Reference: Federal Overtime Rules

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.

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).

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. Before and after August 23, 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 $455 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):

Blue-Collar Workers (DOL Link) (almost always non-exempt, regardless of pay test)

Construction Workers (DOL Link) (almost always non-exempt, regardless of pay test)

Financial Services Industry Employees (DOL Link) (clarification leaning to exempt)

First Responders (DOL Link) (Police, Firefighters, Paramedics, etc.) (clarification: usually non-exempt)

Insurance Claims Adjusters (DOL Link) (clarification leaning to exempt)

Journalists/Reporters (DOL Link) (clarification leaning to exempt)

Nurses (DOL Link) (clarifications)

Technologists and Technicians (DOL Link) (clarification: usually non-exempt)

Veterans (DOL Link) (clarification leaning to non-exempt)

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.

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).