Overtime Pay Laws: Everything You Need to Know
Overtime pay laws are an important aspect for any company to think of when choosing to bring on new employees.5 min read
Overtime Pay Laws
Overtime pay laws are an important aspect for any company to think of when choosing to bring on new employees. Such laws dictate what types of industries as well as what types of employees can benefit from overtime pay. The Fair Labor Standards Act (FLSA) was implemented in 1938 to set forth a minimum wage rate and establish wage rules for employees, particularly those under the age of eighteen. When employees works over 40 hours a week, they are entitled to overtime pay, which is equivalent to time and a half. In May 2016, the Obama Administration sought to amend the rules under the act, increasing the salary threshold to $47,476. Immediately thereafter, a federal judge issued a preliminary injunction after several businesses and 21 states sued. Therefore, there is clearly debate surrounding the amending of such laws and the rights and responsibilities of employers and employees in this space.
Keep in mind that many states have their own overtimes rules; however, the federal government sets the minimum wage rate by which employees must be compensated. Due to the ongoing debate surrounding overtime pay laws, the Working Families Flexibility Act is a new bill titled HR 1180 (not yet implemented) that would allow employers to provide employees with paid time off instead of overtime pay. Employees, however, must agree to accept paid time off as opposed to time and a half. While this bill has not yet been implemented, it has already been met with opposing views; therefore, we can expect to see continued debate before it is enacted into law.
Who is Eligible?
If you are an employee who doesn’t work at least 80% of the time in an administrative, professional, executive, or sales capacity, then you have rights to overtime compensation. If an employee is in fact entitled to overtime pay, the employer must pay at a rate of 1.5 times the regular rate for all hours worked in excess of 40 hours in a workweek. Other types of employees who are exempt from receiving overtime pay include those working on a small farm or in the production of livestock, certain student workers, babysitters, and elderly companions. Moreover, managers are exempt from such overtime pay so long as they are in charge of two or more full-time employees, earn a salary of more than $455/week ($23,600/year), and have a say in the hiring and firing of such employees. In fact, all employees who earn at least $455/week are exempt from receiving overtime pay. However, that doesn’t mean that companies won’t offer it, it just means that they are not required to do so under the law. Such employees must also receive the same compensation every week, nothing more. Once the employee begins receiving more than the usual pay, his or her status as an exempt employee would likely be changed to a non-exempt employee; therefore, he or she would be eligible to receive overtime pay. However, if the employee takes an unpaid day off or it is within the employee’s first or last week of work, then the fluctuation in weekly pay is not at risk of changing an employee’s status. Further, there are certain instance in which employees receive additional compensation for bonuses or even business reimbursement expenses. These would also be examples when it is acceptable for the employee’s paycheck to fluctuate. The Department of Labor has proposed a rule to increase the minimum weekly salary from $455 to $970 in order to be exempt. This would increase the percentage of employees eligible for overtime pay.
The New Rule
The Obama administration’s new rule under the FLSA increases eligibility, with an estimated 4.2 million additional workers now being eligible for overtime pay. This new rule aids low and middle-income workers who rarely see a significant increase in pay over a number of years. Under the new rule, roughly 35% of full-time salaried employees will be eligible for overtime pay when working over 40 hours. Specifically, this new rule is opposed by small business owners, nonprofit organizations, and universities. However, such companies may not shift the status of salaried, exempt employees to non-exempt hourly employees to be able to afford the costs associated with the new rule. According to the Obama administration, the new rule is a must as those exempt employees could work 50-60 hour workweeks with no overtime, thus making less than the minimum hourly wage rate after calculating the hourly rate for such work. The Labor Department estimates that the change will increase employee wages by at least $12 billion over the next decade. This new rule also plans to increase the overtime threshold every three years based on inflation rates; as such, the threshold could rise to over $51,000 by 2020. With that being said, the new rule could in fact cause companies to reduce their number of employees, reduce income, and hire less exempt employees.
College universities may have to remove certain services or even raise tuition in order to keep up with the new rule. In all, the new rule would benefit women, minorities, and younger workers the most.
While the new rule has been met with opposing view, supporters of the rule indicate that companies can save money by increasing their employees income to a higher threshold thereby avoiding having to pay overtime. Further, employers can reduce the costs by providing that employees can work no more than 40 hours/week regardless of the workload.
Exempt employees are those who receive an annual salary as opposed to an hourly rate. All exempt employees are paid for holidays when the company is closed. If such employees aren’t paid, the employer risks the status of the exempt employee being changed to non-exempt status, at which point employees can be paid overtime for the additional time worked over the ordinary 40 hours. In addition, if an exempt employee works on Christmas or any other federal holiday, he or she is not eligible for additional compensation or overtime pay.
Unlike exempt employees, non-exempt employees receive an hourly rate. Employers need not pay non-exempt employees additional compensation for holidays worked, although most companies will do so. Most companies will offer time and a half to non-exempt employee for working on a holiday. However, if a non-exempt employee doesn’t receive time and a half, any hours worked on top of the 40 hours will require overtime pay. Therefore, if a non-exempt employee works 45 hours in any given week, the additional five hours will require employers to pay time and a half.
Other Important Rules and Requirements
- Certain industries, including canneries, factories, and packing plants are required to provide overtime pay for working more than 10 hours in a day.
- County, city, and school district workers should collect overtime after working in excess of eight hours a day.
- Underground miners cannot work more than eight hours within a 24-hour period.
- Police offers, firefighters, and those working in hospitals, residential care centers, and nursing facilities have unique overtime rules.
- Employers must pay employees for time prepping to do the job. This can include changing into protective gear to do the job.
- Employers must pay for finishing up the work day, which can include cleaning your workstation before leaving work.
- Employers must pay for required training and other work-related meetings and events.
- If you are on-call, you will only be paid for time actually worked.
- Traveling time to/from work is generally not paid. However, if an employee is traveling for business, the days worked will be paid.
If you need help learning more about overtime pay laws, and your rights and responsibilities as an employer or employee, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.