Determining which employees are entitled to overtime compensation, when those requirements apply and how to properly calculate and issue overtime pay can be complicated. A new Department of Labor (DOL) rule taking effect December 1, 2016 makes the analysis even more complex and requires overtime pay for millions of workers previously treated as exempt.
Overtime Compensation Compliance
The federal Fair Labor Standards Act (FLSA) requires that most employees who work more than 40 hours in a workweek receive “time and a half,” or 1.5 times their regular hourly rate, for hours in excess of 40. However, certain types of employees are “exempt” under the law, meaning that their employers are not required to pay excess hours at the increased rate. Exempt employees fall into one of three categories: Executive, Administrative, and Professional, though there are specific provisions for particular industries.
Often, employees and employers alike believe that the exemption is simpler than it is, and that the exemption applies generally to all salaried employees. This is not accurate.
The exemption requirements are somewhat different depending upon the category into which the employee falls. However, the general considerations are:
- The type of work performed
- The rate of pay
- Whether the employee is paid hourly or on a salaried basis
To be considered exempt in one of the three main categories, the employee must be paid on a salary basis. Prior to December 1, 2016, the minimum salary for an exempt employee was $455 per week. However, the new rule more than doubles that threshold to $913 per week.
In certain other areas, such as with regard to computer employees or creative employees, the analysis is different. However, the primary question, aside from rate of pay, relates to the level of independence and decision-making power afforded to the employee. For example, a customer service manager who directed other employees and had the authority to take action on customer complaints might well qualify for the administrative exemption. The typical data entry clerk would not, even if paid on a salaried basis.
”Workweek Defined for Overtime Purposes
The FLSA does not create a specific requirement as to the starting and ending point of a “workweek” for overtime purposes. Rather, the workweek may be any continuous 168-hour period defined by the employer and thus may begin at any hour of any day during the week.
Overtime Requirements Outside of Federal Law
Except with regard to the classification of exempt employees, overtime compensation requirements are fairly simple at the federal level: a non-exempt employee who works more than 40 hours in a workweek must be paid at a rate 1.5 times his or her usual rate of pay for any hours in excess of 40.
However, it is important for employers to be aware that federal law is not the only possible source of overtime pay requirements. Additional requirements may be imposed by state law, local law, collective bargaining agreements or other contractual or internal policy documents. The federal law sets forth only the minimum requirement.
State Overtime Pay Requirements
Although federal law applies only when an employee works more than 40 hours in a week, a few states require premium pay rates when an employee works more than a specified number of hours in a day. For example, in California most workers are entitled to time and a half after eight hours in a given day and double time after 12 hours.
Likewise, federal law does not tie overtime pay to consecutive days worked, but some states mandate a premium rate of pay when an employee works a seventh consecutive day.
Enforcement of Overtime Pay Requirements
Violations of federal overtime pay requirements may be prosecuted through private litigation or by the Wage and Hour Division of the U.S. Department of Labor. The employee may be entitled to backpay or liquidated damages and the Department of Labor may additionally impose a per-violation fine. The possible fines are higher if the violation is determined to have been willful. In short, failure to pay overtime as required can be very costly for an employer.
Get Professional Guidance on Overtime Pay Requirements
Many employers find it difficult to navigate the maze of state and federal overtime pay requirements and associated recordkeeping. An experienced labor and employment lawyer can explain the specific regulations that apply in your location, help you determine whether or not particular employees may properly be designated as exempt, and help ensure compliance. Contact KPPB LAW for more information.