When your employees work over 40 hours in one workweek, you may be required to pay them overtime.
The Fair Labor Standards Act (FLSA) has set overtime pay at one and a half of your employee’s regular pay rate. When an employee works overtime, you must pay them on the regular pay day for the pay period in which they earned overtime. You must pay your employees for overtime in money – you cannot give them compensatory time off instead.
The FLSA does not require you to pay your employees overtime for Saturdays, Sundays, or holidays, if they haven’t worked over 40 hours in the workweek. There is no limit on the number of hours an employee can work, if they’re over 16 years old.
When calculating overtime, take all worktime into account. The FLSA considers all time spent performing job-related activities worktime, whether the employee is “on the clock” or “off the clock”.
On the Clock
Time spent on your company’s premises is worktime, including breaks and nonproductive time. For example, a receptionist reading a book while waiting for the phone to ring is considered worktime.
The only exemption to this is meal breaks. Meal breaks are not considered worktime, even if your employees stay on the premises, if the breaks are at least 30 minutes long and the employee is relieved of all work duties during the meal.
Off the Clock
“Off the clock” worktime includes working through lunch, taking work-related calls at home, and taking work home with them.
Commutes to and from the office are not considered worktime, unless an employee takes a phone call during their drive or otherwise performs work-related duties. If an employee drives to multiple job sites throughout the day, the drive from home to the first job site and from the last job site to home are not considered worktime, but the drive from one job site to another is worktime.
Nonexempt employees are entitled to overtime pay when they work more than 40 hours in one workweek. Most hourly employees are considered nonexempt.
You are not required to pay exempt employees overtime. An employee’s exempt status depends on:
To be exempt, an employee must be paid at least $23,660 a year, or $455 a week, on a salary basis.
What Kind of Work Performed
To be exempt, employees must perform exempt job duties, which are executive, administrative, or professional in nature.
An employee performing executive job duties must regularly supervise two or more employees. They must also have management as one of the primary duties of their position, including
interviewing, selecting, and training employees;
setting rates of pay and hours worked;
maintaining production or sales records;
handling employee complaints;
determining work techniques;
planning and assigning work;
planning budgets; or
monitoring work for legal or regulatory compliance.
The employee must also have genuine input in the job status of other employees, including hiring, firing, and promoting employees.
Administrative job duties include non-manual office work directly related to the management or general business operations of the company or its customers. To be considered an administrative job, the employee must be able to exercise independent judgment about significant matters.
Professional jobs are learned professions, such as lawyers, doctors, nurses, teachers, accountants, engineers, and pharmacists. These jobs require education beyond high school and often beyond an undergraduate degree.
Some “creative” professions are also considered exempt, including actors, composers, cartoonists, and journalists.
Overtime for Salaried Employees
Not all salaried employees are considered exempt from overtime regulations. If a salaried employee earns less than $23,660 a year, or $455 a week , you are required to pay them overtime. You’ll convert their salary into hourly pay to determine their overtime pay rate.
Overtime Final Rule
Update: On March 7, 2019, the DOL announced a proposal to the overtime standard salary level. In their proposal, employers would be required to pay overtime to employees who earn $35,308 or more per year ($679 per week). Click here for more information.
The Department of Labor (DOL) proposed a rule that was originally supposed to take effect December 1, 2016. The new rule would require employers pay overtime to employees who earn less than $47,476 a year, or $913 a week.
In November 2016, a federal judge blocked the rule from taking effect, and the DOL has until May 1, 2017 to decide whether they will appeal the judge’s decision.
**As of September 5, 2017, the DOL has dropped their appeal. The overtime salary threshold will remain at $23,660.**
What does this mean for you?
If you have salaried employees who meet all the exempt qualifications, but make less than $47,476 a year, it’s currently up to you whether you’ll pay them overtime. The DOL may retroactively put the new overtime rule into effect, if they win the appeal. If they do this, you’ll have to pay your employees for any overtime they’ve worked since December 1, 2016. If you want to avoid having to pay large amounts of overtime, consider paying your salaried employees overtime now.