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
2. The New Rule
3. Eligibility for Overtime
4. Exempt vs. Non-Exempt Employees
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. 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 18. When employees work 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.
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 percent 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.
Eligibility for Overtime
According to the United States Department of Labor (USDOL), a majority of employees must be paid 1.5 times their pay for any hours worked over 40 hours. However, the employee must be eligible for overtime. Those covered under the FLSA are eligible for overtime. But what types of employees fall under the FLSA? Below are some criteria that must be met in order for employees to be eligible under the FLSA:
- The employer must make an annual profit of at least $500,000.
- If the employer doesn’t meet this monetary requirement, it doesn’t automatically mean that the employer is exempt from having to pay its employees overtime, particularly if the company operates as a hospital, school, or public agency.
- Certain employees not eligible for overtime include certain administrative or executive assistants and certain sales employees. Therefore, at times, these types of positions do not qualify for overtime pay. There are other specific guidelines and yearly amounts that must be paid in order for such employees to be ineligible for overtime pay.
It is important to keep in mind that states can provide additional monetary compensation for overtime pay laws on top of the federal requirement.
Exempt vs. Non-Exempt Employees
Before you can determine if you are qualified for overtime pay, you’ll need to identify if you are an exempt or non-exempt employee. Generally, this information is stated in the employment contract, and you should know ahead of time whether or not you will be eligible for overtime pay. An exempt employee is one who is generally paid a salary, and based on the job duties and level of compensation, is exempt from overtime pay under the FLSA. However, a non-exempt employee is entitled to overtime pay under the FLSA, and if the employer fails to provide a non-exempt employee with overtime pay, the employee can bring a claim with the United States Department of Labor.
In fact, some jobs are in itself exempt under the law. To fit the criteria for exemption, you must:
- Get paid at least $23,600/year. However, this requirement does not apply to professionals paid on an hourly basis, including doctors and teachers.
- Be paid on a salary basis
- Perform certain exempt job duties. These job duties can include managing others, otherwise working in a management-level position even if you have no direct reports, or have the ability to hire/fire others.
Examples of exempt professionals include lawyers, doctors, teachers, and the like. More specifically, any position requiring specialized training or a particular advanced education, will be exempt. Those operating in a position with a skilled trade, i.e., automobile mechanic, do not fall into this category.
Another gray area in the concept of whether an employee is exempt or non-exempt is one operating as an administrative or executive assistant. Generally, the FLSA indicates that certain job duties will indicate that the employee is exempt and cannot receive overtime pay. If working in this type of position, and you engage in office work that is directly related to the management or operations of the company, and have the responsibility of exercising independent judgment regarding significant matters, then you will be exempt. The FLSA specifically indicates that, while administrative staff have no significant specialized experience, they are at a higher level than those performing simple clerical tasks.
Before you begin working for a new employer, you’ll want to identify whether your employment contract specifies that you are eligible for overtime pay or if you are exempt. You’ll also want to find out how many hours/week you’ll be required to work. If you find out that others in a similar position at the same business generally work more than 40 hours a week, then you’ll want to make sure that the employer offers overtime pay.
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, Menlo Ventures, and Airbnb.