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The United States Department of Labor’s Fair Labor Standards Act (FLSA) demands employers pay non-exempt employees overtime pay for hours worked beyond 40 hours in a workweek. Failure to comply with this act can make a company liable for unpaid wages and hour lawsuits.
An employer penalty for not paying overtime can be incredibly costly, because not only can it lead to employers paying double the actual price of overtime owed, but it can tarnish a company’s reputation. Hence, it is more advisable for employers to pay their employees for every hour worked.
Paying overtime when due will help you establish a more productive working culture, motivate employees to work harder, and protect you from costly penalties.
What is Overtime?
Generally, overtime is the extra minutes or hours employees spend working outside of their standard hours. More often than not, this involves employees working more than 40 hours a week, a standard set by the FLSA.
There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. However, employees must be compensated for every extra hour they spend working outside their standard contract or when they work more than 40 hours a week.
For best, and easy comprehension, let’s review these two scenarios.
Scenario A
Company A hires Mr. B, a non-except contract consultant with an operating agreement of 4 hours daily. However, during the cause of the contract, company A requires Mr. B to work 7 hours per day to help them meet their set deadline. To comply with applicable labor laws, Company A must compensate Mr. B for overtime, despite not working up to 40 hours a week.
Scenario B
Suppose Company B hires a factory worker to work on an 8 hours per day contract; however, due to an increase in demands, Company B asks the factory worker to work for an extra 2 hours. In that case, Company B must compensate for the extra 2 hours at a rate of one-and-a-half (1.5) times their regular hourly wage, in addition to their regular pay for the 8 hours worked.
How to Calculate Overtime Pay?
As a full-time employee, you can earn extra wages when you exceed your standard 40 hours workweek. Understanding how to calculate overtime pay will give you insight into how much additional pay you would get as a reward for working extra hours. According to the FLSA, the formula for calculating overtime payment is a non-exempt employee rate of pay x 1.5 overtime hours worked. To get your calculation right, you must know what category your employee belongs to know if they are worthy of overtime pay.
Firstly, companies can classify employees into two categories; exempt and non-exempt workers.
Exempt employees are not eligible for 0.5 per hour extra pay. These are salaried employees whose salary, position, and duties meet the “exempt employee requirements” set by the FLSA. An exempt worker must have a minimum salary of $684 per week or $35,568 per year and hold professional, executive, or administrative positions defined by the FLSA. These people are not entitled to an increase in payment for overtime.
Non-exempt employees, on the other hand, are hourly or contract workers with a per-hour wage. Salaried employees who do not earn less than $684 per week or $35,568 per year also fall under non-exempt employees. Non-exempt employees are eligible for an increase in payment when they work overtime. However, it’s important to note that the FLSA subjects overtime pay eligibility to state regulations. In some states, employees are subjected to both federal and state laws. Therefore, they have the liberty to choose the one with a higher amount.
So, to answer the question of how to calculate overtime pay for non-exempt employees, you need to determine the employee hourly rate defined in their contract agreement.
For example, if the employee earns $10,000 a year, divide it by 52 weeks. This means the employee earns $192.3 a week. Then, divide this number by 40 hours to know how much they earn per hour. In this scenario, the employee makes $4.8 an hour.
After determining the hourly rate, calculating overtime pay for non-exempt employees becomes easier.
For example, a non-exempt, hourly employee earns $20 per hour and works 48 hours in a workweek. They did not receive any overtime pay as required by FLSA. The worker’s overtime pay can be calculated as follows:
- $20 x 40 hours = $800 base pay
- $20 x 1.5 = $30 overtime rate of pay
- $30 x 8 overtime hours = $240 overtime pay
- $800 + $240 = $1040 total pay
The employee’s weekly pay is 800 a week, but with the extra 8 hours worked, the employee will get $240 as overtime pay, which rounds the figure to $1040.
What are the Legal Requirements for Paying Overtime?
According to the FLSA, a standard working week is 40 hours, meaning an employee works 8 hours daily for 5 days, consecutively. If employees work beyond those 40 hours, the FLSA law requires employers to pay one and a half times (1.5) for every additional hour. The FLSA law, however, exempts some classification of employees from overtime compensation, including executives, outside sales employees, highly compensated individuals, administrators, doctors, and police officers, among others.
To ensure compliance with this law, the Department of Labor’s Wage and Hour Division investigates hours worked, unpaid wages, and other employment practices. They enforce the provisions of the FLSA, recover employee overtime pay, and issue employer penalties for not paying overtime.
State-by-state laws
Here is an overview of overtime laws and regulations for each state in the U.S.
Employees in California must be paid double time if they have worked over 12 hours in a single day or have worked eight hours on the seventh consecutive day of a single work week. | |
Alaska recognizes over 40 hours worked in a week or more than eight hours a day. | |
Colorado overtime law applies to over 40 hours worked in a week, 12 hours in a work day, or more than 12 consecutive hours. | |
Kansas overtime law applies to over 46 hours worked in a week unless the employee is covered by the FLSA. | |
Maryland is governed by federal law, but there are some exceptions for specific professions. | |
Michigan overtime regulations apply to employers with two or more employees. | |
Minnesota overtime applies to over 48 hours worked in a week unless the employee is covered by the FLSA. | |
Nevada overtime law applies when over 40 hours are worked in a week or eight hours in a 24-hour period if the employee makes less than 1.5 times the minimum hourly wage. | |
New York overtime law applies to employees who would otherwise be exempt under federal law. Overtime pay must be at a rate of 1.5 times the minimum wage for these otherwise exempt employees. | |
Pennsylvania overtime law is governed by federal law, but some exempt employees may be included. | |
Vermont overtime law applies to employers with two or more employees. | |
Virginia overtime law applies to employees who are otherwise exempt under federal law. Virginia’s overtime law has harsher penalties for those who do not pay overtime correctly. |
How do Employers Violate Overtime Laws?
There are several violations of overtime law that result in penalties. Some of them include;
Misclassifying employees to avoid overtime pay
One of the ways some employers violate overtime laws is by incorrectly classifying employees. They misclassify an employee as exempt because they want to save money. Some companies may claim that the employee is an independent contractor or a salaried worker, and the FLSA does not protect exempt employees. Some employers take advantage of this loophole, thinking it’s okay to beat the law at its game.
Purposely exclude overtime hours when calculating pay
Cutting employees’ wages is not new in work environments. Some employers think paying employees for overtime is useless, so they exclude overtime hours when calculating their pay. They may have accurate records of employees working overtime but will exclude overtime hours from pay because they want to save more money. An employee who doesn’t have proof of working overtime will be scammed in their payment.
Asking workers to do additional work while not working on the clock
Some employers demand extra working hours from their employees when they’re “off the clock.” They use tactics such as scheduling meetings or assigning work after hours, or asking employees to work during weekends. It’s a shady practice some employers use because it makes calculator overtime a near-impossible task. If employees have to work more than the standard 40 hours, then they are entitled to overtime pay.
Using round-down time clocks
Time rounding involves employers rounding down employee hours that are recorded in a timesheet. Suppose an employee starts work at 8:47 am and stops at 4:45 pm. The total time is 8 hrs 2 mins, and the employer is legally required to round it to the nearest 5th or 10th minute, making it 8 hrs 5 mins. If the employer rounds it down to 8 hrs, however, they have violated the overtime law.
Denying overtime pay based on the employee’s title in the company
It might sound funny, but it happens. Some employers invent exaggerated titles like Lead Shower Door Installer. While this title may sound interesting to employees, it’s a ploy to avoid paying overtime. Some employers may classify employees with these titles as “exempt” to shy away from overtime pay.
Keeping inaccurate records
The FLSA states that employers should keep an accurate record of their employee’s hours and wages, including overtime. Not keeping accurate records violates the FLSA guideline. Some employers may think, “No record validates no payment,” but it’s a violation.
How are Employees Affected?
Understanding how overtime affects employees is crucial to the growth and development of every business. Some of the effects include;
Reduced morale
Many employees work overtime not because they enjoy it but because it provides extra money. So when employers deny them overtime pay, it reduces their morale and motivation to work. As a result, their once-burning passion for the job can be put off. Also, since there is no incentive to put more effort into the job, they have low or average productivity.
Financial loss
Unpaid wages will only lead to financial loss. Most employees need extra money, so they work overtime. They plan to use overtime pay to complement their earnings, feed their family, and pay their bills to achieve a better living standard. So, unpaid overtime might be a stumbling block to achieving financial stability.
Missed deadlines
Employees use overtime to complete tasks faster. They know there is a fee for working overtime. When they are not paid, they will be unmotivated to complete tasks, which can lead to a decrease in their career progress, poor client relationships, and even job loss if their employer places heavy sanctions on low performance.
What Are the Employer Penalties for Not Paying Overtime?
The U.S. government has designed laws to protect the interest of its citizens. This applies to employees who are denied their unpaid wages or overtime pay. To be frank, you should avoid these penalties as a small business owner or payroll manager if you want your business to thrive.
So, what’s an example of an employer penalty for not paying overtime? Here are a few:
Monetary penalties
Employers who deliberately violate the overtime pay requirement are subjected to pay a monetary penalty of $10,000. If an employer misclassifies an employee to avoid paying for overtime, they would pay 20% of all unpaid wages, $1,000 in criminal fines for each misclassification, 100% contributions for federal insurance contribution acts (FICA), and spend a maximum of one year in prison depending on the court’s order. They may also owe employees liquidated damages, legal fees, and back wages.
Lawsuits
Because paying overtime is a violation of federal and state laws, employees can file an overtime pay lawsuit. The best part is that employers will bear the cost of litigation for employees. If an employer is found guilty, they will be criminally prosecuted.
Criminal prosecution
Attorney generals, district attorneys, and criminal prosecutors are obliged to charge employers for violating labor law. The FLSA has a harsh criminal penalty for repeat violators, including $10,000 and six months imprisonment. Wage theft is an offense in the U.S., and violators are not spared.
Damage to reputation
A brand’s reputation can be damaged by lawsuits, fines, and criminal prosecutions. As a result, it can lose its credibility, trust with clients, and ability to attract potential clients. This is why violating federal and state overtime laws is like jumping into a fire voluntarily.
How to Avoid an Employer Penalty for Not Paying Overtime
Avoiding an employer penalty for not paying overtime doesn’t mean outsmarting the law, but acquiring all necessary knowledge not to break the law. Employer penalties can leave a permanent dent in your business, so avoiding them at all costs is wise. Here are a few ways you can avoid an employer penalty for not paying overtime.
Know the law
Having vast knowledge of the law will save you the trouble of answering subpoenas or spending your savings to pay out the debt. Labor laws have existed for over four decades, protecting employees’ employment rights. It is advisable to religiously comply with these laws to avoid criminal prosecution, reputation damage, and lawsuits.
Correctly classify employees
The FLSA defines non-exempt employees as eligible recipients of overtime pay. Non-exempt employees, mostly hourly workers, are eligible for overtime pay, and exempt employees who are primarily salaried workers do not qualify for overtime pay. Employers must correctly classify employees to avoid a $1,000 fine and a possible one-year jail sentence.
Establish a company overtime policy
An overtime policy protects your company from costly penalties and communicates to your employees how overtime is calculated. It also includes information about an employee’s classification and wage to ensure they know their entitlements.
Accurately track overtime
Many employers have faced penalties for not paying overtime because they did not track employees’ overtime accurately. Understanding how to pay employees and accurately tracking employee hours will help you pay the correct amount, which includes overtime and normal wages. If you’re on a lawful path to tracking overtime, you can also leverage an overtime tracking app like Workyard to automate timekeeping and simplify compliance.
Workyard is designed for contractors and field service businesses. It is an overtime app that provides businesses with unique, seamless, and accurate solutions for tracking employee hours, time tracking, location tracking, and overtime tracking.
It includes additional features for project tracking and invoicing, making it a comprehensive solution for contractors and field service businesses.
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