Managing HR Risk Part 2: Do I Have to Pay My Employees Overtime Pay?

This is a question that we get frequently, and it is one of the high-risk areas that virtually all employers need to deal with. The Fair Labor Standards Act (FSLA) is a federal law that covers this area.

Employees can be covered by the FLSA in two different ways. Employees are entitled to enterprise coverage if they work for businesses or organizations that have at least $500,000 per year in sales, hospitals, nursing homes, schools, or preschools. If there is no enterprise coverage, then employees may have individual coverage under the FLSA if their job duties involve them in commerce or the production of goods for commerce, like factory workers or people who travel to other states for their jobs. Domestic service workers, such as maids or full-time babysitters, also qualify for coverage under the FLSA.

Generally, if you allow your employees to work overtime, defined as any hours worked more than 40 hours in a one week period, you are required to pay your employees one and one-half times your normal pay rate, for those overtime hours worked. However, the FLSA contains several exceptions to the overtime pay requirement for certain kinds of businesses and certain kinds of employees. Because overtime pay can cost your business a significant amount of money, you need to be aware of which employees are "exempt” from the overtime provisions in FlSA and which are “non-exempt.”

For instance, the overtime pay requirement does not apply to regular hours worked on weekends, nights, and holidays, so long as there is not more than 40 hours worked in one week period. In other words, you are not required to pay overtime to an employee solely because he or she works on Sundays. Likewise, if your employees are executive, administrative, professional, computer, or outside sales employees, as defined by the Department of Labor regulations, and draw a salary of at least $455 per week, or $23,660 per year, then they are exempt from the overtime pay requirement.

Department of Labor regulations provide very specific guidance about which positions qualify as exempt, usually based on the types of duties that those positions involve, not the job title given by the company. For instance, in order for an executive position to qualify as exempt, the worker’s duties typically must involve management responsibilities, supervision of at least two other workers, and authority to hire and/or fire other employees. Likewise, in order for an administrative position to be exempt it must be at a level to direct a significant portion of the business, exercise broad discretion and independent judgement. A position like administrative assistant would likely not meet these criteria. Furthermore, these types of exempt positions usually must be paid on salary, rather than on an hourly basis.

You also have to be mindful of your employees’ duties when classifying them as exempt or non-exempt. Some positions require a worker to perform both exempt and non-exempt duties. Therefore, depending on whether the worker’s duties for that particular week qualify as exempt or non-exempt, you may or may not be required to pay that worker overtime, should he or she work more than 40 hours in a one week period. If the employee performs any non-exempt work during the one week pay period he or she must be paid as a non-exempt employee.

The law requires that covered employees be paid overtime pay for hours actually worked in excess of 40 hours per week. Paid vacation, sick, PTO, bereavement or other types of paid time off do not count toward the 40 hours worked. For example, an employee works 10 hours per day Monday through Thursday, and takes a PTO day on Friday. You would pay him 48 hours of straight time pay.

One area that some companies get into trouble with is withholding pay because they did not authorize the employee to work those hours. The law is very clear on this. If they worked the hours, they must be paid for them, even if they didn’t have approval to work them.

Finally, some states have also enacted laws that mandate overtime pay in certain circumstances, or that provide for overtime pay that is more than the FLSA standard of one and one-half times the regular wage. If both the FLSA and a state overtime law apply to your business, you must pay whichever overtime rate is higher to your non-exempt employees who work overtime.

If you have any questions please give us a call at 515-962-7035 and we will be glad to assist you.

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