C. Employee Overtime

When Must Employers Pay Overtime? 

Federal and state laws require most employers to pay overtime. The overtime premium is 50% of the employee’s usual hourly wage. This means an employee who works overtime must be paid “time and a half”—the employee’s usual hourly wage plus the 50% overtime premium—for every overtime hour worked.

These laws contain many exceptions, so not all employees are entitled to overtime. Employees who are eligible for overtime are called “nonexempt” employees, and those who are not eligible for overtime are called “exempt” employees.

What Counts as Overtime: Weekly versus Daily Standard

Federal and most state laws impose a weekly overtime standard, which means that nonexempt employees are entitled to overtime for every hour beyond 40 that they work in a workweek, regardless of how many hours they work in a day. For example, Alex is a nonexempt employee who works 12 hours on Monday and six hours on Tuesday (and doesn’t work any additional hours in the week). Because his total hours for the week do not exceed 40, he is not entitled to overtime under the weekly standard. 

California and a handful of other states have a daily overtime standard, as well. This means that nonexempt employees are entitled to overtime for every hour beyond eight that they work in a day. Let’s take Alex from the example above. In a daily overtime state, he would be entitled to overtime pay for the four extra hours he worked on Monday, even though he didn’t come close to working more than 40 hours in the week.

Employers That Must Pay Overtime

Although the vast majority of employers must pay overtime, not all are required to. To figure out whether your company must pay overtime, first determine whether you are covered by the federal Fair Labor Standards Act (FLSA), the federal wage and hour law that sets out the overtime rules. Generally, your business is covered by the FLSA if you have $500,000 or more in annual sales. Even if your business is smaller, however, you must pay overtime if your employees work in what Congress calls “interstate commerce”—that is, they conduct business between states. This includes more than you might think, including making phone calls to or from another state, sending mail out of state, or handling goods that have come from, or will go to, another state.

Even if your business is so small or local that it isn’t covered by the FLSA (and this will be a pretty rare occurrence), you might be covered by your state’s overtime law. Contact your state labor department for details.

For a detailed guide to your legal rights and responsibilities as an employer, see The Manager’s Legal Handbook.

Which Employees Are Entitled to Overtime

If your business is covered by either the FLSA or your state’s overtime law, then all of your employees are entitled to overtime unless they fit into an exception. The following workers are “exempt” from the federal overtime law (meaning that they fit into an exception and are therefore not entitled to overtime):

• Executive, administrative, and professional employees who are paid on a salary basis (see below)
• Independent contractors
• Volunteer workers (this exception rarely applies to for-profit companies)
• Outside salespeople (that is, employees who customarily and regularly work away from the employer’s business, selling or taking orders to sell goods and services)
• Certain computer specialists (such as systems analysts, programmers, and software engineers) who earn at least $27.63 per hour
• Employees of seasonal amusement or recreational businesses, such as ski resorts or county fairs
• Employees of organized camps or religious or nonprofit educational conference centers that operate for fewer than seven months a year
• Employees of certain small newspapers
• Newspaper deliverers
• Workers engaged in fishing operations
• Seamen
• Employees who work on small farms
• Certain switchboard operators
• Criminal investigators, and
• Casual domestic babysitters and people who provide companionship to those who are unable to care for themselves (this exception does not apply to those who provide nursing care or to personal and home care aides who perform a variety of domestic services).
• Administrative, Executive, and Professional Employees

Probably the most common—and confusing—exceptions to the overtime laws are for so-called “white collar” workers. Employees whom the law defines as “administrative, executive, or professional” need not be paid overtime.

To be considered exempt under the FLSA, administrative, executive, or professional employees must be paid on a salary basis and must spend most of their time performing job duties that require the use of discretion and independent judgment. Some states have created additional requirements that make it more difficult to fall within these exemptions, though, so you should also check with your state’s law before classifying an employee as exempt.

Salary Basis

An employee who is paid on a salary basis must earn at least $455 per week. The Department of Labor has proposed a rule to increase the minimum weekly salary from $455 to $970; if the rule passes as expected, it will likely go into effect the summer of 2016.

The employee must also receive the same salary every week, regardless of how many hours the employee works or the quantity or quality of the work the employee does. Generally, if an employer docks an employee’s pay (for leaving work early to attend a doctor’s appointment or not meeting a sales target, for example), then the employee is not paid on a salary basis and is entitled to overtime. However, there are a few circumstances in which an employer may pay an exempt worker less than his or her full salary for a week without compromising the employee’s exempt status. This includes docking an employee’s pay for full-day absences according to the employer’s paid sick or vacation leave policy, or during the employee’s first or last week of work. For more information on how pay docking affects an employer’s obligation to pay overtime, see Nolo’s article Legal Limits on Pay Docking and Unpaid Suspensions.

Job Duties

In addition to the above salary requirements, the employee must also be performing certain types of work—generally, work that is directly related to the company’s business operations, requires an advanced degree, or is managerial or supervisory in nature. In all cases, the employee must be authorized to make relatively high-level business decisions. Here are the basic requirements for the administrative, executive, and professional exemptions:

Administrative exemption – The employee must perform office or other non-manual work that is directly related to the management or business operations of the employer or its customers, and must exercise discretion and independent judgment regarding significant issues.

Executive exemption – The employee’s primary duty must be managing the employer’s enterprise or a recognized division or department of that enterprise; the employee must regularly supervise at least two full-time employees (or the equivalent in part-time employees); and the employee must have the authority to hire and fire or have significant input into hiring and firing decisions.

Professional exemption – The employee’s primary duty must either be performing work that requires advanced knowledge in the field of science or learning, of a type that is usually attained through an advanced course of study; or performing work that requires invention, imagination, originality, or talent in a recognized creative or artistic field.

To learn more about these exemptions, visit the Department of Labor’s website at www.dol.gov. 

Copyright © 2016 Nolo ®

How to determine overtime when an employee’s pay rate varies

By Ed Zalewski  – Contributing Writer

Employers may pay employees more than one rate of pay. In fact, the practice is quite common.

Employees might receive higher pay when performing hazardous work or be paid a shift differential for working nights or weekends. In some cases, employers will even establish different hourly rates for different types of work.

For example, an employee who is normally paid $18 per hour for performing job duties might be paid only the minimum wage for non-productive tasks such as traveling between job sites, attending training or being on call. Similarly, an employee might be paid a flat rate rather than an hourly rate if the employee is called in for an emergency.

As long as the alternative rate provides at least minimum wage for all hours worked, employers may establish different rates of pay. Of course, if an employee works more than 40 hours in a workweek, the employer must provide overtime pay.

Different rates

When employees work at two or more rates of pay, overtime is usually based on the weighted average of all rates, as described in federal overtime regulations. To illustrate, assume that an employee’s weekly hours were as follows:

30 hours performing regular duties at $18 per hour (earning $540)

20 hours in travel time at $10 per hour (earning $200)

The total weekly compensation of $740 would be divided by the 50 hours worked to give an average of $14.80 per hour. The employer would add one-half of this amount ($7.40) for each of the 10 overtime hours, since overtime must be no less than 1.5 times the hourly rate. This adds $74 in overtime pay, so the employee’s gross wages would be $814 for the week.

Depending on the number of hours spent in each type of work, the average hourly rate could change from week to week. This means that employers must track the number of hours spent in each type of work for which a unique hourly rate was established.

As an alternative, an employer could choose to pay overtime using the higher rate, without calculating an average. Since overtime must be paid at not less than 1.5 times the hourly rate, calculating overtime on the higher rate will always meet that standard. This option would eliminate the need to calculate a weekly average while still reducing the total wages during weeks with extensive time spent in nonproductive duties.

Different jobs

Some employees may work in more than one position for the same employer, such as two part-time jobs. Under federal provisions, an employer may pay overtime using whatever rate applies to the work being performed when the overtime occurs.

Note that this option may not be available if the employee is paid different rates for duties within the same job, since the employee would not have two distinct jobs.

To use this method, the employer must have an agreement with the employee (prior to the start of the work, and ideally in writing) that overtime will be based upon the rate paid for whichever job caused the overtime. An agreement is necessary because overtime might usually occur during the lower-paid job.

For instance, suppose an employee earns $15 per hour for one job and $10 per hour for a second job, but typically works in the second job at the end of the workweek. Paying overtime for the second job at 1.5 times the hourly rate of $10, or $15 per overtime hour, might create an impression that the employer was attempting to avoid the overtime requirement. It could also confuse the employee, who might initiate legal action. Creating a written agreement to document the hourly rates and manner of overtime calculation can help avoid such confusion.

While employers must keep records of the total hours worked by nonexempt employees, an employer using this overtime calculation must be able to pinpoint exactly when the employee passes the 40-hour mark. That is when overtime begins, and the overtime rate will depend on which job is being performed at that time. If the employee works both jobs after reaching 40 hours, the employee would get two different overtime rates, as applicable for the job being performed.

Overtime Pay Requirements of the FLSA

U.S. Department of Labor Wage and Hour Division (Revised July 2008) Fact Sheet #23: This fact sheet provides general information concerning the application of the overtime pay provisions of the FLSA. 

Characteristics An employer who requires or permits an employee to work overtime is generally required to pay the employee premium pay for such overtime work. 

Requirements Unless specifically exempted, employees covered by the Act must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. 

The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such. The Act applies on a workweek basis. An employee’s workweek is a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods. It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees. Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned. 

The regular rate of pay cannot be less than the minimum wage. The regular rate includes all remuneration for employment except certain payments excluded by the Act itself. Payments which are not part of the regular rate include pay for expenses incurred on the employer’s behalf, premium payments for overtime work or the true premiums paid for work on Saturdays, Sundays, and holidays, discretionary bonuses, gifts and payments in the nature of gifts on special occasions, and payments for occasional periods when no work is performed due to vacation, holidays, or illness. 

Earnings may be determined on a piece-rate, salary, commission, or some other basis, but in all such cases the overtime pay due must be computed on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment (except for the statutory exclusions noted above) in any workweek by the total number of hours actually worked. 

Where an employee in a single workweek works at two or more different types of work for which different straight-time rates have been established, the regular rate for that week is the weighted average of such rates. That is, the earnings from all such rates are added together and this total is then divided by the total number of hours worked at all jobs. In addition, section 7(g)(2) of the FLSA allows, under specified conditions, the computation of overtime pay based on one and one-half times the hourly rate in effect when the overtime work is performed. The requirements for computing overtime pay pursuant to section 7(g)(2) are prescribed in 29 CFR 778.415 through 778.421. FS 23 Important information regarding recent overtime litigation in the U.S. District Court of Eastern District of Texas. 

Where non-cash payments are made to employees in the form of goods or facilities, the reasonable cost to the employer or fair value of such goods or facilities must be included in the regular rate. 

Typical Problems Fixed Sum for Varying Amounts of Overtime: A lump sum paid for work performed during overtime hours without regard to the number of overtime hours worked does not qualify as an overtime premium even though the amount of money paid is equal to or greater than the sum owed on a per-hour basis. For example, no part of a flat sum of $180 to employees who work overtime on Sunday will qualify as an overtime premium, even though the employees’ straight-time rate is $12.00 an hour and the employees always work less than 10 hours on Sunday. Similarly, where an agreement provides for 6 hours pay at $13.00 an hour regardless of the time actually spent for work on a job performed during overtime hours, the entire $78.00 must be included in determining the employees’ regular rate. 

Salary for Workweek Exceeding 40 Hours: A fixed salary for a regular workweek longer than 40 hours does not discharge FLSA statutory obligations. For example, an employee may be hired to work a 45 hour workweek for a weekly salary of $405. In this instance the regular rate is obtained by dividing the $405 straight-time salary by 45 hours, resulting in a regular rate of $9.00. The employee is then due additional overtime computed by multiplying the 5 overtime hours by one-half the regular rate of pay ($4.50 x 5 = $22.50). 

Overtime Pay May Not Be Waived: The overtime requirement may not be waived by agreement between the employer and employees. An agreement that only 8 hours a day or only 40 hours a week will be counted as working time also fails the test of FLSA compliance. An announcement by the employer that no overtime work will be permitted, or that overtime work will not be paid for unless authorized in advance, also will not impair the employee’s right to compensation for compensable overtime hours that are worked. 

U.S. Department of Labor Wage and Hour Division (Revised July 2008) Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act (FLSA) This fact sheet provides general information concerning what constitutes compensable time under the FLSA. The Act requires that employees must receive at least the minimum wage and may not be employed for more than 40 hours in a week without receiving at least one and one-half times their regular rates of pay for the overtime hours. The amount employees should receive cannot be determined without knowing the number of hours worked. 

Definition of “Employ” By statutory definition the term “employ” includes “to suffer or permit to work.” The workweek ordinarily includes all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed work place. “Workday”, in general, means the period between the time on any particular day when such employee commences his/her “principal activity” and the time on that day at which he/she ceases such principal activity or activities. The workday may therefore be longer than the employee’s scheduled shift, hours, tour of duty, or production line time. 

Application of Principles Employees “Suffered or Permitted” to work: Work not requested but suffered or permitted to be performed is work time that must be paid for by the employer. For example, an employee may voluntarily continue to work at the end of the shift to finish an assigned task or to correct errors. The reason is immaterial. The hours are work time and are compensable. 

Waiting Time: Whether waiting time is hours worked under the Act depends upon the particular circumstances. Generally, the facts may show that the employee was engaged to wait (which is work time) or the facts may show that the employee was waiting to be engaged (which is not work time). For example, a secretary who reads a book while waiting for dictation or a fireman who plays checkers while waiting for an alarm is working during such periods of inactivity. These employees have been “engaged to wait.” 

On-Call Time: An employee who is required to remain on call on the employer’s premises is working while “on call.” An employee who is required to remain on call at home, or who is allowed to leave a message where he/she can be reached, is not working (in most cases) while on call. Additional constraints on the employee’s freedom could require this time to be compensated. 

Rest and Meal Periods: Rest periods of short duration, usually 20 minutes or less, are common in industry (and promote the efficiency of the employee) and are customarily paid for as working time. These short periods must be counted as hours worked. Unauthorized extensions of authorized work breaks need not be counted as hours worked when the employer has expressly and unambiguously communicated to the employee that the authorized break may only last for a specific length of time, that any extension of the break is contrary to the employer’s rules, and any extension of the break will be punished. Bona fide meal periods (typically 30 minutes or more) generally need not be compensated as work time. The employee must be completely relieved from duty for the purpose of eating regular meals. The employee is not relieved if he/she is required to perform any duties, whether active or inactive, while eating. 

Sleeping Time and Certain Other Activities: An employee who is required to be on duty for less than 24 hours is working even though he/she is permitted to sleep or engage in other personal activities when not busy. An employee required to be on duty for 24 hours or more may agree with the employer to exclude from hours worked bona fide regularly scheduled sleeping periods of not more than 8 hours, provided adequate sleeping facilities are furnished by the employer and the employee can usually enjoy an uninterrupted night’s sleep. No reduction is permitted unless at least 5 hours of sleep is taken. 

Lectures, Meetings and Training Programs: Attendance at lectures, meetings, training programs and similar activities need not be counted as working time only if four criteria are met, namely: it is outside normal hours, it is voluntary, not job related, and no other work is concurrently performed. 

Travel Time: The principles which apply in determining whether time spent in travel is compensable time depends upon the kind of travel involved. 

Home to Work Travel: An employee who travels from home before the regular workday and returns to his/her home at the end of the workday is engaged in ordinary home to work travel, which is not work time. 

Home to Work on a Special One Day Assignment in Another City: An employee who regularly works at a fixed location in one city is given a special one day assignment in another city and returns home the same day. The time spent in traveling to and returning from the other city is work time, except that the employer may deduct/not count that time the employee would normally spend commuting to the regular work site. 

Travel That is All in a Day’s Work: Time spent by an employee in travel as part of their principal activity, such as travel from job site to job site during the workday, is work time and must be counted as hours worked. Travel Away from Home Community: Travel that keeps an employee away from home overnight is travel away from home. Travel away from home is clearly work time when it cuts across the employee’s workday. The time is not only hours worked on regular working days during normal working hours but also during corresponding hours on nonworking days. As an enforcement policy the Division will not consider as work time that time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile. 

Typical Problems Problems arise when employers fail to recognize and count certain hours worked as compensable hours. For example, an employee who remains at his/her desk while eating lunch and regularly answers the telephone and refers callers is working. This time must be counted and paid as compensable hours worked because the employee has not been completely relieved from duty. Where to Obtain Additional Information 

For additional information, visit our Wage and Hour Division Website: http://www.wagehour.dol.gov and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866- 4USWAGE (1-866-487-9243). This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations. U.S. Department of Labor Frances Perkins Building 200 Constitution Avenue, NW Washington, DC 20210 1-866-4-USWAGE TTY: 1-866-487-9243 Contact Us