Rules governing overtime pay are determined
by the U.S. Department of Labor under the authority of the Fair Labor
Standards Act (FLSA) passed by Congress in 1938. Those
rules require that employees covered under the law be compensated
at a rate of one and one half their regular rate of pay, for any hours
worked in one work week above forty (40) hours. Until recently, those
rules have remained largely unchanged for the last fifty years.
Below are very basic guidelines outlining the rules, but they do not
go into detail. The differences between the old rules and the
new ones effected on August 23, 2004 are also outlined.
As always,
one should seek legal counsel before implementing new company policies
affecting overtime pay. In the text below, terms in bold black
have a specific definition according to the law. For more information,
click this link for the Department of Labor:
DOLFairPay.
The
questions to address when determining overtime pay are:
1) Which employees are exempt, and which are not; 2) What constitutes
a work week, and 3) What is the regular rate of pay.
OVERTIME PAY RULES: THEN AND NOW & INFOLINKS
NON-EXEMPT AND EXEMPT SPECIFIED BY RULES
Exempt Versus Non-Exempt
Exempt
employees are those 'exempt' from (not covered by) the provisions
of the FLSA requiring (among other things) premium pay for hours worked
over forty hours in one week. Thus, non-exempt employees are those
that are covered by FLSA protections, and must be paid at time-and-a-half
their normal hourly rate for any hours worked above forty in one work
week. The following are the basic criteria for determining who is
exempt from overtime pay requirements (in most cases, all three must
be met to be considered exempt).
The 40-Hour Work Week
THREE BASIC TESTS TO DETERMINE EXEMPT STATUS
Salary Versus Hourly Pay. Employees paid a flat
salary, instead of by the hour, are almost always exempt from overtime
pay rules, assuming they meet the other two tests. One exception: computer professionals paid an hourly rate above $27.63 are exempt
from overtime pay rules. This has not changed with the new rules.
Duties
Performed. Up to August 22, 2004, to be exempt, an employee had
to qualify, in his or her actual performance of duties -
not just in job title or description, as one of the following
type of employee (for more detail click on each category's link):
In general, each of these categories call
for the employee to be primarily engaged in performing duties that
are administrative, executive, professional (as in requiring advanced
educational instruction and degrees from colleges or universities,
or require highly creative and artistic abilities), or computer-related in
nature. They generally call for the employee to exercise significant
discretion, independent judgement, and/or highly-specialized skills
in performance of their duties.
The new rules retain
the above categories, but further expound on two sub-categories
of the Professional Employee category: Learned Professional (as
in "intellectual") and Creative Professional (as in arts and
entertainment). In general, the new rules redefine, and broaden, the
criteria determining who falls under the above noted categories.
What this means is that more persons who did not fall into one of
the categories above, now will, potentially losing overtime pay guarantees.
Salary
Level. Up to August 22, 2004, to be exempt from overtime rules,
an employee had to be paid a salary of at least $155 per week, and
meet the strictest (narrowest) definitions of the categories noted
above. This strict criteria is largely gone with the new rules. If the employee was paid at least $250 per week, a looser, broader
definition, which covers more people, could be used to exempt an employee
from overtime pay. This looser definition largely remains, but the
minimum salary has been raised to $450 per week. This increase
in the minimum salary has the effect of reducing the number of people
who can be exempt from overtime pay. Thus, the confusion and
controversy as to whether more or less people will qualify as exempt
from overtime pay protection. Note that the exception in the
rules exempting hourly-paid computer professionals paid at least $27.63
per hour remains.
Other Rules. These are not comprehensive
rules. There are many other exceptions that may apply.
For example, those engaged in certain professions, such as those
engaged in harvesting specific agricultural products like tobacco, may
also be exempt from overtime rules, even if they do not qualify under
the above rules.
The rules noted above
cover most employees. The FLSA rules also single out some
professions for exempt or non-exempt status. Often, the
rules overlap, but they do take away discretion in using the above
criteria. For example, while someone applying the rules above
may come up and determine that a police officer is not exempt, FLSA
regulations specify it. In other cases, a designation is made,
the rules above notwithstanding. Some occupations singled out
for non-exemption, exemption, or clarification (for details, click
on each category's link):
In general, in determining when forty hours have
been worked in one week, one must stick to a standard seven day work
week, and one cannot offset overtime hours against another week with
less than forty hours worked. Some cases with irregular workweeks
have special rules. Some states, like California, have higher
overtime requirements, calling for overtime for more than eight hours
worked per day. Of course, the highest legal standard applicable
should be followed. Hours counted towards the forty are only
hours actually worked. Under FLSA, an employer is
not legally required
(though they may at their own discretion) to count other hours paid
such as for sick, vacation or holiday hours. Click this link
for exceptions (police, firefighters, nurses, etc.):
DOLeLawsOverT.
The Base or Average Hourly Rate
In general, in determining the base rate to calculate the premium
for overtime (to pay time-and-a-half), the actual amount paid for
hours worked, not the employee's standard pay rate, should be used
to determine the overtime premium. This includes any bonuses
that were paid based on the employees work (employee met a goal, produced
a set number of pieces, etc.) It does not include discretionary
bonuses that an employer is not obligated to award. The total
amount paid (before the overtime premium) for work done is divided
by the number of hours actually worked, including the overtime hours.
This will result in the average hourly rate, upon which an employer
must then calculate the overtime premium rate (i.e. Average Hourly
Rate X 1.5).
The following is written in a concise and broad manner so as to provide the reader with a general understanding of the topic, and as such, should not be cited in lieu of legal counsel or authority.
OVERTIME RULES
