Payroll is one of the most complicated processes for any business. That’s why many owners hire a professional to handle it for them. Federal laws outline standards and requirements for compensating employees who work overtime hours. This comprehensive guide will help you understand overtime pay for your salaried and hourly workers.
What is Overtime?
If you manage a workforce eligible to receive overtime pay, it’s important to understand how the calculations work. Overtime compensation is earned when an employee’s weekly hours go over 40 hours. It’s a way to reward an employee for working beyond the usual expectations of their job and contributing to the company’s success.
Federal and state laws determine the amount of overtime pay and can vary from jurisdiction to jurisdiction. However, some general rules apply to all employers. For example, in most states, employees must be paid at least 1.5 times their hourly rate for the first 40 hours worked in any week.
The total number of overtime hours for the week must then be multiplied by this rate to determine the gross overtime pay due to an employee. Many employers mistakenly assume salaried workers are exempt from overtime pay, but that is not always true. Laws defining exempt and nonexempt status depend on several factors, including the nature of an employee’s job duties and salary. Misclassifying an employee can be very costly to a business, even if the employer did not mean to deprive the worker of overtime payments.
Salaried employees can qualify for overtime pay just as hourly employees do if they meet all applicable federal and state laws. Federal rules require that the employee’s regular pay rate be at least 1.5 times the overtime pay rate, and some states set this threshold even higher.
It’s also important to note that while overtime pay is required for workers who exceed 8 hours per day or 40 hours in a workweek, these rules do not necessarily apply to nights, weekends, or holidays. Most employers do, however, pay extra for work performed on these days, but that is completely optional and voluntary on the part of employees.
For salaried workers, calculating overtime pay is simpler than for hourly employees because their salary is the standard base for the calculation. Overtime is determined by dividing an employee’s salary by the normal pay rate for the position and multiplying that figure by the number of overtime hours a week. For example, a $15 hourly wage becomes $120 for an overtime week (multiplied by the overtime rate).
All companies must keep track of their employees’ working hours to accurately calculate overtime pay. Ideally, this is done using a time and attendance system that can consider various work schedules and is especially useful for companies with remote or mobile workers.
Exempt Employees
As a manager, you may occasionally ask employees to work overtime to meet deadlines or address staffing issues. However, it’s important to understand how this impacts their pay — and the laws that govern them. Federal and state laws require most employers to pay employees overtime for hours worked more than the standard 40-hour workweek. But this law contains several exceptions, which are “exempt.” Exempt employees don’t receive overtime; you cannot force them to work extra hours. Exempt employees must satisfy a three-part test to qualify as such.
They must be paid a salary, earn above the minimum wage, and perform certain job duties to be considered exempt from the Fair Labor Standards Act (FLSA) overtime requirements. These tests are narrowly construed and are not concerned with a particular employee’s title or civil service classification.
The only way to determine whether an employee’s actual job functions fall under the exempt category is to review their duties carefully. For instance, a worker must regularly supervise two or more employees and perform highly skilled intellectual work that requires discretion and judgment to be properly classified as exempt. In addition, the employee’s salary must be at least $684 a week or $35,568 annually. Typically, managers and executive-level positions are exempt from overtime rules, as are some workers in accounting, financial services, transportation and delivery, investment, or computer-related professions. Other places commonly exempt from overtime include those with genuine input into hiring, firing, and assigning other employees. Many exempt employees must be on call and available for business travel when necessary.
These requirements can make it difficult to schedule employees for the exact number of shifts you need each week. You can incur costly overpayment if your scheduling policies are not carefully reviewed and adjusted. Ensuring strict compliance with all FLSA wage and hour provisions, including overtime pay requirements, is crucial. The employment and labor law team advises clients on these issues and helps them develop appropriate overtime policies. They also guide related topics such as minimum wage, record keeping, and payroll tax filings. To learn more, contact a member of our firm today.
