4.3 Overtime pay regulations
6 min read•august 20, 2024
Overtime pay regulations are a crucial aspect of employment law, protecting workers from excessive unpaid hours. The (FLSA) mandates that receive 1.5 times their regular pay for hours worked beyond 40 per week.
Certain employees are exempt from overtime requirements based on job duties and salary. These exemptions include executive, administrative, professional, outside sales, and computer employee categories. Understanding these classifications is key for both employers and employees.
Overtime pay under FLSA
- The Fair Labor Standards Act (FLSA) establishes overtime pay requirements for many workers in the United States
- Non-exempt employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than 1.5 times their
- FLSA overtime provisions are designed to compensate employees for long hours and create employment by encouraging employers to hire more workers rather than scheduling overtime
Overtime pay exemptions
- Certain employees are exempt from FLSA overtime pay requirements based on their job duties and salary
- Exemptions are narrowly construed against the employer, and the employer bears the burden of proving an exemption applies
Executive exemption
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- Applies to employees whose primary duty is managing the enterprise or a department/subdivision thereof
- Must customarily and regularly direct the work of at least two other full-time employees
- Must have the authority to hire or fire, or their suggestions and recommendations as to employment decisions must be given particular weight
- Must be compensated on a salary basis at a rate of at least $684 per week
Administrative exemption
- Applies to employees whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or its customers
- Must exercise discretion and independent judgment with respect to matters of significance
- Must be compensated on a salary or fee basis at a rate of at least $684 per week
Professional exemption
- Applies to learned professionals (e.g., lawyers, doctors, teachers) and creative professionals (e.g., actors, musicians, writers)
- Learned professionals must perform work requiring advanced knowledge in a field of science or learning customarily acquired by prolonged, specialized, intellectual instruction and study
- Creative professionals must perform work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor
- Must be compensated on a salary or fee basis at a rate of at least $684 per week
Outside sales exemption
- Applies to employees whose primary duty is making sales or obtaining orders or contracts for services or the use of facilities
- Must customarily and regularly be engaged away from the employer's place of business
- No minimum salary requirement
Computer employee exemption
- Applies to computer systems analysts, programmers, software engineers, or other similarly skilled workers in the computer field
- Primary duty must consist of:
- Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; or
- Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs; or
- Design, documentation, testing, creation, or modification of computer programs related to machine operating systems
- Must be compensated at a rate of at least 27.63 per hour
Highly compensated employees
- Applies to employees with total annual compensation of $107,432 or more
- Must customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee
- At least $684 per week must be paid on a salary or fee basis, while the remainder may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation
Calculating overtime pay
Regular rate of pay
- Overtime pay is based on an employee's regular rate of pay, which includes all non-overtime wages (hourly rate, salary, commissions, certain bonuses) earned during the workweek
- The regular rate is determined by dividing total non-overtime compensation by total hours worked in the workweek
Workweek definition
- A workweek is a fixed, regularly recurring period of 168 hours (7 consecutive 24-hour periods)
- It can start on any day and at any time, but must remain consistent
- Each workweek stands alone for overtime calculation purposes
Hours worked vs hours paid
- Overtime is based on hours worked, not hours paid
- Paid time off (vacation, holiday, sick leave) and other non-working time (meal periods) are not included in overtime calculations
Compensable time
On-call time
- is compensable if the employee is required to remain on the employer's premises or so close that they cannot use the time effectively for their own purposes
- Factors considered include response time, geographic restrictions, and frequency of calls
Travel time
- Ordinary home-to-work travel is not compensable
- Travel during the workday (e.g., between job sites) is compensable
- Special one-day assignments in another city and overnight travel may be partially compensable
Waiting time
- is compensable if it is primarily for the benefit of the employer and the employee is unable to use the time effectively for their own purposes
- Examples include waiting for work assignments or machinery repairs
Meal and rest periods
- Bona fide meal periods (typically 30 minutes or more) are not compensable if the employee is completely relieved from duty
- Rest breaks of 20 minutes or less are compensable
Overtime pay enforcement
Recordkeeping requirements
- Employers must keep accurate records of employees' wages and hours worked
- Records must be preserved for at least three years
Penalties for violations
- Employers may be liable for back wages, (equal to back wages), civil money penalties, and attorney's fees
- Willful violations may result in criminal prosecution
Statute of limitations
- Claims for unpaid overtime generally must be brought within two years
- The is extended to three years for willful violations
State overtime laws
Laws that exceed FLSA
- Some states have overtime laws that provide greater benefits than the FLSA
- Examples include:
- California: overtime pay after 8 hours per day and double time after 12 hours per day
- Alaska: overtime pay for hours worked over 8 per day and 40 per week
Laws with broader coverage
- Some states extend overtime protections to workers not covered by the FLSA
- Examples include:
- Maine: most salaried employees are entitled to overtime
- Pennsylvania: most employees are entitled to overtime regardless of salary
Overtime in specific industries
Retail and service establishments
- Special overtime rules apply to certain commissioned employees of retail or service establishments
- Overtime is required only if the employee's regular rate is less than 1.5 times the minimum wage and more than half of the employee's compensation represents commissions
Hospitals and care facilities
- Hospitals and residential care facilities may adopt 14-day work periods instead of 7-day workweeks for overtime calculation purposes
- Overtime is paid for hours worked over 8 in a day and 80 in the 14-day period
Public agencies
- Public agencies may offer compensatory time off in lieu of overtime pay under certain conditions
- Law enforcement and fire protection personnel are subject to special rules based on work period duration
Common overtime pay issues
Misclassification of employees
- Employers may incorrectly classify non-exempt employees as exempt to avoid overtime obligations
- Misclassification can result in significant liability for back wages and damages
Off-the-clock work
- Employers must pay for all hours worked, even if not requested or authorized
- Examples of off-the-clock work include:
- Pre- and post-shift tasks
- Work performed during meal periods
- Taking work home
Unauthorized overtime
- Employers must pay for overtime hours worked, even if not authorized
- Employers may discipline employees for working unauthorized overtime, but must still pay for the time worked
Comp time vs overtime pay
- Private sector employers cannot offer compensatory time off in lieu of overtime pay
- Comp time is allowed only for certain public sector employees under specific circumstances
Key Terms to Review (30)
A.H. Phillips v. Walling: A.H. Phillips v. Walling is a significant case that dealt with the Fair Labor Standards Act (FLSA) and its implications on overtime pay regulations. The case revolved around whether the employees were entitled to overtime pay for hours worked over 40 in a workweek, establishing important precedents regarding employer obligations and employee rights under the FLSA. The ruling underscored the importance of proper classification of employees and the necessity for employers to comply with federal wage and hour laws.
Administrative exemption: The administrative exemption is a classification under the Fair Labor Standards Act (FLSA) that allows certain employees to be exempt from receiving overtime pay based on their job duties and salary level. Employees who qualify for this exemption typically perform non-manual work related to the management or general business operations of the employer, and they exercise discretion and independent judgment in their roles.
Compensable time: Compensable time refers to the periods during which employees are entitled to receive pay under the Fair Labor Standards Act (FLSA). This concept is critical in determining what counts as hours worked for calculating overtime pay and ensuring that workers are fairly compensated for their time spent on job-related activities.
Computer employee exemption: The computer employee exemption is a provision under the Fair Labor Standards Act (FLSA) that allows certain computer professionals to be classified as exempt employees, meaning they are not entitled to overtime pay. This exemption typically applies to individuals engaged in specific roles related to computer systems analysis, programming, software engineering, or similar tasks. Understanding this exemption is crucial for distinguishing between exempt and non-exempt employees and recognizing how overtime pay regulations apply to different job categories.
Executive Exemption: Executive exemption refers to a specific classification under the Fair Labor Standards Act (FLSA) that allows certain employees to be exempt from overtime pay requirements due to their managerial responsibilities. This exemption is designed for employees who primarily engage in the management of an enterprise or a recognized department or subdivision, exercising discretion and independent judgment in their roles. Understanding this exemption is crucial for determining whether employees qualify for overtime pay or if they are classified as exempt, impacting labor costs and compliance with wage regulations.
Fair Labor Standards Act: The Fair Labor Standards Act (FLSA) is a federal law enacted in 1938 that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards for workers in the private sector and in federal, state, and local governments. It plays a crucial role in defining employer responsibilities and protecting employee rights while influencing various employment arrangements.
Highly Compensated Employees: Highly compensated employees are individuals who earn a significantly high salary, often above a specified threshold, which can affect their eligibility for certain labor protections, including overtime pay regulations. These employees typically hold executive, administrative, or professional roles and are often exempt from the standard overtime requirements due to their compensation level. Understanding their classification is essential for determining which workers are entitled to overtime pay under federal and state laws.
Liquidated Damages: Liquidated damages are a pre-determined amount of money that parties agree upon in a contract, to be paid as compensation for a breach of that contract. This concept serves as a way to estimate the actual damages that might arise from a breach, providing clarity and avoiding the need for lengthy litigation. By establishing these damages upfront, parties can mitigate uncertainty regarding potential losses, which can be especially important in employment agreements and related contexts.
Manufacturing jobs: Manufacturing jobs refer to positions in the sector that involves the production of goods through the use of labor, machines, tools, and chemical or biological processing. These jobs play a critical role in the economy by providing employment opportunities and contributing to the creation of products that meet consumer demands. The nature of manufacturing jobs often requires workers to adhere to specific regulations, including those related to overtime pay, which ensures they are compensated fairly for their labor.
Meal and rest periods: Meal and rest periods refer to specific intervals during the workday where employees are allowed to take breaks for meals or to rest, separate from their regular work duties. These periods are important for employee well-being, productivity, and compliance with labor laws that mandate certain break times based on the number of hours worked. Understanding meal and rest periods is crucial, especially in relation to overtime pay regulations, as they can affect how total working hours are calculated and whether overtime compensation is due.
Non-exempt employees: Non-exempt employees are workers who are entitled to receive overtime pay under the Fair Labor Standards Act (FLSA) when they work more than 40 hours in a workweek. These employees typically earn hourly wages and must be compensated at a rate of at least one and a half times their regular pay for any overtime hours worked. This classification is crucial for determining how workers are compensated for their time and helps ensure fair labor practices.
Occupational Safety and Health Administration: The Occupational Safety and Health Administration (OSHA) is a U.S. government agency responsible for ensuring safe and healthy working conditions by setting and enforcing standards. OSHA plays a crucial role in protecting workers' rights to a safe workplace, regulating exposure to hazards, and promoting health and safety training, which is vital for employers to understand their obligations and for employees to be aware of their rights in the workplace.
On-call time: On-call time refers to periods when an employee is not actively working but is required to be available to respond to work-related duties if needed. This arrangement can create a unique situation for employers and employees regarding compensation and labor regulations, particularly concerning how it relates to overtime pay regulations and the classification of hours worked.
Outside sales exemption: The outside sales exemption is a provision in the Fair Labor Standards Act (FLSA) that allows certain employees to be classified as exempt from overtime pay requirements when they primarily sell products or services away from their employer's place of business. This classification is important as it affects how employees are compensated for their work hours, especially in sales roles. Employees who meet the criteria for this exemption do not receive overtime pay regardless of the number of hours they work in a week, which can significantly impact their overall earnings and benefits.
Overtime entitlement: Overtime entitlement refers to the legal right of employees to receive additional compensation for hours worked beyond a specified number of regular working hours, typically set at 40 hours per week in many jurisdictions. This concept is rooted in labor laws designed to ensure fair pay and protect workers from exploitation, particularly in industries where long hours are common. Understanding overtime entitlement is crucial for both employers and employees to comply with regulations and to promote equitable workplace practices.
Payroll Records: Payroll records are detailed documents that track the payment and employment details of employees, including wages, hours worked, benefits, and deductions. These records play a critical role in ensuring compliance with labor laws and regulations, particularly in relation to overtime pay and accurate reporting requirements. Proper maintenance of payroll records is essential for both employee protection and employer accountability.
Penalties for violations: Penalties for violations refer to the consequences or legal repercussions imposed on employers or organizations that fail to comply with labor laws and regulations. These penalties serve to enforce compliance and protect employees’ rights by deterring unlawful practices such as failure to pay minimum wage or misclassification of employees. Such penalties can include monetary fines, back pay awards, and other corrective actions mandated by regulatory authorities.
Professional exemption: Professional exemption refers to a category of employees who are exempt from the overtime pay requirements of the Fair Labor Standards Act (FLSA) due to the nature of their work. This exemption applies primarily to individuals engaged in professional occupations that require advanced knowledge, typically acquired through prolonged education and training, and involves the exercise of discretion and judgment. Understanding this exemption is crucial as it influences how employees are classified, which impacts their eligibility for overtime pay and overall compensation.
Recordkeeping requirements: Recordkeeping requirements refer to the legal obligations imposed on employers to maintain accurate and accessible records related to employee hours worked, wages paid, and other employment-related information. These requirements are essential for ensuring compliance with laws regarding overtime pay, as they provide a necessary framework for tracking employee compensation and work schedules.
Regular rate of pay: The regular rate of pay is the hourly wage that an employee earns for their standard working hours before any overtime, bonuses, or other forms of compensation are applied. This rate is critical for calculating overtime pay, as it determines how much an employee should earn for hours worked beyond the standard 40 hours per week. Understanding this rate helps ensure compliance with wage and hour laws, particularly in the context of overtime regulations.
Service industry jobs: Service industry jobs are positions that focus on providing services to consumers and businesses, rather than producing goods. This sector includes a variety of roles in areas such as hospitality, healthcare, retail, and personal care, where employees interact directly with clients or customers. Due to the nature of these roles, many service industry jobs are subject to specific regulations regarding wages and hours worked.
State overtime laws: State overtime laws refer to the regulations established by individual states regarding the payment of overtime wages to employees who work beyond a specified number of hours in a workweek. These laws can vary significantly from federal standards, allowing states to set their own criteria for overtime eligibility, rates, and enforcement mechanisms. Understanding these laws is crucial for both employers and employees to ensure compliance and fair compensation.
Statute of Limitations: The statute of limitations is a legal time limit that sets the maximum period in which a person can initiate legal proceedings after an event has occurred. This concept is essential in various areas of law, as it provides a framework for resolving disputes while ensuring that evidence remains fresh and relevant. By imposing these time constraints, the statute of limitations also serves to protect defendants from indefinite liability, fostering a sense of finality in legal matters.
Time-and-a-half: Time-and-a-half refers to a wage calculation where employees earn 1.5 times their regular hourly pay rate for hours worked beyond the standard 40 hours in a workweek. This practice is rooted in overtime pay regulations, which are designed to ensure fair compensation for employees who work extra hours, recognizing that additional work may require more effort and can impact work-life balance.
Timekeeping requirements: Timekeeping requirements refer to the regulations and systems in place that dictate how employers must track and record the hours worked by their employees. These requirements are essential for ensuring compliance with labor laws, especially regarding overtime pay, and they help to protect employees’ rights by providing a clear and accurate account of their work hours.
Travel time: Travel time refers to the period an employee spends commuting to and from work or during work-related travel. This concept is crucial in determining how and when employees are compensated for their time away from their primary workplace, particularly concerning overtime regulations and pay structures.
U.S. Department of Labor: The U.S. Department of Labor (DOL) is a federal agency responsible for promoting and ensuring the welfare of job seekers, wage earners, and retirees in the United States. It administers various labor laws, including those related to minimum wage, unemployment insurance, and workplace safety, playing a crucial role in the regulation of labor practices and enforcement of worker rights.
Waiting time: Waiting time refers to the period during which an employee is on duty but not actively engaged in productive work. This concept is particularly significant in the context of labor regulations, as it affects how employers calculate hours worked for purposes of overtime pay and compensation. Understanding waiting time helps clarify employee rights and employer responsibilities under various labor laws.
Wal-Mart Stores, Inc. v. Dukes: Wal-Mart Stores, Inc. v. Dukes is a landmark U.S. Supreme Court case from 2011 that addressed the issue of class action certification in employment discrimination lawsuits. The court ruled that the female employees did not meet the requirements for class certification under Rule 23 of the Federal Rules of Civil Procedure, emphasizing the need for commonality among class members to proceed as a collective action. This case highlights significant aspects of how employment law interacts with collective actions and the challenges of proving discrimination on a large scale.
Workweek Definition: A workweek is defined as a fixed, recurring period of 168 hours, typically consisting of seven consecutive 24-hour periods. This definition is crucial in determining the eligibility for overtime pay, as it establishes the standard against which hours worked are measured. Understanding the workweek is essential because it affects how employers calculate overtime pay and ensures compliance with labor laws.