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Understanding and complying with federal overtime laws has become increasingly important in the evolving modern workplace.
Adhering to federal overtime laws, particularly as stipulated by the Fair Labor Standards Act (FLSA), ensures employer compliance and helps avoid unnecessary lawsuits, penalties, and potential damage to your reputation. On the other hand, understanding these laws helps employees ensure they receive complete and appropriate compensation for their hard work.
This comprehensive guide to U.S. overtime laws provides an in-depth review of the critical provisions in federal laws, how these laws impact employers and employees, and practical tips for compliance with federal overtime regulations.
Let’s get started…
Understanding Federal Overtime Law
What Is FLSA?
The Fair Labor Standards Act (FLSA) is a federal law enacted by the United States Congress in 1938. It covers several aspects of the employer-employee relationship, including overtime pay, child labor standards for employees in the private sector, minimum wage, equal pay, and recordkeeping.
FLSA stipulates that all non-exempt employees covered by this act are entitled to overtime pay for all hours over 40 worked in a given workweek.
Current Federal Overtime Provisions and Requirements
According to FLSA, the overtime pay rate must not be less than 1.5 times an employee’s regular hourly rate. FLSA also stipulates no limit to the number of hours employees over 16 can work in a workweek.
FLSA does not require employers to provide employees with overtime pay for work done on holidays, Saturdays, Sundays, or other regular rest days unless employees work overtime on those days
FLSA applies on a workweek basis. Under FLSA, a workweek is defined as a fixed set of 168 hours or seven consecutive 24-hour periods. These seven consecutive 24-hour periods need not coincide with the calendar week but may begin on any hour or day.
Employers can establish different workweeks for employees or groups of employees in their organizations, provided none of these variations exceed 168 hours. Overtime pay earned in a given workweek must be included with wages earned and paid on the regular payday for the pay period in which those wages were earned.
Any business covered under the FLSA is legally required to pay non-exempt employees overtime pay for hours worked above 40 in a single workweek. The FLSA covers all businesses with at least two employees if they meet the following requirements:
- Annual gross sales of more than $500,000
- Health- or education-oriented business
- Formed as an activity of the government
- Engages in interstate commerce in any way
Even if your business does not meet the first three requirements, it likely satisfies the fourth one – particularly if you do any business online. This provision covers all businesses that send mail, make phone calls, or engage in online commerce with persons in other states and/or handle products moving from one state to another.
In short, if your business receives any products from the neighboring state, makes products sold out-of-state, or sells anything in more than one state, you’re subject to FLSA.
Some states have their own overtime laws, but many others do not. States without their own overtime laws must adhere to federal overtime regulations. States with their own overtime laws usually consider them additive to (that is, applicable above and beyond) federal overtime laws. If a state’s overtime law happens to be weaker than FLSA and other federal regulations, employers in the state must abide by the more stringent overtime laws – typically defined as whichever set of regulations provides employees with the highest earnings.
Overtime laws apply to remote workers based on the state where they’re physically located, regardless of where their employer or company is located. For example, if a remote worker is located in Nevada and their employer is based in Indiana, the employer should follow Nevada’s overtime regulations for that employee.
Differences Between Exempt and Non-Exempt Employees
Employee eligibility for overtime in the United States is primarily determined by status – exempt or non-exempt.
Regardless of role or function, any employee earning less than the FLSA’s minimum wage threshold of $684 per week is typically considered non-exempt and is entitled to overtime pay. Although most non-exempt employees are paid hourly, some are paid a salary.
Being non-exempt simply means you’re covered by FLSA rules on wages and overtime pay.
Most non-exempt employees hold jobs that involve repetitive or routine tasks. Non-exempt employee types include electricians, carpenters, clerical/secretarial employees, general inspectors, quality assurance workers, construction or maintenance workers, licensed practical nurses (LPNs), and cashiers in retail businesses.
Exempt employees typically earn salaries that cover the time needed to complete a particular task or job. The FLSA provisions on minimum wage do not cover these employees, making them ineligible for overtime compensation.
Any employee earning more than $684 a week from a salary that remains the same every week – regardless of the quantity or quality of their work – is generally exempt from FLSA’s overtime pay provisions.
Employees must also meet certain job duty requirements as stipulated by the United States Department of Labor (DOL) to be classified as exempt. Generally, exempt employees work in positions related to the organization’s business operations and require an advanced degree or special skill.
These employees also perform duties requiring little direct supervision and are frequently managers or supervisors. Exempt employees are also expected to make relatively high-level business decisions.
Executive, administrative, and professional employees who meet the above criteria are the primary types of exempt employees.
Other exempt employees are:
- Certain computer specialists, such as programmers, graphic designers, web developers, and software engineers
- Independent contractors
- Doctors, lawyers, and teachers
- Accountants and marketing professionals
- Criminal investigators
- Seamen
- Employers of certain small newspapers and broadcasting channels
- Employees of seasonal and recreational establishments
- Employees who work on small farms
- Outside salespeople
- Volunteer workers (except those at for-profit organizations)
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Impact on Employers and Employees
How Federal Overtime Law Affects Payroll and Working Hours
Federal overtime law under the FLSA plays a vital role in shaping payroll practices in companies and employee working hours. Here are the various ways the federal overtime law affects payroll and working hours:
Payroll
When employees work overtime, their employer must pay them at least 1.5 times their regular hourly rate for hours worked over 40 in a workweek. This can easily impact labor costs, denting a company’s payroll budgets and throwing a wrench into its financial planning.
Compliance with federal overtime law requires employers to accurately track the total hours worked for every employee to calculate overtime rates correctly. This can be quite complex for companies with multiple varying employee classifications, work schedules, and pay rates.
Working Hours
Federal overtime law requires employers to schedule their workforces. Some employers may opt to spread working hours across the workweek, hire additional staff, and even offer some incentives to employees for voluntary overtime to manage overtime costs.
With these schedules in hand, employees can use a thorough understanding of federal overtime law to make informed decisions regarding their working hours by weighing the potential benefits of working overtime against their personal needs and desired work-life balance.
The Consequences of Non-Compliance for Employers
Under federal overtime law, employers must ensure non-exempt employees receive overtime pay for hours over 40 in a given workweek. Failure to pay overtime wages to these employees will result in potentially catastrophic consequences, including:
- An investigation by the United States Department of Labor (DOL)
- Civil Monetary Penalties (CMPs) of up to $10,000
- Class action lawsuits from employees
- Reputational damage to the business and/or brand
- Paying back owed overtime wages to employees
- Jail time for repeated violations of federal overtime law
Rights and Protections for Employees Under the Federal Overtime Law
Here are some core employee rights and protections in FLSA:
- Non-exempt employees are entitled to overtime pay of at least 1.5 times their regular hourly rate for hours worked above 40 in a given workweek.
- Overtime wages must be paid to all eligible workers on their regularly scheduled paydays.
- Employers must not discriminate against employees regarding the distribution of overtime hours or pay.
- Employers must inform employees about their overtime policies, eligibility, and how overtime pay is calculated.
- Employees can inquire about overtime rights without fear of retaliation.
- Employees can file complaints with the DOL if their overtime rights are violated.
- Employees can join collective actions against an employer for FLSA violations.
- Employers must keep accurate records of employee work hours and make these records accessible to all employees in the company.
Calculating Overtime Rates Under Federal Law
Step-by-step Guide for Calculating Overtime Pay
Here are the steps to follow when calculating overtime pay under the Fair Labor Standards Act (FLSA):
- DETERMINE THE EMPLOYEE'S NON-EXEMPT OR EXEMPT STATUS: Before calculating an employee's overtime pay, you must determine whether they're exempt or non-exempt. Non-exempt employees should receive overtime pay for hours worked beyond 40 in a workweek; exempt employees are not.
- ESTABLISH YOUR WORKWEEK: Since overtime is based on the number of hours worked above 40, establish the day and time your workweek starts. For example, your work week could begin on Monday at 8 a.m. and run through the following Monday at 7:59 a.m.
- IDENTIFY OVERTIME HOURS: Only hours employees have actually worked go towards overtime calculations. Non-work hours, such as paid time off (PTO), holidays, and weekends, are not considered.
- CALCULATE OVERTIME PAY: To calculate overtime pay, multiply the total number of overtime hours by the overtime rate. In most cases, the overtime rate is 1.5 times the regular hourly pay rate.
- ADD OVERTIME PAY TO REGULAR PAY: Once you've calculated overtime pay, add the result to the regular pay to determine the employee's total weekly salary.
- DETERMINE THE EMPLOYEE'S NON-EXEMPT OR EXEMPT STATUS: Before calculating an employee's overtime pay, you must determine whether they're exempt or non-exempt. Non-exempt employees should receive overtime pay for hours worked beyond 40 in a workweek; exempt employees are not.
Example
Suppose a non-exempt employee earns $15 per hour and worked 50 hours in the previous workweek. What is their total compensation for that week? The calculation would be as follows:
The employee’s regular pay: 40 hours ✕ $15 = $600
Overtime hours: (50 – 40) hours = 10 hours
Overtime rate: $15 ✕ 1.5 = $22.50
The employee’s overtime pay: 10 hours ✕ 22.5 = $225
The employee’s total weekly gross pay: $600 + $225 = $825
Common Pitfalls When Calculating Overtime Pay and How to Avoid Them
The following are some of the most common mistakes employers make when calculating overtime pay and how to avoid them:
- MISCLASSIFICATION OF EMPLOYEES: Misclassifying non-exempt employees usually results in underpayment. If an employee finds out they've been misclassified, they can take legal action against their employer and demand back pay. The best way to prevent this is to review employee classifications to ensure they align with FLSA regularly.
- EXCLUDING COMPENSABLE TIME: Some employers may fail to include all compensable time when calculating an employee's regular and overtime pay. The most common compensable time issues often relate to waiting time, training programs, off-the-clock time, and volunteer activities. Employers can avoid confusion about compensable time by implementing clear work-hours policies.
- USING THE WRONG OVERTIME RATE: It's not unheard of for employers to use the wrong overtime rate when calculating employee overtime pay. For example, some may use the base hourly rate instead of the federal overtime rate. Always double-check the overtime rate to ensure you're using the correct one.
- IGNORING STATE-SPECIFIC OVERTIME REGULATIONS: One of the most common mistakes employers make when calculating overtime pay is focusing solely on federal overtime regulations and ignoring state-specific ones. If the company is based in a state with defined overtime laws, the employer should use whichever overtime rate that provides the employees with the highest earnings.
Navigating Compliance: Tips for Employers and Employees
Best Practices for Employers in Complying With Federal Overtime Laws
Here are some tips to help employers comply with federal overtime regulations and avoid costly legal consequences:
- Keep detailed records of the total number of hours worked by every employee, including their regular and overtime hours.
- Implement transparent pay policies that indicate the minimum wage rate, applicable bonuses or deductions, and any guidelines regarding tip credits.
- Stay current with federal and state-specific overtime regulations and minimum wage rates.
- Implement accurate timekeeping systems to keep track of employee working hours and avoid issues related to time theft in the workplace.
- Regularly review employee classifications under FLSA to ensure all employees are classified correctly based on their job duties and salaries.
- Encourage employees to ask questions regarding overtime pay, their eligibility, and potential violations that may lead to legal trouble.
Advice for Employees on Ensuring Their Rights Are Protected
As an employee, it’s crucial to understand your overtime rights under the federal overtime law to ensure you’re compensated fairly for your work. Here are some helpful tips to ensure your overtime rights are protected at all times:
- Understand whether you're classified as exempt or non-exempt under the FLSA guidelines.
- Take your time to educate yourself on the current federal overtime laws and state-specific overtime regulations.
- Maintain accurate records of your regular and overtime hours in a given workweek.
- Review your pay stubs to ensure that your regular and overtime hours are indicated correctly.
- Familiarize yourself with how overtime pay is computed at your current workplace.
- Do not be afraid to ask your employer questions regarding the company's overtime policies, overtime pay rate, and your eligibility for overtime pay.
- Seek legal advice if you encounter any workplace issues with overtime pay or FLSA violations.
Here are some resources you can use to access more information and assistance regarding overtime:
Understanding Your Rights and Responsibilities
Rights and Responsibilities of Construction Workers and Employers Under the Federal Overtime Law
Construction Workers' Rights:
- All construction workers, including older workers, immigrants, and youth workers, must receive at least the federal minimum wage for hours worked.
Tip: Employers should use whichever is higher between state-defined and federally-set rates.
- Eligible construction workers must receive overtime pay for any work hours beyond 40 in a workweek.
Tip: If a construction worker works 50 hours in a given work week, the extra 10 hours beyond the standard 40 hours should be compensated at the federal or state-specific overtime rate.
- Construction workers can pursue legal action against an employer over FLSA violations and/or unsafe working conditions without fear of retaliation.
Tip: If workers face retaliation for asserting their rights, they should seek legal advice.
- Upon request, construction workers must receive access to their records of regular and overtime hours worked.
Tip: Workers’ personal records should always match their employer’s records to avoid disagreements over pay.
Responsibilities of Employers in the Construction Industry
- Employers must pay eligible employees overtime and regular wages on the regularly scheduled payday.
Tip: Employers should use the correct overtime pay rate when calculating employee overtime pay to ensure every employee is appropriately compensated.
- Maintain accurate records of regular and overtime hours worked by all employees.
Tip: To ensure accuracy, employers should regularly compare their records with employees’ records.
- Employers in the construction industry must swiftly respond to employee complaints regarding FLSA violations and implement the proper corrective measures.
Tip: This can be done by establishing open communication channels to encourage all employees to come forward and raise their concerns.
- Employers must provide all employees with a copy of the company's minimum wage and overtime pay policies.
Tip: Employers should use language all employees can understand to educate them about these policies.
Key State Overtime Laws That Supersede Federal Law
Although the FLSA sets rules for overtime pay across the United States, some states have enacted their own overtime laws as well. These states often enact laws more generous than FLSA regarding overtime eligibility, the overtime threshold, and double-time pay, among other aspects.
Some states with unique overtime rules overriding federal overtime regulations include California, Minnesota, Kansas, Colorado, and Alaska.
Here’s a breakdown of these states’ unique overtime laws and their overall implications for businesses and workers:
Alaska
Alaska’s overtime law entitled non-exempt employees to overtime pay if they work more than 40 hours in a given workweek or more than eight hours a day.
However, the state’s overtime laws do not apply to employers with fewer than four employees. Alaska’s overtime laws also stipulate several other exemptions related to agriculture and aquatic life occupations.
California
In California, employers must pay their employees 1.5 times the regular hourly pay rate if they’ve worked more than 40 hours in a workweek, eight hours in a workday, and/or six days in a workweek. The Golden State also has a double-time pay law that kicks in if an employee works more than 12 hours in a given workday or eight hours on the seventh consecutive 24-hour period in a workweek.
Colorado
Colorado has a state overtime law requiring employers to pay non-exempt employees overtime wages for hours worked beyond 40 hours in a workweek, 12 hours in a workday, and 12 consecutive hours, regardless of the start or the end of the workday.
Kansas
Unlike most states, Kansas overtime law requires employers to pay employees overtime wages for any hours worked beyond 46 in a workweek.
However, since FLSA requires employers to award overtime pay for hours worked beyond 40, all covered Kansas businesses must follow federal law when computing overtime. Kansas businesses not covered by FLSA should abide by the state’s overtime law for non-exempt employees.
Minnesota
Under Minnesota’s overtime law, employers must pay overtime wages to employees who have worked more than 48 hours in a workweek. However, like Kansas, covered Minnesota businesses should follow federal overtime law when calculating employee overtime pay.
Ensure Compliance With Your State and Federal Overtime Laws
Understanding and adhering to federal overtime laws, specifically the Fair Labor Standards Act (FLSA), is crucial for employers and employees in the modern workplace.
In addition to ensuring employees receive proper pay for their hard work and maintain a healthy work-life balance, understanding federal overtime regulations also helps ensure compliance and avoid costly civil penalties.
For more information on calculating overtime in your company, check out this article.
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