Compliance Corner: June 2018
Answers to Important Overtime Questions
When I was a new employee entering the workforce for the first time, the concept of “overtime” seemed simple to me; if you work more than 40 hours in a week you are paid time-and-a half. Like most employee-employer relation issues, however, overtime rules are more complicated than you think. Calculating overtime can be confusing and mistakes costly. Consequently, to help you navigate through the complex world of overtime under the Fair Labor Standards Act (“FLSA”), here are answers to eight important questions.
What laws govern overtime?
The federal overtime provisions are contained in the FLSA, but some states and cities have their own overtime regulations. Therefore, it’s imperative for employers to know which law applies to their employees. When an employer is subject to state, municipal, and federal overtime regulations, the part of each law providing their employees with the greater rights or more generous benefits applies.
Are your employees correctly classified?
Correctly classifying employees as exempt or nonexempt is vital because nonexempt employees are entitled to overtime compensation and exempt employees are not. Although the FLSA specifies several categories of exempt employees, most workers are overtime-eligible and misclassifying nonexempt employees as exempt can lead to extensive liability.
How is overtime pay calculated?
The FLSA generally requires employers to pay non-exempt employees overtime at a rate not less than one and one-half times their regular rate of pay for all work hours exceeding 40 in a workweek. An employee’s regular rate of pay is calculated by dividing their total remuneration in a workweek, except for statutory exclusions, by their total hours worked in that workweek. Included in an employee’s regular rate are hourly wages, non-discretionary bonuses, commissions, shift differentials, on-call pay, and the reasonable cost of non-cash payments such as meals and lodging.
Can work hours be averaged over workweeks?
With very few exceptions the FLSA requires a single workweek when calculating an employee’s overtime compensation, regardless of the employer’s pay cycle. Each week stands on its own for overtime purposes. So, if an employer has a bi-weekly pay schedule and an employee works 32 hours in the first week and 48 hours in the second week, the employee is entitled to eight hours of overtime for working 48 hours in the second week. The bi-weekly hours cannot be combined and averaged to avoid paying overtime.
Is overtime based on hours worked or hours paid?
If an employee is compensated for time they do not work, such as vacation time or sick leave, these hours need not be counted in calculating overtime. For example, if an employee works 40 hours in a week and uses eight hours of paid vacation in the same week, the employee is paid for 48 hours but overtime is not owed because only 40 hours were actually worked.
Are rest breaks included when calculating overtime?
A rest break is any period lasting five to 20 minutes that an employee is free from work. Employee rest breaks are considered time worked and must be included when calculating overtime.
Should employees be paid for working unauthorized overtime?
Employers must pay for all time they are aware an employee works, even if that work time is not authorized. Unauthorized overtime should be addressed through employee discipline.
Can overtime be waived?
Employees may neither waive their right to overtime pay nor agree to work at a lower overtime rate than required by the FLSA.
Overtime FLSA Compliance
Compliance with FLSA overtime requires knowledge of who must be paid overtime, who is exempt, and how to calculate overtime. If an employer fails to properly pay overtime, affected employees can file a lawsuit seeking unpaid wages going back two years from the date the action is filed. If employees can show their employer willfully violated the FLSA, they may be entitled to unpaid overtime going back three years. With these large risks, employers should talk to legal counsel if they have any doubts about whether they are properly calculating overtime.