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Sometimes, employees must put in more working hours than scheduled to help their employers achieve production targets or otherwise make progress as businesses. If you’ve ever dealt with overtime (or are expecting to), you know that as an employer, it’ll cost you more than the regular hourly rate.
Whether you’re an employer who wants to ensure compliance with U.S. labor laws or an employee seeking fair compensation for their hard work, you must understand overtime pay regulations to avoid getting in trouble with authorities.
This in-depth review of overtime pay in the U.S. provides valuable insights into the various legal requirements, calculation methods, and management strategies you should consider when managing this important aspect of your business’ payroll.
The Legal Landscape of Overtime Pay
All core federal overtime provisions in the United States are spelled out in the Fair Labor Standards Act (FLSA).
Under FLSA, all non-exempt employees are entitled to overtime pay for hours worked beyond 40 in a given workweek. Overtime pay is a form of compensation that ensures all eligible employees are compensated for any extra hours worked.
Per FLSA, the overtime pay rate across the country should not be less than 1.5 times the regular hourly rate of an employee. For example, an employee earning a regular hourly rate of $15 per hour would be entitled to overtime pay of at least $22.5 per hour.
FLSA does not limit the number of hours employees over 16 can work in a given workweek, nor does FLSA require employers to pay employees overtime rates for ordinary work on holidays, weekends, or regular rest days – unless overtime is worked on these days per the company’s policies.
Generally, the FLSA’s federal overtime laws apply on a workweek basis, defined as a period of 168 consecutive hours spanning seven 24-hour periods.
A workweek doesn’t have to coincide with a regular calendar week – they may begin on any given day or hour of the day. For example, a workweek can begin on Tuesday at 9:00 a.m. and end the following Tuesday at 8:59 a.m. Employers also establish different workweeks for different employees or employee groups.
However, overtime wages earned in any given workweek must always be paid on the next regularly scheduled payday, together with the rest of the regular hourly wages earned during the same period.
Although most companies are subject to FLSA overtime regulations, a few exceptions exist. The FLSA covers businesses if they meet any of the following requirements:
- Makes more than $500,000 in gross annual sales
- Formed as an activity of the government
- Health- or education-oriented
- Engaged in interstate commerce in any capacity
Even if your company does not fall under the first three categories, it’s likely to be covered by the last one. A business engaged in interstate commerce is any business that handles products moving from one state to another, sends mail out of state, or makes phone calls to individuals based in other states.
The final stipulation alone covers nearly every business in the United States, as it’s pretty hard to do (most) business effectively without calling people in various places across the country.
Some states have their own overtime laws. In these instances, state overtime law typically adds additional guidelines on top of federal overtime regulations.
However, employers in states without their own overtime regulations must still follow federal overtime law by default. In states with both federal and state-specific overtime laws, employers must abide by whichever law provides employees with the highest overtime earnings.
In the case of remote workers operating in states different from their employers, the laws of the state in which they’re physically located control overtime considerations, regardless of where the company is based.
For example, if a remote worker lives and works in Washington state and their employer is located in New Mexico, the company should use Washington’s overtime laws to process that employee’s overtime pay.
Difference Between Non-Exempt and Exempt Employees
There are certain exceptions to federal and state overtime laws.
An employee’s eligibility for overtime pay is usually based on their classification as non-exempt or exempt. Non-exempt employees earn at least the minimum wage and are covered by the FLSA.
Most non-exempt employees are paid on an hourly basis, but some are paid a fixed salary. Non-exempt employees often work in the retail, hospitality, transport, construction, manufacturing, and healthcare industries.
Some examples of non-exempt employees can include:
- Administrative assistants
- Construction workers
- Contractors
- Paramedics
- Police officers
- Firefighters
- Retail associates
- Electricians
- Carpenters
- Licensed practical nurses (LPNs)
According to FLSA, exempt employees work in administrative, executive, or professional positions, earning at least $684 per week. These employees are usually paid on a salary basis, which cannot be reduced based on the quality or quantity of their work.
To be considered exempt under FLSA, an employee must perform duties requiring discretion, independent judgment, and little direct supervision.
Here are some examples of FLSA-exempt employees:
- Executive, administrative, and professional employees paid on a salary basis
- Certain computer specialists (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 from for-profit organizations
In recent years, some states have established additional requirements that have shrunk the exempt category. You’re encouraged to stay current with overtime laws and regulations in your state to avoid misclassifying an employee as exempt.
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State Variations and Their Impact
Most states base their overtime rules on a 40-hour workweek and abide by federal overtime regulations under FLSA. However, some states’ overtime regulations differ from the federal overtime laws. These states include:
California
Overtime pay in California follows stricter regulations than those stipulated by FLSA.
In California, like most states, employers must pay non-exempt 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.
However, the Golden State has a double-time pay law that kicks in whenever employees work more than 12 hours in a given workday or eight hours on the seventh consecutive 24-hour period in a workweek.
California’s overtime and double-time laws do not apply to non-exempt employees who have agreed to alternative workweek schedules. Such schedules can require employees to work up to 10 hours a day without accruing any overtime.
However, non-exempt employees in California may still be entitled to overtime wages if they’ve worked more than the hours indicated on their alternative workweek schedules or simply worked more than 40 hours in a given workweek.
At least two-thirds of affected employees must agree to an alternative workweek schedule for it to be considered valid.
Alaska
Under Alaska’s overtime law, non-exempt employees are entitled 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 cover employers with less than four employees. Alaska’s overtime laws also stipulate several other exemptions for agriculture and aquatic life occupations.
Colorado
Colorado has a state overtime law requiring employers to pay non-exempt employees overtime wages for any work beyond 40 hours in a workweek, 12 hours in a workday, and/or 12 consecutive hours, regardless of the start or end of the workday.
Kansas
Kansas overtime law requires employers to pay employees overtime wages for hours worked beyond 46 in a workweek. However, since FLSA requires employers to award overtime pay for hours worked beyond 40, all Kansas businesses covered by this act 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, Minnesota businesses covered by FLSA should follow federal overtime law when calculating overtime pay for their employees.
Nevada
All employers in Nevada must follow the state’s overtime law. This law requires all employers to provide non-exempt employees with overtime pay for hours worked beyond 40 in a given workweek or eight in a given 24-hour period if the employee makes less than 1.5 times the applicable minimum wage per hour.
These requirements may be waived if the employee has agreed to work four 10-hour shifts in a given workweek.
Calculating Overtime Pay Accurately
Step-By-Step Guide to Calculating Overtime Pay
Here are the steps to follow when calculating overtime pay:
ESTABLISH THE EMPLOYEE’S EXEMPTION STATUS
The first step when calculating overtime pay is establishing whether an employee is exempt or non-exempt under FLSA criteria. Non-exempt employees are entitled to overtime pay for hours worked beyond 40 in a given workweek.
ESTABLISH YOUR WORKWEEK
In most states, overtime is based on the number of hours an employee works beyond 40 in a given workweek.
FLSA considers a standard workweek to be 40 hours, but employers are free to choose any fixed, regularly recurring seven-day period as their workweek. You should establish the exact day and time your workweek begins for payroll purposes.
TRACK WEEKLY HOURS
Tracking an employee’s hours in a given workweek is essential, especially for those working irregular or split shifts.
Using a timesheet or software to track your employees’ work hours is advisable. This makes it easier to know when employees cross the 40-hour threshold in a workweek and become eligible for overtime pay.
ESTABLISH THE HOURLY RATE
Establishing the hourly rate for non-exempt employees paid hourly is simple. Salaried non-exempt employee pay is determined by first establishing their weekly pay.
For example, if an employee’s annual salary is $60,000, their weekly pay is $1,154. If they work a standard 40-hour workweek, their regular hourly pay rate will be $28.85 ($1,154 divided by 40 hours).
DETERMINE THE OVERTIME HOURLY RATE
According to FLSA, overtime should be at least 1.5 times the regular hourly pay rate. Some employers may offer their employees double time or another unique overtime rate higher than 1.5 times the regular hourly pay rate. If you need to know your overtime rate, refer to your employment contract or employee handbook.
IDENTIFY OVERTIME HOURS AND CALCULATE OVERTIME PAY
When calculating overtime pay, only hours that an employee has actually worked go towards overtime. This means that non-work hours – such as holidays, rest days, and paid time off (PTO) – are not considered when computing overtime pay.
Once you’ve identified the total overtime hours an employee has accrued in a given workweek, multiply them by the overtime hourly rate.
ADD OVERTIME PAY TO REGULAR PAY
Finally, add the overtime pay to the regular pay to determine the employee’s total weekly compensation.
Examples of Overtime Pay Calculations
For Hourly Employees
If non-exempt employees’ regular hourly pay rate is $15, and they’ve worked 50 hours in a workweek, their total weekly compensation would be:
Regular pay: (40 hours X $15) = $600
Total overtime hours: 50 – 40 hours = 10 hours
Overtime hourly pay rate: $15 X 1.5 = $22.50
Overtime pay: (10 hours X $22.50) = $225
The employee’s total weekly compensation: $600 + $225 = $825
For Multiple Hourly Pay Rates
If a non-exempt employee worked 25 hours at $15 and 25 hours at $20 in one workweek, their total weekly compensation would be:
Total regular pay: (25 hours X $15) + (25 hours X $20) = $875
Weighted average rate: Total regular pay ($875) / Total number of hours (50 hours) = $17.50
Overtime hourly pay rate: Weighted average rate ($17.50) X 1.5 = $26.25
Overtime pay: Overtime pay rate ($26.25) X Overtime hours (10 hours) = $262.50
Total weekly earnings: Regular pay ($875) + Overtime pay ($262.50) = $1,137.50
For Salaried Non-Exempt Employees
If a non-exempt employee earns $600 a week and recently worked 50 hours, their total weekly earnings would be:
Total regular pay: $600
Regular hourly pay rate: $600 / 40 hours = $15 per hour
Overtime pay rate: $15 X 1.5 = $22.50 per hour
Overtime pay: 10 hours $22.50 = $225
Total weekly earnings: $600 + $225 = $825
Strategies for Managing Overtime in the Workplace
Best Practices for Employers to Manage Overtime
As an employer, it’s important to manage overtime effectively to ensure compliance with U.S. labor laws, save on labor costs, and maintain a healthy working environment. Here are some tips to help you manage overtime more effectively in your workplace…
Cross-Train Employees
You shouldn’t rely on a few individuals to perform various important job duties because a “mission-critical” employee’s absence can lower the productivity of your entire workforce. Hiring and training employees to handle various tasks and responsibilities in the workplace is generally advisable.
Doing so helps create a more flexible workforce and ensures company operations are minimally affected by a few individuals’ absence. This minimizes the need for overtime and boosts employee morale.
Implement Overtime Policies
FLSA does not limit the number of overtime hours non-exempt employees over 16 can accrue in a workweek. It’s up to employers to develop clear policies establishing a maximum allowable number of overtime hours in a given period and provide guidelines for overtime approval in the company.
Such policies ensure overtime hours are distributed equally among employees. These policies also reduce the risk of overtime abuse.
Workload Planning and Forecasting
One of the best ways to avoid unnecessary overtime is by adequately planning and forecasting labor demand. By assessing current economic trends, historical sales, and future projects, employers can more accurately anticipate when and where additional labor resources may be needed in the company.
This allows for proactive hiring and workforce allocation by employers, reducing the likelihood of using overtime.
Utilize Automated Overtime Tracking Solutions
Tracking employees’ regular work and overtime hours can be tedious if employers do it manually. Fortunately, they don’t have to.
By using an automated overtime tracking solution like Workyard, employers can easily track employee work hours and facilitate automatic overtime calculations on the go.
In addition to ensuring compliance with U.S. labor laws, efficient overtime tracking helps employers avoid costly errors and prevents workplace conflicts.
Tips for Maintaining Compliance and Employee Satisfaction
The following are helpful tips for maintaining overtime law compliance and employee satisfaction in the workplace:
- Familiarize yourself with relevant federal and state-specific overtime laws in your industry.
- Classify your employees accurately based on their job duties and salary level per FLSA criteria.
- Implement a reliable overtime tracking solution to avoid costly errors and prevent conflicts in the workplace.
- Provide your employees with clear overtime policies outlining the company's overtime rate and guidelines for requesting overtime.
- Provide your employees with generous and timely overtime pay in addition to their regular pay.
- Encourage employees to speak up about workload and offer suggestions regarding the company's overtime policies.
Common Misconceptions and Pitfalls
Addressing Common Myths and Misconceptions About Overtime Pay
Here are common myths and misconceptions about overtime pay to be aware of:
Myth: Salaried employees are ineligible for overtime.
Fact: Being paid on a salary basis does not exempt you under the FLSA criteria. Instead, a person’s eligibility for overtime pay in the United States is determined by their job duties, not how they’re paid.
Myth: Employers are not required to pay unauthorized overtime.
Fact: If a non-exempt employee has worked more than 40 hours in a workweek, they must be paid overtime wages whether or not their employer authorized the extra hours.
Myth: Employees can waive their right to overtime pay in writing.
Fact: Even if an employee signs a written agreement to waive their overtime pay, the employer still has to pay them their overtime wages.
Myth: Employers may offer employees compensatory time in place of overtime pay.
Fact: Under the FLSA guidelines, private-sector employers cannot offer employees compensatory time off (comp time) instead of overtime pay.
Myth: An employer may average employees' work hours over two weeks when determining whether they're eligible for overtime.
Fact: Under the FLSA, employers must pay their employees overtime wages for any overtime hours worked in a single workweek.
Guidance on Avoiding Common Errors
The following are some tips that can help employers avoid common errors and ensure accurate overtime calculations:
- Regularly review employee classifications to ensure they align with FLSA criteria.
- Decide on the workweek your company will use and apply it when calculating overtime pay for all non-exempt employees.
- Implement clear policies governing your company's overtime work, rate, and pay.
- Consider all forms of compensation, including bonuses, commissions, and allowances, when calculating the regular hourly pay rate.
- Adopt a reliable system for tracking employee overtime hours for better accuracy.
- Encourage employees to voice any concerns with their recorded regular and overtime hours.
- Encourage employees to voice any concerns with their recorded regular and overtime hours.
- Double-check your overtime calculations to minimize the risk of human error.
The Impact of Overtime on Employees and Business Operations
Impacts of Overtime on Employees
Positive Impacts
- Increased earnings for employees.
- May indicate an employee's value to the company, increasing job security.
- Working overtime is a beneficial way for employees to gain paid job experience and polish their skills.
Negative Impacts
- May cause poor work-life balance.
- May decrease employee productivity due to fatigue.
- Working long hours without adequate rest may result in adverse health effects.
Impacts of Overtime on Business Operations
Positive Impacts
- Helps companies achieve production goals and meet tight deadlines.
- Offers needed solutions to temporary and unexpected workload surges or staff shortages.
- Shows a commitment to employee success, boosting employee satisfaction and retention.
Negative Impacts
- Increases labor costs.
- May reduce efficiency if poor time management is rewarded with overtime.
- It may increase turnover due to burnout and job dissatisfaction.
Stay Compliant With State and Federal Overtime Pay Laws
Adherence to overtime laws helps foster a fair, healthy, and compliant working environment. As an employee, you can advocate for fair compensation and contribute to a positive workplace culture. Employers who understand their applicable overtime laws are more equipped to ensure compliance, promote a healthy work environment, and effectively manage employee payroll costs.
Need more detailed guidance? Click the link in this sentence for more information on tracking and calculating overtime.
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FAQs
Non-exempt employees under FLSA must be paid overtime for work beyond 40 hours at a rate not less than 1.5 times their regular hourly pay.
Under FLSA, several categories of employees are exempt from receiving overtime wages for hours worked beyond 40 in a workweek. They include independent contractors, administrative/executive/professional employees, outside sales individuals, and computer professionals.
Yes, it’s illegal under FLSA for employers to not pay non-exempt employees overtime wages after working more than 40 hours in a workweek. Employers who do comply with the federal overtime law may be subject to legal penalties, such as fines, back wages, and liquidated damages.
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