If you pay employees, you need to know about overtime pay laws and how they can affect your business. So, what is overtime? Dive into everything you need to know about overtime pay below.
What is overtime?
Overtime wages, or time and a half, are 1.5 times an employee’s regular pay rate for each hour worked over 40 in a workweek. So if an employee makes $20 per hour, their overtime rate would be $30 (1.5 times their regular rate of pay).
An employee receives overtime pay if they work more than 40 hours per week. However, the employee must meet certain criteria to qualify for overtime pay (stay tuned for more information on that).
Federal overtime laws
To protect employee rights, federal overtime laws ensure qualifying individuals receive compensation for extra work. Unless an employee has exempt status, you must follow the federal overtime law.
The Fair Labor Standards Act (FLSA) sets overtime rules and requires most employers to give nonexempt employees overtime pay for additional hours worked. The goal of the FLSA is to protect nonexempt employees.
It’s important to know how to correctly classify exempt and nonexempt employees so you can avoid FLSA overtime violations. So, what’s the difference between exempt vs. nonexempt employees?
Nonexempt vs. exempt employees
Again, under the FLSA, you must pay nonexempt employees overtime pay. You must pay nonexempt employees at least the federal minimum wage and overtime pay for any hours worked over 40 hours per week.
Employees are nonexempt unless they qualify for exemption under one of the following:
- Executive, administrative, or professional exemption
- Earns a salary,
- Makes at least $35,568 per year ($684 per week)**, AND
- Has high-level job responsibilities that qualify for exemption (i.e., executive, administrative, or professional duties)
- Computer exemption
- Receive a salary of at least $684 per week or a fee of at least $27.63 per hour,
- Work as a computer system analyst, computer programmer, software engineer, or something similar, AND
- Have primary duties that meet the FLSA’s computer exemption requirements
- Outside sales exemption
- Has a primary duty of making sales or obtaining orders or contracts AND
- Is regularly engaged away from the main business office
- Highly compensated employee exemption
- Receive annual compensation totaling $107,432 or more
- Perform at least one of the executive, administrative, or professional duties
Nonexempt employee example: Say your employee earns $600 per week. Because they earn below the threshold set by the FLSA, they are considered nonexempt. Therefore, you must pay them an overtime wage if they work more than 40 hours in a week.
Exempt employee example: You have an employee that has administrative job duties and receives a salary. However, they do not earn above the threshold. Because they do not meet all three requirements, they are not considered exempt.
State overtime laws
Some states have additional overtime laws you must follow as an employer. All states must use the federal law as a baseline. However, each state can add their own overtime rules.
State overtime laws may include additional rules for working beyond a certain number of hours in a workday. For example, in Alaska, nonexempt employees receive overtime pay if they work more than eight hours in a day.
Other states, like California, may even have a double-time law where employers must give employees double their regular pay for certain hours worked over.
Brush up on overtime laws by state. And, be sure to check with your state Department of Labor for more information.
Overtime rates
Compensate nonexempt employees with the federal overtime rate (time and a half) unless your state enforces other overtime laws.
The FLSA does not limit the hours a person 16 years or older can work as long as they are fairly compensated. For example, if a nonexempt employee works 70 hours in one week, it is legal as long as you compensate them with overtime pay.
Many businesses choose to offer their employees time and a half if they work holiday shifts, even if they work less than 40 hours in the workweek (aka holiday pay). However, there is no federal overtime law on whether employees should be paid the overtime rate for working holidays.
Overtime example
Let’s say you have a nonexempt employee who earns $10 per hour. They work 50 hours during the week. You have to pay them the normal wages for the first 40 hours and overtime for 10 hours.
First, find your employee’s overtime pay rate.
- Regular Rate of Pay X 1.5 = Overtime Rate
- $10 X 1.5 = $15
Next, calculate the employee’s regular pay and overtime pay separately.
- 40 hours X $10 = $400 (Regular pay)
- 10 hours X $15 = $150 (Overtime pay)
Finally, add together the two wages to get the employee’s gross pay.
- $400 + $150 = $550
Your employee’s gross wages are $550.
Keeping overtime records
FLSA timekeeping requirements are another part of overtime pay rules. As an employer, you must keep payroll records for each employee. These records are important in case your employee claims you violated FLSA requirements.
Your payroll records must contain personal information like an employee’s name, address, birth date, etc. You must also keep attendance management records that indicate the number of hours an employee works each week.
Here are some of the records you need to hang onto relating to work, pay, and overtime:
- Time and day of the week that the workweek begins
- Hours worked each day
- Total hours worked each week
- Hourly pay rate
- Overtime earnings each week
The last thing you want to do is violate FLSA overtime requirements. With Patriot’s online payroll software, recording, calculating, and paying your employees’ regular and overtime hours is easy. And, our software lets you run your payroll in three easy steps (saving you time and money!). Try it for free today!
This article has been updated from its original publication date of March 29, 2017.
This is not intended as legal advice; for more information, please click here.