10 Essential Facts About Overtime

These days, figuring out how to legally give overtime to your employees can be complicated and time-consuming. To help you navigate through the world of overtime, a basic review of the high points of federal overtime requirements is in order.

FLSA Overtime and Overtime Law:

1. What is overtime?

Overtime is a provision of the Fair Labor Standards Act (FLSA overtime) enacted in 1938, which is enforced by the U.S. Department of Labor.

Overtime is an incentive for employers to hire more workers, rather than overwork current employees. It’s also in place to discourage employee exploitation—making employees work more hours for no more pay.

Overtime requires most covered employers to pay non-exempt employees 1.5 times their regular rate of pay for more than 40 hours worked in a seven-day workweek.

2. There are no overall exemptions from payment of overtime for nonprofits or small businesses.

One of the questions I’ve heard the most is whether there is a nonprofit or small business exemption from payment of overtime. The short answer is no, there are no blanket exemptions for nonprofits or small businesses. All employers must first evaluate FLSA applicability under the enterprise coverage test, and then, if not covered on the enterprise level, the individual coverage provisions for employees engaging in interstate commerce. At the individual level, the FLSA will cover employees during weeks in which they engage in interstate commerce, which is very broadly defined. Interstate commerce can include sending emails or making phone calls across state lines, ordering from the internet, receiving or handling goods shipped across state lines, sending or distributing mail, and processing credit card transactions.

A covered enterprise is a business involved in interstate commerce and the business’s gross annual revenues are at least $500,000. If a business meets both tests, then all employees working for the business are covered, regardless of whether they ever engage in interstate commerce. Notwithstanding these limits, the FLSA also automatically covers some businesses, such as schools, hospitals, nursing homes, or other residential care facilities as well as all governmental entities (regardless of the level of government), no matter how big or small.

Limited exemptions for overtime exist for certain industries or establishments. The best practice here is to obtain legal advice before applying them to your organization.

3. Overtime exemptions are based on job duties, not strictly on salary level.

According to overtime law, White-collar exemptions from overtime are based on much more than pay. Simply paying an employee a certain salary does not automatically exempt an employee from overtime eligibility. However, the duties tests for exempt white-collar employees can set a high bar for the employee’s level of responsibility, discretion, and/or education. Remember that exemptions from overtime only apply to white-collar workers who perform office or non-manual work. Blue-collar workers who perform manual work are eligible for overtime regardless of pay and job duties.

Primary exemptions for overtime include executive, professional (teachers, doctors, lawyers), administrative (NOT office workers), computer (programmers), and outside sales. This is a focus on an employee’s primary job duty, not their job title.

4. Overtime is paid by pay week, not by pay period.

The Department of Labor says it best: “An employer must establish a workweek (seven consecutive 24-hour periods) and must pay overtime when hours worked exceed 40 in the workweek. The practice of paying overtime only after 80 hours in a bi-weekly pay period is illegal since each workweek must stand alone.”

5. Private employers may not grant time off in lieu of overtime pay to non-exempt employees.

While the practice of granting time off in lieu of paying overtime or ‘comp time’ is allowed for public agencies, the practice is not allowed for private employers. Covered non-exempt employees of private employers and non-profits must be compensated for their weekly overtime work with 1.5 times their regular rate of pay.

6. Employees must be paid for working unauthorized overtime.

Employers must pay employees for any and all time they are aware that an employee worked, even if the work was unauthorized. Organizations should address unauthorized overtime through the disciplinary process.

7. Overtime is paid based on hours actually worked.

If an employee is paid for time which she or he does not actually work, that time need not be counted as hours worked for purposes of calculating overtime pay. For example, if an employee works 40 hours in a week and then uses eight hours of vacation time in the same week, the employee would be paid for a total of 48 hours, but no overtime would be due since the employee did not physically work more than 40 hours.

If you have unusual pay types, read up on what is considered hours worked. For example: on call time, waiting time, or time to change clothes. Make sure you know what actually counts as hours worked.

8. Overtime cannot be waived by contract or agreement.

Overtime pay is a provision which cannot be waived, modified, exchanged, or deferred by mutual agreement or contract. The obligation remains under the law outside of any formal or informal employment agreement.

Also, be cautious regarding classifying individuals as contractors versus employees. If you have a contractor that really should be an employee, you have a little more liability when it comes to tracking their overtime.

9. Recordkeeping is a regulatory requirement.

The FLSA overtime requires organizations to keep certain records for non-exempt employees, including the number of hours worked each day. We recommend you keep these records for at least three years. Find out more about recordkeeping requirements.

10. Overtime is paid based on an employee’s regular rate of pay.

We saved the trickiest part for last. FLSA overtime regulations require that overtime be paid at one and one-half times an employee’s regular rate of pay. However, the definition of regular rate of pay goes beyond the base hourly wage for a non-exempt employee. The regular rate of pay is calculated by dividing all earnings for the week by the number of hours worked (excluding items such as expenses, discretionary bonuses, pay for non-working hours, and certain gifts). For example, should a non-exempt employee receive commission payments, those payments must be factored into the regular rate of pay for purposes of determining the overtime pay rate. This may also apply when an employee earns wages at two different pay rates in the same workweek or when an employee is paid by the piece rather than by the hour. In all cases of determining regular rate of pay, the critical piece is having an accurate count of hours worked in each pay week.

This general summary of federal overtime provisions should help you navigate the most immediate concerns and questions of your organization, but we know we’ve only scratched the surface. This information is not intended to be used as legal advice, so please consider how your organization is affected and whether any industry-specific exceptions or additional state regulations apply.

What component of overtime regulations could your organization use the most help with?

Sarah Charlier

As a HR Services Supervisor for Oasis, a Paychex® Company, Sarah Charlier engages directly with Presidents, CEOs, and Executive Leadership in organizations to identify and execute strategic human resources initiatives. She serves as a business partner by leading executives and managers through employee relations issues, technical labor law compliance, preparing managers to effectively manage employee performance, and creating and adapting HR processes to best serve the organization.


February 5, 2018

Posted by

Sarah Charlier