The Ins & Outs Of Overtime Pay
The Ins & Outs Of Overtime Pay
While the increasing popularity of flexible work arrangements has resulted in a departure from the more traditional 9-5 schedule, the 40-hour workweek remains a guiding principle and standard of the American workplace and employment law.
For eligible employees, any hours worked in excess of 40 hours within a single workweek qualify as “overtime” hours, and must be compensated at a rate of one and one-half times of the employees’ regular wage rates.
Sound simple? Well, it’s anything but.
Last year the U.S. Department of Labor (DOL) released a proposed rule that could significantly affect which employees are eligible for overtime pay. And while that rule has caused a whole lot of controversy, many employees (and some managers) still aren’t totally clear on what counts as overtime hours or how it’s even calculated. To clear things up, we’re going to analyze each component of the bolded sentence at the beginning of this article and give you a blow-by-blow breakdown of the ins and outs of overtime pay.
The first step in understanding overtime pay is understanding what laws regulate it. Federally, the Fair Labor Standards Act (FLSA), which is enforced by the DOL’s Wage and Hour Division, is the governing legislation regarding minimum wage and overtime pay standards. Employers should be aware, however, that several states have their own laws regulating certain provisions of overtime wage payment.
Generally speaking, most jobs, regardless of part-time or full-time status or whether the employer is in the private or public sector, are protected by the FLSA. There are some types of jobs that are excluded from FLSA coverage, either by the statute itself or because they are governed by another federal law.
Here’s a list of some of the basic coverage rules of the FLSA:
- Employees of companies who engage in interstate commerce, manufacture or produce goods for interstate commerce, or who sell, handle or work on materials moved in or produced for interstate commerce. Not all employees who fit this description are included, however: employees of enterprises with less than $500,000 in annual dollar volume of business are not covered.
- Regardless of annual dollar business volume, the FLSA does apply to the following enterprises: hospitals; institutions that primarily engage in providing care for the sick, elderly, mentally ill or disabled who live on the premises; schools for mentally or physically disabled or gifted children; preschools, elementary and secondary schools; institutions of higher learning; federal, state and local government agencies.
- Some jobs, while covered by the FLSA, are considered exempt from its overtime regulations because of the either the type of work or because the employee meets the qualifications of each of the tests used to determine exempt status (the salary level, salary basis and job duties tests).
A single workweek
Overtime pay is calculated on a weekly basis. An employee’s workweek is defined as a fixed, regularly recurring period of 168 hours (i.e. seven consecutive 24-hour periods). An employee’s workweek can begin on any day of the week, and workweeks may be different for different groups of employees or individual employees. Averaging hours worked over two workweeks is not permitted.
Any hours worked in a single workweek in excess of 40 hours are considered overtime hours. If an employee is covered by the FLSA and is eligible for overtime pay, these hours must be compensated at a rate of one and one-half times the employee’s regular hourly wage rate. (Individual states may have additional requirements regarding overtime compensation.)
For employees paid on a salary basis (i.e. those guaranteed a minimum amount of pay for any workweeks they perform work) but who do not meet the other requirements to be considered exempt from the FLSA’s overtime rule, the hourly wage rate can be conducted using the following formula: Total compensation paid during a workweek divided by the number of hours worked during that time frame.
“Total compensation” includes all forms of compensation given for employment, regardless of whether it was paid directly to an employee or on behalf of the employee. Total compensation does not include payments made at the sole discretion of the employer, nor payments made independently of any agreement that may lead employees to expect payment.
Not knowing or understanding overtime regulations can land employers in serious trouble: consequences include the possibility of private lawsuits from employees, civil penalties of up to $1,100 per violation, and even criminal charges.
But businesses don’t have to shoulder the burden of FLSA compliance alone. As a licensed provider of outsourced human resources solutions, G&A Partners acts as an invaluable resource and ally for businesses facing the confusing web of regulatory compliance. With G&A Partners managing your labor law and HR compliance, you can rest assured that your employees are afforded the protection of federal laws, and that you are protected from the risk of human resources noncompliance.
Learn how G&A Partners can help you protect your business and employees through HR labor law and compliance services by contacting us by phone at 1-866-634-6713 to speak with an expert or schedule your free business consultation.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.