It can be confusing to know when to pay overtime, right? There are so many factors that go into it and so hard to get all of that information in the same place. After reading this, we hope that you will easily be able to make the decision of when to pay overtime.
In the 1930’s, a note passed to President Franklin D. Roosevelt from a young girl in a crowd of people led to the Fair Labor Standards Act (FLSA) which protected workers from abuses that occurred during the industrial revolution and the great depression. Today, the FLSA dictates the way we work. It established the 40-hour work week, overtime pay, and child labor prohibition. Despite the landmark changes, there is plenty of fine print in the FLSA that makes it difficult to decipher.
Many small business owners do not understand federal overtime requirements. As a result, some small business owners are now being taken to court and forced to pay thousands of dollars in back pay. We’ve made it simple to learn the difference between exempt and nonexempt employees and what it means to you.
Exempt vs. NonExempt
These two terms determine which employees are eligible for overtime pay.
- Exempt employees: NOT eligible for overtime.
- Nonexempt employees: ARE eligible for overtime.
Employers are responsible for classifying employees to determine their overtime eligibility. Employees who are exempt (i.e. NOT eligible for overtime) must pass three tests:
- Income Level – Employees must be earning more than $23,660 annually (or $455 weekly). There is current legislation to increase this amount, but no changes have been approved as of March 2018.
- Salary Basis – Employees receiving a fixed salary. However, some salaried employees, such as nurses or police officers, can also be considered nonexempt employees and are eligible for overtime pay.
- Job Duties – There are several specific job duties that are exempt (NOT eligible for overtime):
- executive, administrative, and professional positions
- outside sales professionals.
- independent contractors
- volunteer workers (this exception rarely applies to for-profit companies)
- certain computer specialists (such as systems analysts, programmers, and software engineers) who earn at least $27.63 per hour
- employees of seasonal amusement or recreational businesses, such as ski resorts or county fairs
- employees of organized camps or religious or nonprofit educational conference centers that operate for fewer than seven months a year
- newspaper deliverers
- workers on fishing operations, small farms, seamen and certain switchboard operators
- criminal investigators, and
- casual domestic babysitters
Anyone else that doesn’t fall into the income, salary, or job descriptions classifications above is considered a nonexempt employee and is eligible to receive overtime wages.
The FLSA determines overtime standards as at least one and one-half times their regular rates of pay for hours worked in excess of 40 hours per week. However, some states even have daily overtime rates. That means that employees can only work a certain number of hours per day, even if they don’t come close to the 40 hours/week standard. The FLSA also makes it clear that employees cannot waive their overtime rights and employers
cannot offer comp time or rolling overtime into the next week’s paycheck as overtime alternatives.
Almost every employer is subject to overtime laws, even small business owners. There are two rules that capture nearly every business in the country.
- If you make more than $500,000 in annual sales, you are required to pay your employees overtime.
- If your employees work in what congress calls “interstate commerce.” This is any business between states. Before you think that doesn’t include you, think again. This includes making phone calls to or from another state, sending mil out of state, or handling goods that he come from or will go to another state.
Even if your business is tiny local, and isn’t covered by the FLSA (which is rare), it likely is still subject to your own state’s overtime law, which changes from state to state across the country.
Dealing with overtime pay can seem like a confusing issue, because it is. A wrong classification can mean a lawsuit, fines and back pay. Because the classification of employees can be complex and involved, it is generally recommended that you have professional assistance to help you work through all the FLSA rules.
Our professional human resources management services include professional payroll services that includes correct classification and payment of overtime wages to make sure you and your employees are protected and taken care of.
Reduce your headache and give us a call today!