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Overtime 101

This article was last edited on 09/10/2019. For updated information about the salary requirements for employees who are exempt from overtime, visit https://www.dol.gov/whd/overtime2019/index.htm.

You may be required to pay your employees extra for any time worked over 40 hours in a single workweek (recurring period of seven consecutive days). If a team member works overtime, you must add that pay to their paycheck – you cannot give them compensatory time off instead.

The Fair Labor Standards Act (FLSA) sets the federal rules about overtime pay. It doesn’t require you to pay overtime rates if a team member works on a weekend or holiday unless they’ve worked over 40 hours in the week. There’s also generally no limit on the number of hours of overtime a person can accumulate, as long as they’re older than 16.

What do I include when determining overtime hours?

When calculating overtime, take all time spent on job-related activities into account, whether the person is on-the-clock or ­off-the-clock.

  • On-the-clock is time spent on the business’s premises, including breaks and nonproductive time. For example, if your receptionist is reading a book while waiting for someone to enter, it’s still considered work time. The only exemption here is meals. These are not generally not included as long as the breaks are at least 30 minutes long and the team member is relieved of all duties during the meal. This is true even if the person must stay on the premises during their break.
  • Off-the-clock time includes working through lunches, taking job-related calls at home, or taking tasks home with them. Commuting to the office is only considered work time if the employee receives a phone call during their drive or otherwise performs job-related duties. If the worker visits multiple job sites during the day, the trip from home to the first site and from the last location back home are not considered work time. However, the drive from one place to another is.

Do I have to pay all my employees for overtime worked?

Only nonexempt workers are entitled to overtime pay when they work more than 40 hours in one week, and most hourly team members are considered nonexempt.

Some people, however, are exempt from overtime payments. To be exempt, they must

  1. be paid at least $23,660 per year, or $455 per week
  2. be paid on a salary basis
  3. perform exempt job duties, which include:
    • Executive – They must regularly supervise two or more employees and have management as a primary duty, including
      • interviewing, selecting, and training workers
      • firing or promoting team members
      • setting rates of pay and hours worked
      • maintaining production or sales records
      • evaluating productivity
      • disciplining staff
      • determining work techniques
      • planning and assigning tasks
      • planning budgets
      • monitoring for legal or regulatory compliance
    • Administrative – The team member must perform non-manual office work directly related to the management or general business operations of the company or its customers. They must be able to exercise independent judgment about significant matters.
    • Professional – The person must work in a learned position, which includes lawyers, doctors, nurses, teachers, accountants, engineers, and pharmacists. These jobs require education beyond high school and often beyond an undergraduate degree. Some creative professionals, such as actors, composters, cartoonists, and journalists, may also be considered exempt.

Read also: Why Should My Salaried Employees Track Their Time?

How do I determine overtime pay rates?

You can easily calculate your hourly workers’ overtime rates by multiplying their hourly rate by 1.5. For example, if an employee makes $9 per hour, they’d make $13.50 per hour for any time worked over 40 hours in a workweek.

If a salaried staff member is nonexempt from overtime, you have to take a few more steps to determine their overtime rate:

  1. Divide their annual wages by 52 to find out how much they make per week
  2. Divide their amount per week by the number of hours they typically work in a week to calculate their hourly rate
  3. Multiply their hourly rate by 1.5 to learn their overtime rate

For example, a salaried, full-time team member makes $20,000 per year and is not exempt from overtime.

  1. Divide $20,000 by 52 weeks to find their weekly rate of $384.62
  2. Divide $384.62 by 40 hours to learn their hourly rate is $9.62
  3. Multiply $9.62 by 1.5 to determine that their overtime rate is $14.42 per hour

To ensure you’re paying your staff correctly for all their time worked, including overtime, you must track their time accurately. Learn more about how Workful’s time tracking software can help.