, overtime tracking, or keep lunch break records.
Two years later, devastation hit. The now former employee met an attorney who explained overtime law. A claim was filed, alleging seventy hour weeks with no breaks and no overtime pay.
Sadly, because the role did not meet the exemption tests, and because the company did not keep time records, the employer had almost no defense.
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What went wrong
- “Salaried” was treated as “exempt,” which it is not, exemptions are about duties and pay thresholds, not the word salary.
- No time tracking, which meant the employee’s estimate stood unchallenged.
- Lunch and rest break rules were not documented or enforced.
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Outcome
- The owner had to pay out over six figures in back wages, penalties, and legal fees.
- The business dealt with years of cash strain, and a shaken team as a result.
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The fix, Confirm exemption status by duty and threshold, track hours for every non-exempt worker, and keep clean records of breaks and schedules.
Taking a couple of hours to learn the fundamentals of employment regualtions in your state can be one of the best investments of your lifetime.
Overtime exemptions, what actually qualifies
Here's a short guide for understanding Overtime regulations.
Exempt means the role passes both the salary threshold and the duties test for a specific exemption category, such as executive, administrative, or professional. Titles do not matter, duties and pay do. When the duties do not fit, or pay is below the threshold, the worker is non-exempt and must track time, receive breaks per state rules, and be paid overtime for hours over forty in a week, or as your state requires.
Attached to this email is a short flowchart for determining if your employees are exempt.
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Do this this week
- List every salaried role. Using the attached guide, confirm exemption category, salary threshold, and duties test.
- If a role does not clearly qualify, start time tracking now, pay overtime going forward, and talk with your HR counsel.
- Document meal and rest breaks, post schedules, keep clean records.
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This article is educational, not legal or tax advice. State rules can be stricter than federal. Consult a qualified professional for your situation.
